RALEIGH – Dozens of tax-policy experts, hundreds of politicians, thousands of activists, and millions of taxpaying citizens are all saying that the tax code is complex and unfair. If everyone thinks this is the case, why is it still complex and unfair? Perhaps this little story about death and taxes will suffice as a partial explanation.

Don’t worry, lefties. This is not going to be yet-another diatribe against taxing estates and inheritances (I see no need to update my previous diatribe on the subject). Instead, let’s look at the case of state taxes on funeral services.

Current law in North Carolina requires funeral directors, morticians, and undertakers to levy the full retail-sales tax rate (7 percent in all counties except Mecklenburg where it is 7.5 percent) on the goods and services they sell. Customers must pay sales tax, in other words, on both the caskets they buy and the services required to bury their loved ones. The complexity here is that the first $1,500 of expenses associated with funerals and burials has been exempt from sales taxation.

The North Carolina General Assembly, in its infinite wisdom, has “fixed” this problem. As of January 1, 2006, the goods sold by funeral directors, morticians, and undertakers will continue to be taxable but the services won’t be. The $1,500 exclusion goes away, so that consumers will start to pay tax, on what is taxable, from the word go.

So when you get a bill from your mortician, the coffins, grave markers, and other goods will bear a sales tax. But ambulance service, cemetery lots, burial fees, and death certificates won’t be taxed. If the cost of hiring someone to move and bury the casket is included in the price of the casket, it will be taxed. If it is listed separately in the invoice, it won’t be taxed.

Now, the easy thing to do at this point would be to make a joke about taxing people even after they are in the grave, or to complain about the legislature’s cruel tax increase on the grieving. But that’s not my point today. Funeral services are retail transactions. If North Carolina state and local governments are going to levy a tax on retail transactions, a sales, tax, it needs to apply to all such transactions. That accomplishes three important goals simultaneously: it makes the tax code simpler, since you don’t have to keep track of which retail purchases are included or excluded; it makes the code fairer, since there is no special privileges or exclusions that make sales taxes bite lower-income people more than upper-income people; and it makes the code more neutral, since it doesn’t distort economic decisions by giving making some industries or business organizations more attractive than others.

The original tax policy towards funeral services was goofy. The new one is even goofier. If we are going to retain a sales tax, it should simply be applied to the entire bill presented to a retail customer – no artificial distinctions between goods and services, no arbitrary cap on liability, and of course no retail sales tax on the goods or services that funeral directors purchase business-to-business. Or we can phase out the sales tax and tax the same tax base via a consumed-income tax.

I fear that, stated intentions notwithstanding, my descendants will be making use of funeral services for me long before the tax implications are straightened out.

Hood is president of the John Locke Foundation.