California cities probably won’t receive a revenue boost if Gov. Arnold Schwarzenegger’s proposed sales tax on some service and entertainment businesses becomes law.
That’s the message from the California Chamber of Commerce.
The governor recently proposed increasing the sales tax 1.5 percentage points on top of the 7.25% to 8.75% consumers pays, depending on where they shop. It’s 7.75% in most places in Orange County. Plus he proposed broadening the sales tax to include, for the first time:
- appliance and furniture repair
- vehicle repair
- golf
- veterinarian services
- amusement parks
- sporting events
Most of those businesses are small. Click here to read more.
But the state constitution says the legislature can’t impose taxes for local purposes.
It also states local governments can’t impose new taxes without local voter approval. For example, La Habra voters recently approved a hike on existing sales tax.
Therefore, cities can receive revenue from a sales tax charged on services and entertainment only if local voters approve, the state chamber argues.
Think of the money the state would get from Disneyland, Angels and Ducks games alone that Anaheim wouldn’t receive.
In agreement is Jon Coupal, president of the Howard Jarvis Taxpayers Association, which sponsored that constitutional provision in 1996.
“Prop 218 provides stringent voter-approval requirements for taxes at the local level. The state may be able to impose a sales tax on services for only that portion of the sales tax going to the state, but the local governments receive about 2.5% called the Bradley-Burns tax, along with some other local add-ons.”
It would be tough to seperate sales tax on services for the state only. So every city that receives sales tax revenue would have to get 2/3 voter approval in order to approve the expansion, Coupal says.
“And the chances of that happening are slim to none.”
Not that the chamber advocates the tax increase. Its letter to the governor stated, in part, “Adding the services tax to the new proposed general sales tax hike would be a sudden, nearly 10% price increase in repairs, entertainment events and veterinary services. We have no doubt that such an increase would result in substanially less business at repair shops, attendance at entertainment events and care for ailing pets.”
A couple of other thoughts on a sales tax on services:
Californians aren’t too keen on the idea. In a recent online Business Pulse survey, 57% opposed the whole hike, but 15% of them said they’d support a increase if services weren’t included. Read more.
Earlier in the decade Gov. Gray Davis proposed reforming the sales tax and David Doerr of the California Taxpayers’ Association argued that a sales tax on services “discriminates against small business….and is harmful to the business climate in general. California services would immediately have a competitive disadvantage compared with services provided in other states.”
More economic stories…
- Daily tip: Avoid cutting employee perks
- Poll: How is your company coping with economic downturn?
- UPDATE: Oh no! 9.25% sales tax on some service businesses
- O.C. yearlong job loss second highest in U.S.
- 90% of U.S. banks tighten small-business credit
- September O.C. bankruptcies hit 3-year high
Here are a few noteworthy O.C. business stories you may have missed …
- Should you buy a model home?
- FDIC seizes Downey S&L
- Will drop in foreclosures stick?
- Struggling O.C. restaurant industry faces diners starving for deals
- O.C. green car maker counts on GM parts
- O.C. house sales doubling, best growth in 20+ years
- O.C. starter-home requires $85,800 salary — half 2005’s level
- Calif. workers get 20 more weeks of jobless benefits
- South Coast Plaza, department stores extend hours for holidays
- Fire officials respond to questions on roof sprinklers and gel
- Buy an O.C. business at a bargain price
- 35,100 O.C. jobs lost in past 12 months
- FiOS TV coming to Seal Beach
- Blizzard does it again: ‘Lich King’ break sales record
GET IT BY EMAIL! Subscribe to this weekly review of O.C. business news by CLICKING HERE!
Read my lips…Another Republican raising taxes…
It does make a difference whether the cities are Charter Cities like Santa Ana, and Anaheim where these charter cities decide what is best for the people, and do not have to abide by the state constitution, and can raise taxes with out a vote. Than a general law city like Garden Grove where they have to have to abide by the state constitution, and take it to a vote of the people. I believe very many of these charter cities are going to go under because the people are being taxed to the max and food going up, properties being lost, banks going bust, unemployment rising, no jobs, Santa Ana is going to have a Crisis on it’s hands, when the government will stop giving out grants to the cities. Just like the human body when it is at a crisis, the brain stops the appendages from functioning to conserve energy for the vital function of the brain. The Federal Government is no different, and we are starting to see this now.