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Saturday, April 9, 2011

Sales Tax Rate Increases in Some California Cities

The California Board of Equalization points out that effective April 1, 2011, the sales tax rate increases in 13 cities where voters approved them. That makes the rate 10.25% in a few cities including Union City, El Cerrito and Santa Monica. That's a high rate!

Certainly, the cities need the money and voters wanted to continue services that otherwise might have been cut. The problem is that local governments do not control the base of the sales tax. That is controlled by the state legislature. A rate increase most likely could have been avoided by broadening and modernizing the sales tax base. This could be done by including more types of consumption - entertainment, personal services and digital downloads purchased by consumers (not businesses). I think this would also make the sales tax more equitable because a lot of the currently exempt consumption is consumed in larger quantities and dollar amounts by higher income individuals who can afford such items.

For more - please click here.

What do you think?

1 comment:

Evelyn Tan said...

I agree with your idea of including more types of consumptions to broaden and modernize the sales tax base instead of increasing the sales tax rate. I especially agree with the idea of taxing digital downloads purchased by consumers, for example iTunes. According to Nexus Negotiator blog (, as of today, there are 25 states that requiring sellers to impose sales tax on digital downloads purchase, such as iTunes. California isn’t one of those states that impose sales tax on digital download purchase. California doesn’t impose sales tax on digital download, but imposes sales tax if it’s delivered through tangible medium. For example, if someone buys a song from iTunes in California, he won’t be taxed on sales tax. However, if he decided to purchase the CD that contains that song, he will be taxed on sales tax. My question is “why government taxed certain way, but not the other when at the end of the day, consumers will get the same product?” I feel this can be considered loopholes for California residents to avoid paying tax. Nowadays, everything can be purchased through downloading it from internet. Does this mean government will let people not paying tax as long as they purchase them from internet and purchase them not in a tangible form? Will this influence people to download it as opposed to purchase it in the tangible form? Does this violate the neutrality aspect of the principle of good tax policy? How much revenue that the government lost from this exemption? According to California Revenue and Taxation Code Publication No. 61 (June 2010) (, revenue lost from intangible personal property exemption is $75.3 million; yet, the government keeps increasing the sales tax rate and exempts the purchase of digital download.

My perspective as a taxpayer: I rather pay tax on digital download, like iTunes, which only cost me $0.99 per song, than paying on an increased sales tax for ALL other goods and services that I purchased. Moreover, I agree with what you said that with taxing digital downloads, it will make the sales tax more equitable because people who purchase digital downloads are higher income individuals who is capable of paying the tax that will be imposed on them.