Economic Aspects of Taxing Services**

broadly during the 1930s depression and At least seven states have acted within was imposed mostly on goods. Administhe past three years to selectively tax intrative ease of collecting the tax, and podividual services under the sales tax, and litical advantage led to retailers rather at least ten states have given serious conthan individuals remitting the tax. Over sideration to major base reform. The revtime the tax has slowly been expanded to enue potential of service taxation varies certain services. considerably across states, but in every state Conce.m that taxation of services is inis dominated by construction and business appropriate simply because some portions services; the taxation of personal services of the base differ from a consumption base, offers limited opportunity for increasing or because it results in taxation of busirevenues. Service tawtion may enhance the nesses is a general indictment of the sales adequacy of sales tax revenues, and may tax and not a specific criticism of services discourage development of certain industaxation. The approach of taxing retailers tries; however, the latter effects may be no requires administrative/political decigreater than generating the same revenues sions as to which sales represent conby raising the tax rate. Sales taxation of sumption. First, decisions are made regarding whether to exempt certain types services is generally regressive for incomes less than $30,000 and proportional above. oi consumption from taxation. Musgrave Administrative and compliance aspects and Musgrave (1984) have estimated that these decisions have narrowed the tax base indicate that rate increases may be less o only 37 percent of consumption. Seccostly than base expansion. ond, decisions must be made regarding whether to exempt certain purchases of businesses and other legal entities from