Pennsylvania Closer To Removing Lawn Care Sales Taxes

The confusion surrounding the 1991 law has been cause for state Rep. Larry Curry, D-Montgomery, to propose the removal of sales taxes from all lawn care services seven of the last eight years, according to Michelle Corbin, government relations director for the Pennsylvania Landscape and Nursery Association (PLNA), Harrisburg, Pa. However, this year Curry has been more successful, as House Bill No. 165 repealing sales tax for lawn care services passed the Pennsylvania House June 12, 2001, and is now moving to the state Senate.

SO WHAT SERVICES ARE TAXABLE? The state’s definition of what comprises "lawn care services" is partly to blame for confusion about compliance with the sales tax law, according to Corbin. Originally, she explained, the 1991 law set up several services provided by professionals as taxable, including lawn care services. However, Corbin said "lawn care services" were supposed to include only lawn maintenance services and not landscape maintenance services. "They were going after the big lawn care companies not landscapers," she said.

However, the distinction between the two is not clearly defined, as the law reads that the following services are taxable: "providing services for lawn upkeep, including, but not limited to, fertilizing, lawn mowing, shrubbery trimming or other lawn treatment services." HB165 would remove this section of the sales tax law, such that no lawn care services will be taxable if the law passes the state Senate. Pesticide applications, however, will remain taxable as they fall under a separate, well-defined tax law, according to Corbin.

Corbin sees two main areas that are the most confusing in the current law. The first is the difference between taxable and nontaxable shrubbery trimming. "If a crew only does shrubbery trimming, it is nontaxable," she explained, "but if a crew happens to mow a lawn and trim a shrub during the same trip, that trimming then becomes taxable.

"The other area that gets a little vague is the difference between reseeding an existing lawn and seeding a new lawn," she continued. "If you’re putting seed on a new lawn, it is nontaxable; if you are reseeding an existing lawn, it is taxable. The problem is it’s very unclear what is a new lawn vs. what is an existing lawn." She said the Department of Revenue considers a new lawn one that needs to be established due to building construction. For example, if a homeowner adds a garage to a house and the construction damages the lawn, the subsequent lawn establishment is considered new and is nontaxable. However, suppose a utility company tears up part of a lawn to add a sewer line. In this case, the Department of Revenue considers the subsequent lawn establishment to repair the damage a reseeding project, and it is taxable.

The law is even more confusing for industry suppliers, Corbin said, because under Pennsylvania law, a contractor’s job material purchases are tax exempt if the contractor passes that tax on to his or her customer. For example, a contractor buying seed for a reseeding project buys seed without paying tax and then taxes his or her customer after completing the reseeding. "Suppliers actually have to ask, ‘Are you going to use this grass seed to newly seed a lawn or reseed a lawn?’ and then they have to charge tax on the seed based on the response they get back," Corbin noted.

"You need to be a lawyer to truly understand what is taxable vs. what is nontaxable," Corbin continued. For that reason, PLNA worked with the Pennsylvania Department of Revenue to adjust the wording of law, and those changes went into effect last August (see sidebar below). However, Corbin admitted that the language is still confusing and may make compliance even more difficult. "We were trying to make some gray language a little more black and white," Corbin said about the wording changes. "Now we feel we’ve exhausted all of the necessary steps to try and make [the law] work."

TAX REPEAL WOULD LEVEL COMPETITIVE FIELD. "There’s probably almost as big of an industry outside of the compliant industry that does lawn care that aren’t in compliance with any Pennsylvania law," Corbin noted.

Non-compliant companies include those not registered with the state Department of Agriculture, not charging sales taxes or not paying employee taxes. All of these illegal factors result in lower operating costs for non-compliant companies, and therefore, result in unfair competitive pricing advantages for non-compliant companies compared to compliant companies. Even if two companies charge the same price for a service, customer savings can exist if one company does not charge sales tax when it should.

The Department of Agriculture requires any company selling nursery products - which includes nurseries and landscape companies - to register with the state, according to Corbin. All PLNA members must be registered to join the association, and Corbin said there are roughly 7,000 nurseries and landscape companies registered in Pennsylvania. However, Corbin cannot even guess how many non-registered companies are providing services at lower prices. "There’s just an enormous segment of the industry that isn’t registered and isn’t in compliance with the law," she said.

"Repealing the tax would save our members a lot of grief and aggravation and would put them in pretty fair competition with some of their competitors," Corbin continued. "If you asked our members, it’s not necessarily that they don’t want to pay the tax, they just want to be able to understand how and when to pay the tax, and know that everyone else in the industry is paying the tax."

LOSS OF TAX REVENUE IS BARRIER TO PASSING. Corbin explained that the estimated taxation revenue from lawn care services in Pennsylvania is about $10 million - a small portion of the 2000 fiscal year sales taxes collected of $257 million* for the Standard Industrial Classification (SIC) that lawn care services falls under and a fraction of the more than $7 billion* in overall sales taxes collected by the state for that same period (* Source: Pennsylvania Department of Revenue).

"Lawn care services is actually the lowest collected of all of the state’s taxable services," Corbin said. "It is small on the scale, but [PLNA] members are still out there getting audited for not being in compliance with the law. [The state is] still coming down on our members to make sure they’re in compliance with the law, but there’s this whole other segment of the industry that they won’t even acknowledge exists."

Although small in comparison to the entire collection of sales tax, $10 million is still important revenue, especially with the recent economic downturns. For that reason, Corbin is not overly optimistic about the proposed law passing the Senate. "I wish I had a crystal ball," she said. The bill has been referred to the Senate Finance Committee for review, but with an upcoming summer break for the state legislature, the bill probably will not be reviewed until September at the earliest.

"The Department of Revenue has been very willing to work with us on this issue," said Corbin. "It’s very difficult for them to collect the tax and justify it. I think we’re maybe getting to that point where - and hopefully they’re starting to recognize this as well - that it doesn’t work this way."