No telling what's taxable (and what's not) in Pa.

HARRISBURG - Your parents didn't pay a sales tax to put you in diapers. Neither will your loved ones when they put you in the ground.

In the half-century since Pennsylvania enacted its sales tax, the state has carved out exemptions for goods and services that run the gamut from cradle to grave.

Typical exemptions are for basic needs - food and clothing. Or caskets and burial vaults, "the final basic necessity," says the reasoning in Gov. Rendell's phonebook-thick 2009-10 budget book.

But as Rendell has pointed out lately, the list includes gold. He promised he would take to a Phillies World Series game anyone who could "give me one plausible reason why we would exempt bullion, gold bullion."

Actually, he should know. He signed the bullion exemption into law on July 6, 2006, as a small part of a much broader bill.

Now, as Harrisburg is poised to balance the budget in part by imposing the sales tax on tickets to plays, museums, concerts, and zoos, the exemption list is coming under scrutiny, and many are wondering why some things are taxed and others aren't.

"A lot of the exceptions make no sense," Rendell said recently, "and are solely the product of effective lobbying by special interests."

The tax-free list includes everything from dry cleaning and basic cable to toothbrushes and trout. And horses - but only if they're destined for out of state.

A trip to the movies tells the tale of the sales tax's patchwork nature. Theaters don't pay the tax on films they acquire to show audiences; neither do moviegoers when they buy tickets. At the counter, popcorn and Pepsi are taxed - but not Dots and Dentine.

"It is a perfect example of how arbitrary the sales-tax structure is," said Sharon Ward, executive director of the Pennsylvania Budget and Policy Center, a liberal-leaning Harrisburg think tank that has studied the exemptions. "It shouldn't have winners and losers. It should be simple and fair."

The bullion exemption was a long time in the making. For years, Pennsylvania coin dealers labored fruitlessly to persuade the General Assembly to lift the sales tax on investment-grade coins and gold bullion.

Then they hired Rosemary Chiavetta.

A former Public Utility Commission lawyer, Chiavetta has been a lobbyist for 10 years and runs a one-woman firm in Harrisburg.

She went to work, and persuaded lawmakers to include the niche industry among the state's sales-tax-free items, a move that will cost the state an estimated $2.7 million this fiscal year.

Chiavetta's argument: Coin dealers were losing business to states that didn't impose the tax. Besides, she contended, it was a matter of fairness.

"People don't buy gold to sit on the table. It's an investment," she said. "It's OK to buy a share of stock without paying the sales tax, but not investment metal. That's not fair."

Pennsylvania began collecting a sales tax in 1954 - all of a penny on the dollar. It rose to 3 percent in 1956, 4 percent in 1959, and 5 percent in 1963 before reaching the current 6 cents on every dollar in 1968.

(In Allegheny County and Philadelphia, the rate has been 7 percent; Philadelphia will raise its rate to 8 percent next week to help solve its own budget woes.)

Sales-tax structure varies widely from state to state. All states except five, including Delaware, levy sales taxes, which, nationwide, generate $236 billion, or about a third of all state tax collections, according to the Center on Budget and Policy Priorities, a Washington group.

And exempting certain goods and business sectors is a time-honored - and confusing - tradition in many states.

In 1999, New York abolished a rule that had subjected large puffed marshmallows - considered candy - to the state sales tax but not mini-marshmallows, ostensibly used in cooking food. The state decided all marshmallows were candy and would be taxed.

Marshmallow fluff, however, remained exempt.

Pennsylvania lawmakers have long tinkered with the notion of reworking the sales-tax system, from plans to tax everything to plans to tax nothing.

But not until recently, amid one of the worst fiscal crunches in the state's history, did sales-tax-related options turn realistic.

To fill a budget hole, Rendell insisted legislative leaders turn to the sales tax for a fresh source of $100 million.

In the weeks leading up to the tentative deal announced Sept. 18, he repeatedly said he was fine with extending the sales tax to exempt items as long as they weren't food or clothing.

Legislative leaders from both parties settled on tickets to the performing arts, museums, and zoos, and pledged to use the proceeds to create a fund for the arts.

But the plan to tax the arts has sparked a fury across the state as everyone from heads of local orchestras and community theaters to top brass at the Philadelphia Museum of Art complained that Harrisburg was trying to balance the budget on their recession-strained backs.

Why us? was the scream from Erie to Erdenheim. Why not tax tickets to sports events or movies?

Legislators could have chosen to end the exemption for newspapers and magazines - worth an estimated $94 million annually. But publications inform the public. They could have taxed candy and gum - an exemption that will cost the state an estimated $101 million this year. But that would affect major manufacturers - think Hershey - and, potentially, jobs.

Senate Majority Leader Dominic Pileggi, one of fewer than a dozen legislative leaders in on the budget talks, said negotiators had settled on cultural tickets in large part because they were paid for with consumers' "discretionary dollars."

"They are certainly not a necessity. They are not bread and water. They are not clothing," said Pileggi (R., Delaware). "They are not housing. . . ."

In an interview last week, Pileggi stressed that most of the revenue from the proposed arts tax would come not from the symphony but from large-venue concerts.

To help frame that point, he has started calling it the "Madonna tax."

Its proceeds would go into a cultural-arts fund - but details of this and other controversial parts of the $28 billion budget plan are still being crafted. Legislative aides were tinkering with some of those details over the weekend.

Over the years, more and more items have been shielded from the sales tax - thanks, in part, to lobbying efforts by special interests.

In 2001, for example, the state lifted the sales tax on several items, including wood pellets used for fuel, and midair meals.

The meal exemption saved airlines nearly $4 million annually. It was part of an incentive package to persuade US Airways to keep its maintenance division in Pittsburgh.

Not everyone has been that successful. An attempt to remove the sales tax on corporate jets never got airborne in the Senate last session.

Other items have come off the list in tough times. In the budget crisis of 1991, the legislature closed some exemptions - among them, computer services - only to face intense pushback from the industry. The legislature reinstated them a few years later.

For four decades, the state exempted Bibles, along with other religious books and items of worship. But in 1999, the U.S. Supreme Court put a stop to that, ruling the state was violating the Constitution by treating religious writings differently than other publications.

This year, around Labor Day, as Rendell began using the bullion example, the state's coin dealers rehired Chiavetta. They did so to play defense, to lobby lawmakers against taking gold bullion and other investment metals off the tax-free list.

She has been successful so far.