Arguments Supporting Sales Tax Increase: Simplistic & Insular

ABSTRACT:  Recently reported remarks (Monterey County Weekly, The Monterey County Herald) supporting the City’s sales tax initiative to increase the sales tax from 7.25% to 8.25% are presented with clarification and amplification COMMENTS.  A section regarding SALES TAX IN CONTEXT is also presented.  California Cities and County Sales and Use Tax Rates July 2012, prepared by CALIFORNIA STATE BOARD OF EQUALIZATION, including Cities, Counties, and Tax Rates and History of Sales and Use Tax Rates, is embedded.

PUBLIC COMMENT BY MAYOR BURNETT:

A 1 percent sales tax would raise Carmel's sales-tax rate to 8.25 percent, the same level it was before July 1, 2011, Mayor Jason Burnett said in his newsletter.

(Carmelmay put tax on ballot, LARRY PARSONS Herald Staff Writer, 06/11/2012)

COMMENT COURTESY OF PLEASANTON WEEKLY NEWS:

Effective July 1, 2011, the one percent sales and use tax rate increase that was approved with the state budget and effective April 1, 2009, will expire lowering the statewide base tax rate from 8.25 percent to 7.25 percent. 

As part of a 2008-09 budget agreement, the state Legislature temporarily increased the General Fund portion of the sales and use tax rate by 1% in April 2009, with the increase to expire at midnight June 30, 2011.

Betty T. Yee, a member of the state Board of Equalization, said the sales and use tax rate in California has ranged from 8.25% to 10.75%, depending on whether additional regional voter-approved sales taxes applied. Now the range is 7.25% to 9.75%.

PUBLIC COMMENT BY MAYOR BURNETT:

Mayor Jason Burnett said Wednesday that merchants largely testified that visitors to Carmel generally are from areas with higher sales taxes and they don't take the local tax rate into consideration when making purchases.

(Carmel residents to vote on higher sales tax, LARRY PARSONS Herald StaffWriter, 06/13/2012)

COMMENT COURTESY OF THE TAX FOUNDATION:

1. Taxes matter to business. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.

2. States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its geographic region, and even globally. Ultimately it will affect the state’s national standing as a place to live and to do business. Entrepreneurial states can take advantage of the tax increases of their neighbors to lure businesses out of high-tax states.

SALES TAX IN CONTEXT

Californians Faced High Tax Burdens Even Before the 2009Increases

Prior to the early 2009 tax increases, Californians already paid some of the highest state-local taxes in the United States. As reported in the 2008 edition of the Tax Foundation's State-Local Tax Burdens study, Californians paid 10.5% of their income on state-local taxes, the sixth highest burden in the country; the national average was 9.7%. That translated into a payment of $5,028 per capita in state-local taxes.

Sales Tax: Combined State and Average Local Rates

Tax Year 2012

California 8.13%  #12

State Rates

California, despite a 1 percent reduction in its sales tax rate that took effect July 1, 2011, still has the highest state-level rate at 7.25 percent.

Table 1: State and Local Sales Tax Rates, As of January 1,2012

State	State Rate/ Sales Tax Rank	Average Local Rate	Combined	Rank of Combined Rate
California	7.25%/1	0.86%	8.11%	12

Sales Tax

California's sales taxes have high rates and a narrow base, the opposite of what fiscal experts generally recommend. Different sources calculate California's sales tax at different rates, primarily because even the rates are a complicated mess. The state portion of the sales tax is (as of April 1, 2009) 8.25%, consisting of:

• 5.00% for the state general fund
• 0.25% for the state general fund effective 2004 (shifted from Bradley-Burns local tax)
• 0.50% distributed to local health/welfare programs
• 0.50% distributed to local public safety programs
• 0.75% Bradley-Burns tax, returned to the local jurisdiction where the sale occurred (this tax was 1% prior to 2004, when 0.25% was shifted to the state)
• 0.25% Bradley-Burns tax returned to the county where the sale occurred for transportation purposes
• 1.00% increase effective April 1, 2009, to the state general fund

Additionally, local governments can add up to 2% in local add-on sales taxes; a 0.5% transportation sales tax is quite common. Prior to April 1, 2009, the average local add-on sales tax was 0.71%, leading to an average state sales tax of 7.96%, the fifth highest state-local average in the country. With the increase, California has the second-highest state-local average sales tax rate in the country, behind only Tennessee.

California'sSales Tax Rate Is Highest in the Nation

California levies a 7.25% general sales or use tax on consumers, which is the highest in the nation and well above than the national median of 6%. The average local sales tax rate in California is 0.86%. In 2009, California collected $1,015 per capita in general sales taxes, and $323 per capita in excise taxes, for a combined figure of $1,338, which ranks 25th highest nationally. California's statewide gasoline tax stands at 48.6 cents per gallon and is the second highest in the nation, while its cigarette tax stands at $0.87 per pack of twenty (32nd highest nationally).

California Cities and County Sales and Use Tax Rates 2012

California Cities and County Sales and Use Tax Rates 2012