Tuesday, January 27, 2009

SACRAMENTO, Calif. | Golf course owners and some of their customers are teed off at Gov. Arnold Schwarzenegger. So are veterinarians, auto mechanics and amusement park operators.

Their anger is directed at the Republican governor’s proposal to extend the state sales tax to cover more services, an idea that has surfaced in other states as they race to plug crippling budget deficits. The Center on Budget and Policy Priorities, a research clearinghouse, predicts such deficits nationwide could reach $350 billion by 2011.

In California, Mr. Schwarzenegger wants to help close a nearly $42 billion budget deficit by taxing rounds of golf, auto repairs, veterinary care, amusement park and sporting event admissions and appliance and furniture repairs.

New York Gov. David Paterson, a Democrat, has proposed levies on MP3 downloads, taxi rides, movies, concerts, sporting events, and personal services such as haircuts, manicures and massages.

Utah Gov. Jon Huntsman Jr., a Republican, has shelved a proposal to tax attorney and accounting services but promises to bring it back next year.

Service taxes in other states include levies on pet grooming, water well drilling, fur storage, massages, shoe repairs, swimming pool cleaning, taxidermy, and dating and diaper services. But that doesn’t make the groups affected by Mr. Schwarzenegger’s proposal feel any better.

“We’re old and retired. We don’t need any more taxes,” said Fred Mayers of Sacramento as he played golf recently at a public course in the state capital. “The only luxury we have is playing golf. They can’t charge us any more.”

Scott Pattison, executive director of the National Association of State Budget Officers, said more states could be looking at service taxes as they get deeper into legislative sessions.

“It’s one of those things that’s so politically difficult and controversial that it’s usually one of the last proposals that’s floated,” he said.

California already taxes some services, including gift wrapping, tuxedo rentals and video rentals for home use. But virtually every other state applies its sales tax to more services, said Jean Ross, executive director of the California Budget Project, a Sacramento think tank.

The tax on services is part of $14.3 billion in hikes Mr. Schwarzenegger has proposed to help close a budget deficit that’s projected to total $41.6 billion over the next 17 months. He also is seeking $17.7 billion in spending cuts and $10 billion in additional borrowing.

In addition to the service tax, Mr. Schwarzenegger proposes raising the sales tax by 1.5 percent through the end of 2011, boosting taxes on alcoholic drinks, increasing the vehicle registration fee by $12 and taxing companies that extract oil.

Local sales taxes in California range from 7.25 percent to 9.25 percent, varying from county to county and even from city to city. A 1.5 percentage point increase would boost the rate to nearly 10 percent in many areas of the state.

Republican lawmakers have refused for months to consider raising taxes but recently indicated a willingness to consider hikes if they are tied to tough spending controls.

Mr. Schwarzenegger and lawmakers have little time left to strike a deal. The state controller has said he will have to delay tax refunds and some other payments for 30 days starting Feb. 1 because of a cash shortage. The governor also has ordered tens of thousands of state employees to take two days off a month without pay, starting Feb. 6.

“There’s no good time to raise taxes,” said H.D. Palmer, a spokesman for Mr. Schwarzenegger’s Department of Finance. “This is not something that the governor is putting forward because he enjoys it.”

The affected industry groups say they are being unfairly targeted and that similar businesses are exempt.

“You don’t see a tax on movies,” said Bob Bouchier, executive director of the California Alliance for Golf. “You don’t see a tax on bowling. You don’t see skiing. You don’t see a tax on any other sport.”

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