Sales and use taxes in California

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Sales and use taxes in California are among the highest in the United States and are imposed by the state and local governments. From a tax terminology perspective, sales taxes are a proportional tax; though because of the fact that lower income earners may pay a greater percentage of their earnings to sales taxes than higher income earners, a sales tax is also described as a regressive tax.

Contents

The sales tax is imposed on retailers (not consumers) for the privilege of selling tangible personal property at retail. [1] However, retailers are allowed (but not obligated) to obtain reimbursement for their tax liability from the consumer at the time of sale. [2] Whether a sales tax reimbursement amount is actually added is a matter of contract between the retailer and the consumer. [3]

The use tax is imposed on the storage, use, or other consumption in California of tangible personal property purchased from a retailer. [4] Any person storing, using, or otherwise consuming in California tangible personal property purchased from a retailer is generally liable for the use tax. [5] While the sales tax is imposed on retailers, the use tax is imposed on purchasers. A retailer engaged in business in California (which includes many businesses located outside of California engaging in E-commerce) is generally required to collect the use tax from the purchaser at the time of sale and provide the purchaser a receipt. [6]

Sales tax rates

At 7.25%, California has the highest minimum statewide sales tax rate in the United States, [7] which can total up to 10.50% with local sales taxes included. [8]

Some[ who? ] claim the high sales tax rates partially compensate for the reduced property tax revenue resulting from Proposition 13 which California voters approved in June 1978. However, others[ who? ] point out that, in most counties (all but the rural counties), property tax revenues today are higher than the year before Proposition 13 passed, even after adjusting for inflation and population growth.[ citation needed ]

Sales and use taxes in California (state and local) are collected by the California Department of Tax and Fee Administration, whereas income and franchise taxes are collected by the Franchise Tax Board.

The statewide base sales tax rate of 7.25% is allocated as follows: [9]

The statewide sales tax in California was first imposed on August 1, 1933, at the rate of 2.50% under the "Retail Sales Act of 1933." [10] No local sales taxes were levied at that time. In an editorial dated September 5, 1933, the Los Angeles Times criticized the 2.50% sales tax rate in stating that the "sales-tax rate should not have exceeded 1 per cent" and that the tax rate was "so high as to discourage business, which will make the tax less productive." [11]

Supplementary local sales taxes

Supplementary local sales taxes may be added by cities, counties, service authorities, and various special districts. Local county sales taxes for transportation purposes are especially popular in California. Additional local sales taxes levied by counties and municipalities are formally called "District Taxes."

The effect from local sales taxes is that sales tax rates vary in California from 7.25% (in areas where no additional local sales taxes are levied) to 10.50% (City of Santa Fe Springs located in Los Angeles County). [12] For example, the city of Sacramento, the state capital, has a combined 8.75% sales tax rate, and Los Angeles, the largest city in California, has a combined 9.50% sales tax rate. [13]

Local sales tax rate cap

The combined tax rate of all local sales taxes in any county is generally not allowed to exceed 2.00 percent. [14] However, this is a statutory restriction and the California Legislature routinely allows some local governments, through the adoption of separate legislation, to exceed the 2.00 percent local tax rate cap. The 2.00 percent local tax rate cap is exceeded in any city with a combined sales tax rate in excess of 9.25% (7.25% statewide tax rate plus the 2.00% tax rate cap).

As of January 1, 2020, all of Los Angeles County and 14 other California cities (Alameda (Alameda County), Albany (Alameda County), Belmont (San Mateo County), Burlingame (San Mateo County), East Palo Alto (San Mateo County), El Cerrito (Contra Costa County), Greenfield (Monterey County), Hayward (Alameda County), Newark (Alameda County), Redwood City (San Mateo County), San Leandro (Alameda County), San Mateo (San Mateo County), South San Francisco (San Mateo County), and Union City (Alameda County)) have a combined sales tax rate in excess of the 2.00 percent local tax rate cap. [15]

SB 566 (2003) and the rise in local sales tax increases

The number of local sales taxes greatly increased following the passage of SB 566 in 2003. [16] [17] SB 566 legally authorized all California cities to levy additional local sales taxes. SB 566 also increased the maximum combined local sales tax rate (local sales tax rate cap) that can be levied by local governments from 1.50% to the current 2.00%. [18]

As of April 1, 2017, 176 cities and 32 counties have approved local sales tax increases. [19] Not only has the number of local city sales taxes greatly increased since the passage of SB 566, but the magnitude of the sales tax increases (as measured by the sales tax rate increase) has also significantly increased as more cities are seeking larger sales tax rate increases. [20]

Cities with at least 10.00% combined sales tax rates

As of January 1, 2020, 27 California cities (all in Los Angeles County) have a combined sales tax rate of at least 10.00%: [21] [22]

CityRateCounty
Arcadia10.250%Los Angeles
Avalon10.000%Los Angeles
Burbank10.250%Los Angeles
Commerce10.000%Los Angeles
Compton10.250%Los Angeles
Covina10.250%Los Angeles
Cudahy10.250%Los Angeles
Culver City10.250%Los Angeles
Downey10.000%Los Angeles
El Monte10.000%Los Angeles
Glendale10.250%Los Angeles
Glendora10.250%Los Angeles
Hawthorne10.250%Los Angeles
Huntington Park10.250%Los Angeles
Inglewood10.000%Los Angeles
La Puente10.000%Los Angeles
Lawndale10.250%Los Angeles
Long Beach10.250%Los Angeles
Lynwood10.250%Los Angeles
Pasadena10.250%Los Angeles
Pico Rivera10.250%Los Angeles
Pomona10.250%Los Angeles
San Fernando10.000%Los Angeles
Santa Fe Springs10.500%Los Angeles
Santa Monica10.250%Los Angeles
South El Monte10.000%Los Angeles
South Gate10.250%Los Angeles

Cities with highest combined sales tax rates by county

As of January 1, 2020, the following California cities have the highest combined sales tax rate within each of the 58 counties in California: [23] [24]

CountyCityRate
AlamedaAlameda9.750%
AlamedaAlbany9.750%
AlamedaHayward9.750%
AlamedaNewark9.750%
AlamedaSan Leandro9.750%
AlamedaUnion City9.750%
AlpineCountywide7.250%
AmadorCountywide7.750%
ButteOroville8.250%
CalaverasAngels Camp7.750%
ColusaWilliams7.750%
Contra CostaEl Cerrito9.750%
Del NorteCountywide7.500%
El DoradoPlacerville8.250%
FresnoCoalinga8.975%
FresnoFowler8.975%
FresnoHuron8.975%
FresnoKerman8.975%
FresnoKingsburg8.975%
GlennOrland7.750%
HumboldtRio Dell8.750%
ImperialCalexico8.250%
ImperialEl Centro8.250%
InyoCountywide7.750%
KernArvin8.250%
KernBakersfield8.250%
KernDelano8.250%
KernRidgecrest8.250%
KernWasco8.250%
KingsCorcoran8.250%
LakeClearlake8.750%
LakeLakeport8.750%
LassenCountywide7.250%
Los AngelesSanta Fe Springs10.500%
MaderaChowchilla8.750%
MarinCorte Madera9.000%
MarinFairfax9.000%
MarinLarkspur9.000%
MarinSan Rafael9.000%
MariposaCountywide7.750%
MendocinoFort Bragg8.875%
MendocinoUkiah8.875%
MercedAtwater8.250%
MercedGustine8.250%
MercedLos Banos8.250%
MercedMerced8.250%
ModocCountywide7.250%
MonoMammoth Lakes7.750%
MontereyGreenfield9.500%
NapaSt. Helena8.250%
NevadaGrass Valley8.500%
OrangeSanta Ana9.250%
PlacerRoseville7.750%
PlumasCountywide7.250%
RiversidePalm Springs9.250%
SacramentoIsleton8.750%
SacramentoSacramento8.750%
San BenitoHollister9.250%
San BernardinoBarstow8.750%
San BernardinoYucca Valley8.750%
San DiegoChula Vista8.750%
San DiegoDel Mar8.750%
San DiegoNational City8.750%
San FranciscoSan Francisco8.500%
San JoaquinStockton9.000%
San Luis ObispoArroyo Grande7.750%
San Luis ObispoAtascadero7.750%
San Luis ObispoGrover Beach7.750%
San Luis ObispoMorro Bay7.750%
San Luis ObispoPaso Robles7.750%
San Luis ObispoPismo Beach7.750%
San Luis ObispoSan Luis Obispo7.750%
San MateoBelmont9.750%
San MateoEast Palo Alto9.750%
San MateoRedwood City9.750%
San MateoSouth San Francisco9.750%
Santa BarbaraCarpinteria9.000%
Santa ClaraCampbell9.250%
Santa ClaraSan Jose9.250%
Santa CruzSanta Cruz9.250%
Santa CruzWatsonville9.250%
ShastaAnderson7.750%
SierraCountywide7.250%
SiskiyouDunsmuir7.750%
SiskiyouYreka7.750%
SolanoBenicia8.375%
SolanoFairfield8.375%
SolanoSuisun City8.375%
SolanoVallejo8.375%
SonomaCotati9.250%
StanislausCeres8.375%
StanislausOakdale8.375%
SutterCountywide7.250%
TehamaCorning7.750%
TrinityCountywide7.250%
TularePorterville9.250%
TuolumneSonora7.750%
VenturaPort Hueneme8.750%
YoloDavis8.250%
YoloWest Sacramento8.250%
YubaMarysville8.250%
YubaUnincorporated Area8.250%
City with the highest combined sales tax rate in California

As of January 1, 2020, the city of Santa Fe Springs located in Los Angeles County has the highest combined sales tax rate in California at 10.50%. [25]

Counties where no additional local sales taxes are levied

As of January 1, 2020, no additional local sales taxes are levied in 7 California counties which have a combined countywide sales tax rate of 7.250%: [26] [27]

CountyCityRate
AlpineCountywide7.250%
LassenCountywide7.250%
ModocCountywide7.250%
PlumasCountywide7.250%
SierraCountywide7.250%
SutterCountywide7.250%
TrinityCountywide7.250%

Local sales taxes subject to voter approval under Proposition 218

All local sales taxes are subject to voter approval under Proposition 218 ("Right to Vote on Taxes Act") which California voters approved in November 1996. [28] Whether simple majority voter approval or two-thirds voter approval is required depends upon the type of sales tax levied and the type of local government imposing the sales tax.

Unrestricted general sales taxes are subject to majority vote approval by local voters. [29] General sales taxes can be spent by local politicians for any general governmental purpose, including public employee salaries and benefits. General sales tax spending decisions are made after the tax election by local politicians as part of the regular annual local government budget process. Some local governments may engage in general sales tax abuses in an effort to evade the two-thirds vote requirement applicable to special sales taxes.

Special sales taxes dedicated for one or more specific purposes are subject to two-thirds voter approval by local voters. [30] Any sales tax imposed by a local government other than a city or a county (e.g., a special district such as a local transportation agency) must be a special tax subject to two-thirds voter approval by local voters. [31]

Proposition 218 does not legally authorize any local government to levy a sales tax. [32] The legal authority to levy a local sales tax must come from a state statute. A two-thirds vote of all members of the legislative body of the local government is usually required before a local sales tax measure may be presented to voters at an election. [33]

Relationship between sales tax increases and public employee costs

The driving force behind many local sales tax increases is skyrocketing public pension costs and public employee retiree healthcare. [34] Research has shown that local sales tax increases are concentrated in California localities that have the largest pension problems. [35]

County transportation sales taxes

Countywide sales taxes for transportation purposes are very popular in California. However, transportation sales taxes are regressive and also shift the financial base of transportation systems from user fees to taxes paid by all taxpayers without regard to direct reliance on those transportation systems. [36] Some counties have passed multiple transportation sales taxes increases such as Los Angeles County that has passed four transportation sales tax increases for a combined rate of 2.00%. [37] County transportation sales taxes generally do not include traffic performance standards that actually require improved traffic conditions.

Sales tax taxpayer tool

As part of its Taxpayer Tools publication series, [38] the Howard Jarvis Taxpayers Association has released a publication to assist voters and taxpayers regarding local sales tax measures placed on the ballot by a local government in California. [39]

Local government data in sales tax elections

It is generally helpful for voters to have financial data about a local government proposing a sales tax so that voters can make more informed voting decisions regarding the merits and need for the sales tax. Much of the financial data about a local government can be obtained directly from the local government itself. Additional information that can be of value to voters includes public employee salary and benefits data (especially pension data), and annual budgetary and financial reports. Local government budgetary spending priorities, as reflected by recent budgetary data, can also be helpful in general sales tax elections where local politicians decide how to spend the sales tax proceeds.

Extensive public data sources outside of a local government are also available to voters in connection with local sales tax elections.

Local government issues related to sales tax elections (e.g., local government "informational" campaigns and impartial ballot questions) can impact the integrity and fairness of the election process. Voter/taxpayer issues related to local sales tax elections (e.g., cumulative tax burden and precedent) can impact the individual voter decision-making process as well as election outcomes. Support and opposition campaigns in local sales tax elections can also impact election outcomes.

Local sales tax reduction or repeal using Proposition 218

Proposition 218 ("Right to Vote on Taxes Act") was a 1996 initiative constitutional amendment approved by California voters. Proposition 218 includes a provision constitutionally reserving to local voters the right to use the initiative power to reduce or repeal any local tax, assessment, fee or charge, including provision for a significantly reduced petition signature requirement to qualify a measure on the ballot. [40] A local sales tax, including a sales tax previously approved by local voters, is generally subject to reduction or repeal using the local initiative power under Proposition 218.

Examples where the reduction or repeal of a local sales tax may be appropriate include where there has been significant waste or mismanagement of sales tax proceeds by a local government, when there has been controversial or questionable spending of sales tax proceeds by a local government (particularly where sales tax proceeds are used to pay for excessive public employee salaries and/or benefits such as pensions), when the quality of the programs and services being financed from sales tax proceeds is not at a high level expected by voters, when the local sales tax rate is excessive or unreasonably high (particularly in situations where a significant local sales tax increase was narrowly approved by the voters), or when promises previously made by local politicians about the spending of local sales tax proceeds are broken after voter approval of the sales tax (particularly in situations where local politicians made legally nonbinding promises concerning the spending of general sales tax proceeds that are not legally restricted for specific purposes).

A local sales tax used to repay bonds is a legally more complex situation because federal contract impairment issues may preclude the exercise of the local initiative power under Proposition 218. Local voter-approved transportation sales taxes often include at least a portion of the tax proceeds to repay bonds. Advice from legal counsel is generally needed in situations where bonds have been issued and sales tax revenues have been pledged to repay the bonds. A local compensatory initiative under Proposition 218 is an alternative option when contract impairment problems are present.

Recent statewide sales tax increases

Recent temporary statewide sales tax increases include:

Taxation of online sales

As of July 1, 2011, California applies sales tax to online retailer purchases. It is the retailer's responsibility to collect the state sales tax on all purchases made within (or shipped to) California regardless where the retailer/supplier is located.

Exemptions

In general, sales tax is required on all purchases of tangible personal property to its ultimate consumer. Services are not subject to sales tax (but may be subject to other taxes), although some politicians want to extend the sales tax to services. Liability for sales tax attaches to the seller, not the buyer; but the seller is allowed by law to collect the tax from the buyer (and if the seller does so, the buyer is obligated[ citation needed ] to pay it).

Vehicle purchases are taxed based on the city and county in which the purchaser registers the vehicle, and not on the county in which the vehicle is purchased. There is therefore no advantage in purchasing a car in a county with a lower sales tax rate to save on sales tax (a one-percent difference in sales tax rate would otherwise result in an additional $300 loss on a $30,000 car).[ citation needed ]

In grocery stores, unprepared food items are not taxed but vitamins and all other items are. Ready-to-eat hot foods, whether sold by supermarkets or other vendors, are taxed. Restaurant bills are taxed. As an exception, hot beverages and bakery items are tax-exempt if and only if they are for take-out and are not sold with any other hot food. If consumed on the seller's premises, such items are taxed like restaurant meals. All other food is exempt from sales tax.

Also excluded are food animals (livestock), food plants and seeds, fertilizer used to grow food, prescription drugs and certain medical supplies, energy utilities, certain alternative energy devices and supplies, art for display by public agencies, and veterans' pins. There are many specific exemptions for various veterans', non-profit, educational, religious, and youth organizations. Sale of items to certain out-of-state or national entities (mostly transportation companies) is exempt, as are some goods sold while in transit through California to a foreign destination.

Occasional or one-time sales not part of a regular business are exempt, except that sales of three or more non-food animals (puppies, kittens, etc.) per year are taxed. [44]

There are also exemptions for numerous specific products, from telephone lines and poles, to liquid petroleum gas for farm machinery, to coins, to public transit vehicles. There are partial exemptions for such varied items as racehorse breeding stock, teleproduction service equipment, farm machinery, and timber-harvesting equipment. [45] For an organized list of exemptions, with estimates for how much revenue the state loses and the people saves for each, see Publication 61 of the Board of Equalization. [46]

Sales tax is charged on gasoline. The tax is levied on both the gasoline and on the federal and state excise taxes, resulting in a form of "double taxation". The sales tax is included in the metered price at the pump. The California excise tax on gasoline as of mid-2011 is 35.7 cents per gallon for motor fuel plus a 2.25% sales and use tax, 13 cents per gallon for diesel plus a 9.12% sales and use tax. [47]

The California Department of Tax and Fee Administration provides an online list of sales taxes in the local communities of the state. [48]

Software electronically transmitted to customers

According to Regulation 1502, the sale of noncustom (canned) software to customers who download the software from a server is generally not subject to sales tax because the transaction does not involve tangible personal property. However, if the customer is provided a copy of the software on a physical storage medium such as a CD-ROM or a DVD, the entire transaction is generally subject to sales tax. [49] Thus, a customer can generally avoid sales tax liability by purchasing a downloadable version of software instead of a physical version.

Debate

Critics of the current California sales tax system contend that it gives local governments an incentive to promote commercial development (through zoning and other regulations – otherwise known as fiscalization of land use) over residential development, including the use of eminent domain condemnation proceedings to transfer real estate to higher sales tax generating businesses. [50] Some claim that low-income families pay almost eight times more of their incomes in sales taxes than high-income families, making sales tax a regressive tax. Low-income families pay relatively little in income tax, leaving most of their income available to spend thus subject to sales taxes. It is also because people with higher incomes are able to save a larger portion of their income. However, since lower income families spend a higher portion of their income on groceries, states like California that exempt groceries from sales tax are not as regressive in the implementation of sales taxes. [51]

See also

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References

  1. ↑ Cal. Rev. & Tax. Code, § 6051.
  2. ↑ Cal. Civ. Code, § 1656.1.
  3. ↑ Cal. Civ. Code, § 1656.1, subd. (a).
  4. ↑ Cal. Rev. & Tax. Code, § 6201.
  5. ↑ Cal. Rev. & Tax. Code, § 6202.
  6. ↑ Cal. Rev. & Tax. Code, § 6203.
  7. ↑ "Sales Tax Rates By State". Sales Tax Institute. January 2017.
  8. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  9. ↑ "Detailed Description of the Sales & Use Tax Rate".
  10. ↑ Stats. 1933, ch. 1020.
  11. ↑ "California Taxation". Los Angeles Times. September 5, 1933. p. A4.
  12. ↑ "California City & County Sales & Use Tax Rates". California Department of Tax and Fee Administration.
  13. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  14. ↑ Cal. Rev. & Tax. Code, § 7251.1.
  15. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  16. ↑ The Rise of Local Add-On Sales Taxes in California. CaliforniaCityFinance.com. March 2017. p. 4.
  17. ↑ Stats. 2003, ch. 709.
  18. ↑ How to Defeat Local Sales Taxes. Howard Jarvis Taxpayers Association. July 2004. p. 4.
  19. ↑ The Rise of Local Add-On Sales Taxes in California. CaliforniaCityFinance.com. March 2017. pp. 1–2.
  20. ↑ The Rise of Local Add-On Sales Taxes in California. CaliforniaCityFinance.com. March 2017. pp. 1–2.
  21. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  22. ↑ The California Department of Tax and Fee Administration expresses the sales tax rate to three (3) decimal places in its official tax rate data files that it releases to the public.
  23. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  24. ↑ The California Department of Tax and Fee Administration expresses the sales tax rate to three (3) decimal places in its official tax rate data files that it releases to the public.
  25. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  26. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  27. ↑ The California Department of Tax and Fee Administration expresses the sales tax rate to three (3) decimal places in its official tax rate data files that it releases to the public.
  28. ↑ Cal. Const., art. XIII C, § 2.
  29. ↑ Cal. Const., art. XIII C, § 2, subd. (b).
  30. ↑ Cal. Const., art. XIII C, § 2, subd. (d).
  31. ↑ Cal. Const., art. XIII C, § 2, subds. (a) & (d).
  32. ↑ Cal. Const., art. XIII D, § 1, subd. (a).
  33. ↑ Cal. Rev. & Tax. Code, §§ 7285.9, 7285.91 [cities]; Cal. Rev. & Tax. Code, §§ 7285, 7285.5 [counties].
  34. ↑ Local Tax and Bond Measures in California November 2016 – A State Preview. CaliforniaCityFinance.com. September 2016. p. 3.
  35. ↑ Kersten, David (October 4, 2016). "Unsustainable" Pension Costs Are The Driving Force Behind Local Tax Increases. Fox&Hounds Daily.
  36. ↑ Wachs, Martin (Spring 2003). "Local Option Transportation Taxes: Devolution as Revolution". Access: 15.
  37. ↑ Local Countywide Transportation Sales Taxes. CaliforniaCityFinance.com. September 2010. p. 1.
  38. ↑ "Taxpayer Tools". Howard Jarvis Taxpayers Association.
  39. ↑ "How to Defeat Local Sales Taxes". Howard Jarvis Taxpayers Association.
  40. ↑ Cal. Const., art. XIII C, § 3.
  41. ↑ California Legislature Passes Tax Plan, Ends Impasse
  42. ↑ "California Statewide Sales and Use Tax Rate to Decrease by 1% on July 1, 2011" (PDF). California State Board of Equalization. Retrieved March 8, 2013.
  43. ↑ Cal. Const., art. XIII, § 36, subd. (f).
  44. ↑ http://www.boe.ca.gov/pdf/pub122.pdf
  45. ↑ New Sales and Use Tax Exemptions
  46. ↑ California Publication 61
  47. ↑ California Board of Equalization Online Tax Rates
  48. ↑ "Tax Rates by County and City" (PDF). California Department of Tax and Fee Administration.
  49. ↑ Cal. Code Regs., tit. 18, § 1502, subd. (f)(1)(D).
  50. ↑ "City Competition for Sales Taxes: Symptom of a Larger Problem?". Research Brief. Public Policy Institute of California. July 1999.
  51. ↑ Who Pays? A Distributional Analysis of the Tax Systems in All 50 States (5th ed.). Institute on Taxation & Economic Policy. January 2015. p. 6.
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