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Sunday, April 24, 2011

Proposal for Greater Taxing Authority for California Counties

California SB 653 proposed to give counties greater leeway over the types of taxes they can impose, subject to any required voter approval (such as required by Prop 218). The introduction to this bill states that it would:

"authorize the board of supervisors of any county or city and county, subject to specified constitutional and voter approval requirements, to levy, increase, or extend a local personal income tax, a transactions and use tax , vehicle license fee, and excise tax, including, but not limited to, an alcoholic beverages tax, a cigarette and tobacco products tax, a sweetened beverage tax, and an oil severance tax, as provided . This bill would require the State Board of Equalization, the Franchise Tax Board, or the Department of Motor Vehicles to perform various functions incident to the administration and operation of a local tax if the county or city and county contracts with the state agency to perform those functions."

My observations:

  • As evidenced by recent tax rate increases in a few cities that had to be voted in with a majority vote of voters in the jurisdiction (see 4/9/11 post), some voters want tax increases to help local budgets.

  • The bill gives local governments more tax options. Today's options are limited - a sales tax rate increase (state controls the base), a parcel tax (flat amount regardless of parcel size) or a new or increased utility user tax.

  • With more taxing options for the local government, creation of new taxes by multiple counties will make the law more complex for businesses due to new taxes that are not similar across counties.

  • For some of these taxes, such as on sugar beverages, there will be a tax gap because for many taxpayers, it is too easy to go to the neighboring county and buy the item. It will be difficult for the county to get these taxpayers to self assess the beverage tax for such purchases.

  • Rather than a county income tax, why doesn't California share part of its income tax with local governments to better match up the goals of the state and local jurisdictions.

What do you think?

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