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Friday, June 15, 2012

"Is this pointless?" - Question for drafting tax law changes

Sometimes tax law proposals seem to make changes that really don't make any sense if you consider the complexity they would create or the few numbers of taxpayers they benefit. Here are a few examples that come to mind for me:

1. President Obama's FY2013 revenue proposals ("Greenbook") includes a proposal to only let individuals with income under $200,000 ($250,000 if married) keep the current 15% capital gain tax rate (rather than the 20% rate that returns in 2013 (18% for assets held over 5 years)). What is the point? The bulk of capital gains income is attributed to upper income individuals. Why not just have one capital gain rate structure rather than two depending on your overall income level? The benefit to the lower income folks is likely too low to justify the added complexity.  Also, that group of individuals (roughly 98% of individuals) would benefit from some other tax break that would benefit far more of the members of the 98% group.

2. I also saw something that also seems pointless in a California proposal to broaden the sales tax to apply to specified services. This bill, AB 2540 has been changed to a different topic since it was introduced. So if you want to see what I'm talking about, look at the version originally introduced (2/24/12).  I think the "is this pointless" question should be asked for these specified services:
  • (23) High net worth estate planning. 
  • (24) Spa services provided to pets.
  • (27) Pet grooming where the buyer is charged fifty dollars ($50) or more for the grooming.
For the most part, estate planning is only done by high net worth individuals. Trying to define "high net worth" would bring unnecessary complexity to the law.  Just say the sales tax applies to estate planning. This service is also one only consumed by individuals and not businesses, so it is a good one to subject to sales tax.

What are spa services provided to pets (#24)?  Apparently it is something different from #27 on pet grooming.  I have several pets - none have been to a spa. How about yours?  I did a Google search for "pet spa" and found that it covers various care services for your pet including grooming.
"Taylor" - never been to a pet spa.
I hate to see FTB time devoted to defining spa services for pets (should a version of AB 2540 ever be enacted).  I suggest eliminating this one and just defining the taxable class as "all services provided for pets." This also prevents problems of pet spas trying to call services that are under $50 grooming to try to gain tax advantage due to #27 (next). Also, as with estate planning, pet services are something only used by individual consumers and not businesses. (Businesses should not pay sales tax, in order to avoid pyramiding.) 

And #27 - pointless to provide a dollar limit.  When the California sales tax is someday expanded to cover more types of personal consumption and you consume any pet services, they should be subject to sales tax. After all, we don't currently have an exemption for pet food based on the amount you spend each week or the size of your pet. This dollar limit would add unnecessary complexity tied to how the groomer bills and how many services are provided in a short period of time. That is, could the groomer provide a wash for $30, take a break and then provide a trim for $30, another break and then a nail trim for $15?

Do you have any examples of where if someone had asked "is this pointless," a current rule might not have been created?  Or an existing pointless rule that would be good to eliminate or modify?

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