by Jack Lee
In the past year I have made about $14,000 in taxable purchases. Over $10K of that amount was done out of state in order to avoid sales tax. That’s about $1000 in sales tax revenue this state missed out on, not a big thing. But, then I am just one modest consumer. However, if you consider that the population of this state is 37,253,956 (according to the 2010 census) and if a mere 10% of that big number shopped the way I do, that would equal a sales tax loss of about $3.7B, now we’re talking some serious money!
In reality there are many people and companies making out of state purchases so the current lost revenue is likely far more than the $3.7B number I gave you. In 2010 California generated $9.1B in sales tax revenue. If CA dropped the sales tax rate to a reasonable 5.5% they would recoup far more than would be lost, because consumers would more inclined to make purchases, large and small, in this state. This would generate more cash flow to businesses, there would be more jobs instantly created, which would lead to more income tax revenue and it would stimulate sales revenue that by itself would wipe out most of the $25.4B projected deficit for 2011. We would be in a cash surplus situation – IF Democrats could bring themselves to lowering taxes instead of raising them.
The California sales tax rate ranges from 7.25% to 9.25% depending on the region, and the maximum CA sales tax after local surtaxes is 10.75%. California has the highest sales tax of all 50 states, and cities/municipalities can charge an additional local sales tax (known as a “District Tax” on top of the California state sales tax.
The California sales tax applies to all sales of tangible goods, but does not apply to services. Some items such as livestock, some farm supplies, and alternative energy equipment may also be exempt from sales taxes. The California sales tax is broken up and allocated in the following way:
8.25% – State + Local
7.25% – State
6.00% – State – General Fund
0.25% – State – Fiscal Recovery Fund
0.50% – State – Local Revenue Fund
0.50% – State – Local Public Safety Fund
1.00% – Uniform Local Tax
0.25% – Local County – Transportation funds
0.75% – Local City/County – Operational funds
Uh ohhhh. Jack, youre supposed to report those out of state mail-order purchases to the state, and submit the sales tax 😉
Everybody does it, right?
This is a long running problem for border cities. Particularly the sales of transportable big ticket items (appliances, TVs, etc) are disproportionally small in areas near Oregon and Nevada. Those rascally humans tend to make those purchases on their next out of state visit.
The internet has amplified the effect.
Shoot, lets take a $1000 television set as an example. Do you buy it in California and pay $82.50 in sales tax, plus the $10 California Electronic Waste Fee from a retailer whos operating costs include bricks & mortar and all of the effects of operating in California, or do you find an internet deal, maybe less than $1000, maybe with free freight, and without the $92.50 in California fees?
Many billions of dollars leave California for obvious reasons.
The crazy thing is that in 2009 when California raised the sales tax rate by roughly 13% to its current level, some of the rascals in Sacramento actually thought that they would net close to 13% more revenue.
Time for some Milton, and some Arthur:
http://www.youtube.com/watch?v=RWsx1X8PV_A
http://www.youtube.com/watch?v=fIqyCpCPrvU
Hey thanks for that Mark and the U-tube link . I recall a government class that showed a bell curve for taxation compliance . That’s the Laffer curve. In our class the most gov. could easily wring out of people was 18% with diminishing returns for each incremental increase and by the time it was at 35% everybody was cheating and the government would have actually been better off taking its 18%. They just don’t get it. Well, that’s the way it goes and the reality is, nobody is ever going to accuse government of being overly bright and prone to doing the right thing. It’s not the way they work, is it?
Notice the great disparity in local and state sales tax revenue? Out of over 8% local government only keeps 1% and the rest goes to the state. Is this fair?
I wonder how many more people would shop local if they knew their tax dollars would actually stay local?
I used to believe strongly in local shopping, but now I shop out of town, including gas, as a protest. Why would I want the city of Chico to get my tax dollars? Whenever we’re in Red Bluff, Oroville or some other town, we make a quick run on gas and groceries. We enjoy the services in those towns too, nothing wrong with pitching in.
We also shop a lot on line, but we always use the same online stores, like Amazon.com, and so far they have all charged us the tax. Except one – the check printing people – I have to fill out the special form for about $5 a year, cause I’m afraid Uncle Sam will come to my house and get me.
I get some comfort by adding up our sales taxes for the deduction on our income taxes. They’ll give you a standard deduction based on your income, but our income went south a number of years ago, so their deduction is always a lot less than we spend, just on stuff like soap and toilet paper. Yep, keep every single receipt – the average tax on my grocery receipt is about $4, that adds up Baby! But I’m not proud, some of them are less than 50 cents, I save them anyway. I have my son add them up on an adding machine for practice. So far it’s been more than the standard deduction every time.
He immediately asked me, “why are we taxed for BUYING STUFF?!” He’s a consumer, that boy, and this seemed like some kind of blasphemy to him. He works for his own money – stacks wood and mows back acres for the neighbors. He understands that in order for our economy to function, people must spend money. And, he looks around at our pot-holed streets and the “closed” sign on the park trail and the reduced hours at the library and he wonders, “salaries for what?” So I took him to meetings where he could watch $150,000 salaries walk around in fresh shirts.
Now he gets it!
Amazon does not collect California sales tax or electronic disposal fees on their sales.
But, their on-line order system does collect California sales tax if the actual seller is located in California or has a business presence in California.
Amazon’s platform supports and has many sellers other than Amazon itself.