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Calculating California’s Sales Tax

1 min readBy: Joseph Bishop-Henchman

Yesterday we discussed California Governor Arnold Schwarzenegger (R)’s proposal to raise the state’s sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. by 1.5 percentage points. His office’s statement described the current tax rate as “5 percent” and the increased rate as “6.5 percent.”

This is misleading because the lowest sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. rate in California is 7.25 percent, with many areas paying a half-point or full point more, and at least one area (South Gate, CA) hitting 9.25 percent. Various websites describe California’s tax as 6.00% or 6.25% or 7.25%. The confusion stems in part from the multiple components of California’s sales tax:

Base State Rate of 7.25%, consisting of:

6.25% State Levy, consisting of

5.00% for State General Fund

0.25% for State General Fund effective 2004 (shifted from Bradley-Burns tax below)

0.50% for local revenues (health and welfare programs)

0.50% for local revenues (public safety)

1.00% Bradley-Burns tax collected by state but distributed to localities

0.75% for general fund of local jurisdiction where sale occurred (prior to 2004 this tax was 1.00%; beginning in 2004 0.25% was shifted to the state general fund)

0.25% transportation tax for county where sale occurred

Plus local governments can add up to 2.00% for local taxes (0.5% taxes for transportation is the most frequent)

Governor Schwarzenegger’s “6.5 percent” sales tax would in fact be at least 8.75% everywhere in the state, 10% in San Francisco, and 10.25% in Los Angeles (tying with Chicago as the highest sales tax in a major U.S. city). But Schwarzenegger can get away with calling the current tax “5 percent” because carved out special taxes can become essentially autonomous funding sources, like Minnesota’s new 3/8th sales tax for wildlife refuges and arts and culture programs or Colorado’s failed 0.2% sales tax for developmentally disabled care programs. I hope California doesn’t lead the way on such a locked-up, non-transparent public finance system.