Calculating California’s Sales Tax

November 7, 2008

Yesterday we discussed California Governor Arnold Schwarzenegger (R)’s proposal to raise the state’s sales tax 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 tax 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.

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