Could Increased Sales Tax Cause More Bankruptcies? Raleigh Bankruptcy Attorney Says Yes Skip to main content

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Could Increased Sales Tax Cause More Bankruptcies? Raleigh Bankruptcy Attorney Says Yes


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With the recession still going strong, home values depressed and foreclosures still a concern, the last thing North Carolina consumers need are more taxes, but that’s just what our state legislators are plotting. Historically, sales taxes have been charged primarily on goods, and not on most services. But now many cash-strapped states are reconsidering taxing services as an easy way to raise big money. What will this mean for already debt-plagued consumers? Nothing good. Could it increase the number of bankruptcies in North Carolina? Possibly.

Hawaii, New Mexico and South Dakota currently impose a sales tax on all services provided. But in North Carolina, as in many states, few services are subject to sales tax. Republican legislators have proposed the sales tax on over 170 different services including pool cleaning, haircuts, manicures, pool cleaning and arcade games. But it won’t be the businesses that will be taxed – it will be consumers. Depending on the corresponding cut proposed in income taxes, this could be a break-even or a worse situation for many North Carolina taxpayers.

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Many service workers whose industry relies on tips as part of their compensation worry that implementing a sales tax will lower their tips. That and a predicted lessening in those who use services due to the new tax could mean an appreciable hit to service industry wage earners. This could lead to increased bankruptcy filings if these workers are already plagued by debt and are pushed over the edge by this new sales tax.

Senate leaders say they want to eliminate all income taxes – this could be a good thing. But if other taxes are increased disproportionately to the amount of income tax decreases, this will be a bad thing for most NC taxpayers. Consider those we wrote about this week that are already paying disproportionately high electric bills – this may be the straw that breaks these families’ finances!

So what’s the determining factor for which services will be subject to sales tax? Lawmakers are looking at making taxable any service that is taxable in another state. By looking at all of the different sales taxes charged in every other state (some which have none – some which have a lot), legislators will make North Carolina the costliest states when it comes to sales tax on services. Again, this is a tax on consumers that use services, not on the businesses that provide them. Businesses only collect sales tax from us – they don’t pay it. These increases will be 100% on consumers – many of whom are already struggling with debt. And this follows just after North Carolina pushed through an online sales tax to already take more out of our pockets.

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On the list: car washes, landscaping services, pet grooming, bowling alleys, dating services, water services and professional services including accountants, lawyers, physicians, psychologists and veterinarians. The estimated total of tax revenue from services will be over $2 billion annually out of NC consumers’ pockets. Perhaps our state lawmakers need consider data analytics to try and make better decisions that will not be so disastrous for citizens…

North Carolina currently taxes 30 services, but the proposed legislation would increase this by over five-fold. But what’s concerning is that there are two different explanations for this proposed tax change that seem to be at odds. Lawmakers say that they are increasing the sales taxes to offset proposed decreases in state income taxes. But then State Senator Bob Rucho said that this change is necessary because our buying habits have changed, which has decreased the sales taxes collected.

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His take is that two-thirds of household consumption is non-taxable services and just one-third is taxable goods which is reversed from decades ago. While Rucho may be on the mark about the change in spending habits, the two explanations given seem quite contradictory. How can the increased sales taxes on services both compensate for a drop in income taxes and for the drop in sales tax revenues? Simply, it can’t.

This is a tax increase that will likely not have a comparable offset. North Carolina may well be cash-strapped due to lessened sales tax revenues, but its citizens are at least (if not more) cash-strapped themselves and any more out of pocket and an increase in bankruptcies and foreclosures is a likelihood. That’s not a good trend for our state.

If you are entrenched in debt and are unable to make your monthly payments or are barely scraping by, consider consulting a reputable North Carolina bankruptcy attorney to see if a Chapter 13 or Chapter 7 bankruptcy could help you regain your financial footing.

Dedicated to helping residents of North Carolina find the best solutions to their debt problems. Don’t waste another day worrying about your debt. Call +1-919-646-2654 today to schedule a free initial consultation to discuss your bankruptcy options.

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