Legislative Newsletter-April 2016 Issue
Laundry Sales Tax Expansion Threat Widespread in 2016
While 2015 saw the number of states requiring sales tax to be collected on self-service laundry services shrink to just three with Iowa’s hard-fought repeal, this year has been very active with nearly a dozen states putting sales tax expansion under consideration.
Many states are looking to an expansion of the sales tax base by removing existing exemptions as a manner of tax reform that could both raise tax revenues and also pave the way for tax relief in other areas such as corporate or personal income taxes. While those reform goals may be welcome to many, the wholesale removal of exemptions would deeply impact the self-service laundry industry with the effect of a gross receipts tax equal to the going rate for sales tax on laundromat owners.
The Coin Laundry Association and its affiliates continue to make the case that self-service laundry is uniquely qualified to maintain its exemption based on the fact that it is a vended transaction, making precise collection impossible. Furthermore, the nature of the service and the customers who use it would result in a new tax on the lowest income households, which are utilizing an essential service for their families’ health and well-being.
Laundry owners in Pennsylvania have gotten a temporary reprieve, as the nine-month budget standoff has ended with no sales tax expansion. However, attention will soon turn to the 2017-18 budget, with some experts predicting a shortfall as high as $2 billion.
In Illinois, the budget stalemate heads into its tenth month, with the possibility of sales tax expansion still in the mix. The state’s CLA affiliate remains active in pushing budget negotiations away from sales tax expansion on self-service laundry. For Chicago-based laundry owners, the sales tax rate would be a whopping 10.25 percent. These efforts are expensive and store operators across the state must continue to contribute to help defray the costs of representation on this critical issue.
Some of the “usual suspects” that have seen near-misses in recent years on sales tax expansion are active once again in 2016, including California, Louisiana, North Carolina, Kentucky and Connecticut. The latest intelligence indicates that self-service laundry may be spared this year but continued diligence is required to ensure a positive result in these states where sales tax expansion has become a regular focus for legislators.
In addition, a few new states have entered the arena this spring. Sales tax expansion has become part of the debate in Missouri, Indiana, Arizona and Alabama this year. The CLA is closely watching the developments in these states and will keep laundry owners apprised of any immediate threats to the exemption for self-service laundry.
More than ever, it’s important for laundry owners to remain vigilant and active where sales tax expansion is under consideration. With the CLA, there is strength in numbers – both for lending a collective voice and for raising the funds necessary to mount the lobbying campaigns needed to protect our industry. All store owners nationwide are encouraged to contribute financially to the CLA’s Stop Laundry Tax efforts today. To lend your support, visit: coinlaundry.org/advocacy/stop-laundry-tax.
Drycleaner Arrested for Failing to Pay Environmental Surcharge
In news that could directly impact self-service laundry owners who partner with Connecticut-based drycleaners for their drop-off services, a Connecticut drycleaner recently was arrested and charged with eight counts of failure to pay the state’s 1 percent environmental surcharge for the Connecticut Cleanup Fund.
For the past two years, the Connecticut Department of Revenue has warned the drycleaning industry that it will be “aggressively searching for non-filers and companies under-reporting,” according to a recent newsletter published by the North East Fabricare Association.
“We have been working as a liaison between the DECD, the DOR and the industry in Connecticut to try to fix some of the complex issues the fund has been facing,” said Peter Blake, NEFA executive vice president. “The department has laid out enforcement strategies, including penalties for non-payers and retroactive payments with interest. We have never discussed criminal filings or the potential for arrests, but by statute, that has always been a possibility.
“This should serve as the sternest of warnings to all members of the drycleaning industry: make sure you are compliant and do it now,” Blake continued. “This means all drycleaners, laundromats that take in drycleaning, tailors who offer drycleaning – everyone that offers drycleaning to the retail customer – is required to pay the fee. Even if the processing is done out of state, but the retail location is in Connecticut, you are required to comply.”
The NEFA is working with business owners who feel they may be in danger of non-compliance. There is an amnesty-type approach available to drycleaners, in which they would be responsible for repayment of any missed taxes plus interest – but with no penalties.
“If the DOR audits you and finds non-compliance, it can go back much farther than it will if you voluntarily report, and will impose severe penalties,” Blake explained. “This has gotten very real, and we want to help all of those who are in potential jeopardy.”
Oregon Passes Landmark Minimum-Wage Law
Oregon Gov. Kate Brown has signed a bill enacting a double-digit increase in the state’s minimum wage, a boost that could give the state the highest minimum wage in the U.S. by 2022.
In addition, this landmark minimum-wage law makes Oregon the first state in the nation to mandate higher pay in cities than in rural areas.
The law will enact a series of minimum-wage increases through 2022 with the pay hike set to reach $14.75 an hour in Portland – one of the highest minimum-wage rates in the U.S. The minimum wage will increase to $12.50 in sparsely populated rural areas, and $13.50 in other rural parts of the state. Oregon’s current minimum wage is $9.25 an hour – and the first hike kicks in July 1.
About 100,000 workers earn minimum wage in Oregon, which supporters of the bill say can make it difficult to afford housing, food, childcare and other goods and services. Critics of the law say increased payroll costs will result in layoffs, ultimately hurting the state’s economy.
According to a Wall Street Journal report, Gov. Brown called the law her “top priority of the 2016 legislative session” and “a path forward – so working families can catch up, and businesses have time to plan for the increase.”
Business groups had opposed the law, saying the approach will produce new headaches and uncertainties.
Of course, the debate in Oregon mirrors a national debate about the $7.25 federal minimum wage.
Gov. Brown likely hasn’t heard the last from business owners, who complain the law creates uncertainty and handicaps the state’s ability to compete in some industries.
Sandra McDonough, chief executive of the Portland Business Alliance, said the legislation creates too much of a difference between the Portland area and rural parts of the state. The agricultural industry will be particularly hard hit, she said, competing with neighboring Idaho that has a lower minimum wage.
Anthony K. Smith, Oregon director of the National Federation of Independent Business, said the group fought hard to defeat the legislation.
“From our perspective, it is not a compromise,” he said. “This is going to be bad for business across the board.”
Florida’s Drycleaning Tax: An Update
In 1994, the Florida legislature established the Drycleaning Solvent Cleanup Program to fund the cleanup of property contaminated by drycleaning or wholesale supply facilities. Currently, there are 1,422 property sites that are eligible for cleanup under the program, which is administered by the Department of Environmental Protection.
One of the revenue sources funding the program is a 2 percent drycleaning gross receipts tax. The tax is imposed on drycleaning and drop-off drycleaning facilities that charge their customers for drycleaning or laundering clothing or other fabrics using drycleaning solvents.
The drycleaning gross receipts tax is imposed on the business, not on the consumer. However, if the business chooses to include any portion of the tax in the retail charges to customers, the following statement must be included on the customer’s receipt: “The imposition of this tax was requested by the Florida Drycleaners Coalition.”
The 2 percent gross receipts tax does not apply to coin-operated laundry machines, coin-operated drycleaning machines (unless operated at a drycleaning facility) or wash-dry-fold laundry.
However, businesses that are required to pay the 2 percent drycleaning gross receipts tax must be registered with the Department of Revenue. Businesses that are not registered or whose registration has been cancelled or inactivated can register to report and pay the tax through the department’s website at www.myflorida.com/dor.
Some Florida drycleaning and drop-off drycleaning facilities may be unaware that they are subject to this gross receipts tax. Those who think they owe taxes can take advantage of the state’s Voluntary Disclosure Program, which allows one to report previously unpaid tax liabilities. It’s an opportunity to voluntarily pay taxes due and, in most cases, penalties are waived. Under this program, the department will look back three years from the postmark date of the voluntary disclosure request. For more information, call the Voluntary Disclosure Unit at (850) 617-8552. And, for further details about the Drycleaning Solvent Cleanup Program, visit: http://www.dep.state.fl.us/waste/categories/drycleaning/.
State Budgets: Which States Are Coming Up Short?
Which states have budget deficits – and how big are those shortfalls?
It turns out that these questions are difficult to answer. According to MultiState Associates, reliably reporting on or projecting state deficits (or surpluses) on a national level is a massive undertaking. There are three main reasons for this: (1) the data is not centralized within states; (2) the data is not consistent between states; (3) the data is inherently misleading.
The first problem results from the fact that, in many states, there is a not a single agency or entity responsible for reporting on or forecasting all revenues. Even if limited to general fund revenues, there are still often multiple sources for receipts and forecasts in a state. A good example of this issue is Colorado, where five different deficit numbers were cited by media from multiple agencies over the course of a few months.
The second problem is obvious – every state counts differently.
And the third may be the most problematic. It’s common to hear that a state’s deficit is “roughly half of what it is reported to be.” The reason for this is that baseline spending growth forecasts in many states are always higher than what is actually appropriated. In other words, the built-in year-to-year upward spending adjustment is routinely reined in by the legislature, through good and bad revenue years. Thus, even the most robust revenue year could show a “deficit.”
In addition, media reports on budget shortfalls often don’t clarify whether the number is for the current fiscal year or the upcoming fiscal year. This distinction is important. A current fiscal year deficit is often referred to as a “mid-year” deficit or shortfall associated with the budget that’s already been enacted. An upcoming fiscal year deficit is referring to a predicted shortfall for the next fiscal year for which lawmakers are currently planning. Of the two, current year deficits are more “real” in that they ordinarily must be corrected through immediate expenditure reductions or fund shifts. Future year deficits are commonplace and resolved through the budget process.
On top of this common confusion, spending and revenue projections are repeatedly updated over the course of a year, so it’s often difficult to know which budget projections news coverage is citing.
Despite this ambiguity, it’s still instructive to consider general trends on how state budgets are faring, and it also provides an opportunity to explain the challenges associated with state budget deficit numbers cited in the news. With that said, here are 16 states with FY 2016 and/or FY 2017 budget shortfalls, according to MultiState Insider:
Alaska (the state has a biennial/two-year budget)
• Upcoming Fiscal Year Deficit (FY 2017): ranging from $3.5 billion to nearly $4 billion
Connecticut (the state has a biennial/two-year budget)
• Current Year Deficit (FY 2016): $7.1 million to $20 million
• Upcoming Fiscal Year Deficit (FY 2017): $500 million
Illinois
• Current Year Deficit (FY 2016): $6.2 billion
Kansas
• Upcoming Fiscal Year Deficit (FY 2017): ranging from $175 million to $190 million
Kentucky (the state has biennial/two-year budget)
• Upcoming Fiscal Year Deficit (FY 2017): $279 million
Louisiana
• Current Year Deficit (FY 2016): ranging from $750 million to $900 million
• Upcoming Fiscal Year Deficit (FY 2017): ranging from $1.9 billion to $2 billion
Maine (the state has a biennial/two-year budget)
• Current (FY 2016) and Upcoming (FY 2017) Fiscal Years are reported together, with a combined deficit of $460 million
Massachusetts
• Upcoming Fiscal Year Deficit (FY 2017): $635 million
Nebraska (the state has a biennial/two-year budget)
• Upcoming Fiscal Year Deficit (FY 2017): $200 million
New Mexico
• Upcoming Fiscal Year Deficit (FY 2017): $800 million
Oklahoma
• Upcoming Fiscal Year Deficit (FY 2017): $900 million
Pennsylvania
• Current Year Deficit (FY 2016): $318 million
• Upcoming Fiscal Year Deficit (FY 2017): $1.9 billion
Vermont
• Current Year Deficit (FY 2016): $40 million
• Upcoming Fiscal Year Deficit (FY 2017): ranging from $58 million to $90 million
West Virginia
• Current Year Deficit (FY 2016): ranging from $353 million to $384 million
• Upcoming Fiscal Year Deficit (FY 2017): $466 million
Wyoming (the state has a biennial/two-year budget)
• Current Year Deficit (FY 2016): $159 million