Struggling Businesses Would Be Hit Hardest

$1 Billion Tax on Business Services

BATON ROUGE — To help offset the repeal of state personal and corporate income taxes, Gov. Bobby Jindal is proposing an all-new
$1 billion tax on professional services, business services, and personal services at the rate of 5.88 percent of gross sales. Now some small business owners are wondering how that would help them.
On Monday, Department of Revenue Secretary Tim Barfield said, “It’s very clear that business will be taking more of this burden.”
One Baton Rouge businessman agreed Tuesday, saying he would be paying more — much more — under the Jindal plan. “With the state corporate income tax, I pay 4 to 6 percent of my net profit to the state in corporate income taxes.  But under this proposal, I would pay 5.88 percent of my gross revenues to the state.  Do you realize the difference?  My gross revenue is $1 million a year, but my net profit is only $75,000.  Under this, I’d pay $58,800 in new business services taxes on my revenue, but that’s not the end of it.  As I read the proposal, I’d also pay 5.88 percent on all the business services that I purchase.  Out of our expenses, I’d estimate that about $250,000 would be subject to the business service tax.  So we would pay 5.88 percent times that amount, or around $15,000.  Altogether, my tax bill would go up $73,800.”
“So here you are.  I’m making $75,000, and I’d be paying $73,800 in new taxes.  I’d be better off moving to France!” he said.
Because of the bad economy, many if not most small businesses in the state are struggling, but the new tax on professional, business, and personal services would apply to all businesses, whether or not they were making money.  The tax would be applied against their gross revenues, just as the current sales tax is applied against purchases of tangible products.
Highly profitable businesses might save more in income taxes than they pay in the new service tax, but other businesses could come out far behind.
Opponents of the new plan say that business-to-business services should not be taxed because they cannot be readily passed along.  They say such taxes result in double, triple, and quadruple taxation.