Proposed Sales Tax on Car Washes

So I spent the better part of last Monday in Hartford at the capitol (a beautiful building by the way if you've never visited) testifying before the finance committee against the imposition of sales taxes on car washing here in Connecticut.  It was an interesting day, to say the least, hearing about the ramifications certain taxes would have on the various industries that operate in Connecticut.

Let me preface this by saying that I fully understand the dire straits that the State is currently in and the size of the deficits that we face not only this year but for the next two if estimates are correct.  The question raised by many, including me, was what is the net benefit of the new sales tax after you subtract out ramifications of its implication.

For instance, a sales tax effectively raises the price of the services or products you buy.  If my Economics 101 professor was right, he taught us that raising prices usually coincided with a drop in demand.  So, if he is right, the sales tax would effectively lower demand for services now being taxed.  This in turn would cause a company like ours to need less labor because we were doing less cars.  This would cause higher unemployment claims by those laid-off workers, who in turn would buy less taxable services and products and pay less income tax, thereby offsetting some or all of the new sales tax.

Additionally, the business owners would make less money on the lower volume and would similarly buy less service and products and pay less income taxes - again an offset.

But there's a larger problem.  The car wash industry in the Northeast has been plagued over the past few years by the two-fisted assault of both the economy and the weather.  There are six car washes that have closed over the past few years, a similar number that have gone through foreclosure, bankruptcy or eviction, and several more that are teetering on the edge might be pushed over.  I'm sure that this is not the Governor's intent as he tries to wrestle with a challenge of epic proportions.  But I strongly feel that the new sales tax is not completely a "shared pain" and that some will be more effected than others.

It's the law of unintended consequences - the solution to one problem may lead to a larger one.  My feeling is that this tax will provide little relief in actuality while forcing many small businesses to close. 

We have a petition at our full service sites if you're inclined to agree that we will submit to the Governor in a few weeks.