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On Monday leaders in the House of Delegates held a hearing on proposed legislation to expand the state’s sales tax to professional services as a way to bring in billions more to pay for reforms in public schools.

This piece of legislation would lower the sales tax from 6% to 5% but would expand that 5% sales tax to everyday services that have never been taxed before: legal services, accounting services, realtor services, home improvement, day care providers, gym memberships and auto services—just to name a very few. This would impact the consumer and create an additional administrative burden to small businesses.

In the Senate, where leaders are considering paying for the education overhaul by increasing the cigarette tax, allowing sports betting, and taxing digital downloads and digital ads, there has been a wait-and-see attitude on the sales-tax expansion proposal.

If passed, the act would take effect January 1.

Currently five states broadly tax services: Hawaii, New Mexico, South Dakota, Washington and West Virginia. Numerous other states, including Pennsylvania and Michigan, have tried to impose such a tax but have been mostly unsuccessful, according to the National Conference of State Legislatures. Some others, including Connecticut and North Carolina, have taken incremental steps to tax the purchase of services.

Katzabosch will continue to monitor this legislation and keep you posted on its developments and how it may impact you.

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