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Tuesday, February 2, 2010

AB 1178 Sales Tax Exemption on Textbooks - Wrong Way to Go!

AB 1178 has passed in the Assembly and gone to the Senate. This is too bad for good tax policy. AB 1178 includes a state level sales tax exemption for textbooks and supplies purchased by a student of a UC, CSU or community college between July 1, 2011 and December 31, 2014. [Click here for Board of Equalization analysis of AB 1178.]

The problems:

1) Makes the tax laws more complex: Can you imagine the complexity involved? Stores will have to verify that the buyer is a student in a public higher education institution and that the items are for school. And the store must still charge the local sales tax. This really complicates compliance for sellers of books and supplies - and that's a lot of businesses (college bookstores, Office Depot, 7-11, Costco, Borders, Safeway, etc.).

What if a student at a private college also takes a course at a public university? They will have an ID card from the public university. Is the store required to review their course syllabi or get a note from the professor to verify what is required for a class?

What if the supply is an iPod which will also be used personally?

This is NOT the way to write a tax law. Whenever there are special exemptions, rules are needed to define who gets that exemption and what exactly is exempt. That is complicated for both vendors and tax administrators.

2) Savings might not all go to the student: While the sentiment behind the bill - reduce cost of textbooks sounds good, it won't work. When stores are setting their prices, they are most likely to factor in that the students won't have to pay state sales tax on the item, so they can increase the price of the textbooks a bit.

3) Equity issue: Many students can easily afford textbooks and sales tax. This partial exemption doesn't factor in the income of the buyer. So, even wealthy students get a tax break.

4) Not needed: Students usually have lower cost options for acquiring books. Many find great deals online. Often they can buy a used book. They might also share a book and some schools have book rentals. Also, if a student in California gets an electronic copy, our sales tax already exempts that book (which is a flaw in the law).

5) Dishonest budgeting: This is deceptive by lawmakers. If they are concerned about costs for students in public higher ed, they should increase the funding that goes to these organizations so that fees do not need to be increased as much, so students can graduate earlier because more courses can be offered, etc. When lawmakers already control the funding of higher ed, there is absolutely no need to create a complicated, inequitable and unnecessary tax rule to reduce costs for students. They should use the budget line item instead.

I hope this bill is defeated by the Senate and if not, is vetoed by the Governor. Let's not make the California tax system worse than it needs to be and let's encourage legislators to reduce costs for college students by increasing funding for the UC, CSU and community colleges by an amount equal to the estimate of the tax dollars that would be lost from this inappropriate exemption.

Note: At least 9 states have exemptions for sales tax. I found a list at the Barnes & Noble website, which also includes instructions to student buyers that indicates the compliance complexity of such an exemption - here (see bottom of the page).

What do you think?


Kris said...

So speaks a non-student who is not struggling to pay for college textbooks. I just ordered a $158.38 textbook and had to pay an additional $13.07 in sales tax. By the time I have all my textbooks I'll pay an extra $100 minimum to the state for the "privilege" of attending a state college. Textbooks should be exempt from sales tax just as other things, such as some foods, are now.

Professor Nellen said...

Kris, thanks for the comment. I was a struggling student for many years, paying my own way. A better solution would be to use the tax dollars to provide aid for students in need. To instead give a tax break to all students regardless of need is a misuse of dollars. I encourage you to also ask why the textbooks cost so much?