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Senate Bill 8, which was introduced in December, would add a sales tax on services.

For example, when you take your car to Del Mar Automotive now for repairs you pay sales tax on the parts used but not on the labor to diagnose or install parts. Likewise, the plumber that comes to your house to replace your water heater will add sales tax on the water heater but not on his labor to install it.

This bill would tax all that labor, plus other services such as hairdressers, gyms, gardeners, housekeepers, veterinarians, etc., if those businesses exceed $100,000 in gross sales.

There is a lot of language in the bill that attempts to justify the conclusion and you can click on this SB8 link for those details. What follows is the concluding language listing the three goals of the bill (highlighting and underlining are mine):

The Upward Mobility Act seeks to make three broad changes to the tax code:

  1. Broaden the tax base by imposing a sales tax on services to increase revenues. Local jurisdictions would not be authorized to increase sales tax on services, as they now can do with the sales tax on goods. Though the new revenues would be collected by the state, the ownership of those funds allocated to local government under this measure will be controlled by local government using traditional allocation mechanisms. Health care services and education services would be exempted from the tax, and very small businesses with under $100,000 gross sales would be exempted from the sales tax on services.
  2. Enhance the state’s business climate and incentivize entrepreneurship and business creation by evaluating the corporate income tax to determine whether it is meeting its intended purposes, including whether it is born equitably among California’s businesses and what impact it has on the business climate, while at the same time linking changes to a more reasonable minimum wage.
  3. Examine the impacts of lowering and simplifying the Personal Income Tax while maintaining progressivity. The measure’s goal is to reduce the income tax rates imposed under the Personal Income Tax for low-and middle-class-income households so that families earning $100,000 pay only $1,000. The income tax rate for top earners may also be reduced in a manner that balances fairness with mitigating adverse impact to both state revenues and competitiveness. The obligation of top earners with regard to other tax obligations for top earners, including Proposition 63, would remain intact.

In order to ensure fiscal responsibility, the Upward Mobility Act’s revenue reduction provisions would be phased in only when it is clear that new revenues are sufficient to replace any revisions to the personal income tax and corporate tax.

So, as I read it, the bill would impose a sales tax on services, evaluate possible changes in the corporate income tax and examine the impacts of lowering the personal income tax. And no revenue reduction would occur until it is clear that new revenues are sufficient.

Wimpy, a character in the old Popeye comic strip, said “I would like a hamburger today for which I will gladly pay you Tuesday”. Sacramento wants more tax revenue today for which they will gladly lower other taxes on some undetermined Tuesday.

While it is being promoted as tax reform, what we see in this bill is anything but. Its only promise is to raise taxes with only an ephemeral suggestion that other taxes might be lowered in the future. That dog won’t hunt.

We encourage you to contact your legislators in Sacramento and let them know how you feel about SB 8.

You can find your legislators at http://www.legislature.ca.gov/legislators_and_districts/legislators/your_legislator.html. You can copy and paste the link into your browser if it doesn’t work.


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