Thursday, September 02, 2010

Why The Knee-Jerk Over Entertainment Tax Reform?

It is as humorous as it is disturbing to watch some entertainment businesses knee-jerk about a tax reform proposal in the North Carolina General Assembly to eliminate a 3% gross receipts tax on admissions and substitute a regular sales tax instead.430px-Seppuku-2

Entertainment/Admission businesses like sports teams and theater owners/operators are an important segment in the tourism sector and I have many friends there (tourism is not an industry but a sector involving 6 or 7 different industries including entertainment.)

I know some who are cringing but in silence at this embarrassing public knee-jerk over something that will actually be to their advantage.

Entertainment/Admission businesses, by the way, have never been shy about proposing taxes on customers of other kinds of businesses to pay for their facilities.

But many are notorious for threatening seppuku (ritual suicide) if they themselves are asked to collect a “user” tax from the actual patrons who use their facilities.

Yes, that’s extremely hypocritical and some of these same folks stood by while others spread fear and misunderstanding among Durham restaurateurs a few years ago by purposely fueling the misperception that a proposed prepared food tax would be a gross receipts tax.  Of course, it isn’t. 

That makes it even more puzzling then that they are now insisting a tax that is in fact a gross receipts tax is preferable to a sales tax.

To my advantage, I was well schooled in the 1970s by business leaders in another city, where I learned that a gross receipts tax is one of the most damaging taxes to which any business can be subjected when one was levied to fund a short-term mega-project there.

Here is the difference between a gross receipts tax and a sales tax:

A gross receipts tax is a tax levied on the total gross revenues of a business, regardless of source.  It is levied on the SELLER, not the buyer.

A sales tax is a consumption tax, not a tax on the business itself.  It is charged at the point of purchase and merely collected from the buyer by the seller who remits it to the governing agency to fund services used by both.

Sales tax has been proven in studies to be associated with economic growth, gross receipts tax has been associated with cascading or pyramiding that isn’t good for growth (read links above.)

The move by the North Carolina General Assembly is a no-brainer and these businesses should stop whining and direct any influence to how the resulting revenues will be deployed.  On second thought, if they think it the status quo is so great, maybe the State should just double and triple the “gross receipts” tax on the whiners!  Couldn’t happen to be more worthy bunch!

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