The California sales tax went up 1 percent last Wednesday, and local businesses are worried.
“We have so many other things going on that are negative, sales tax really doesn’t help,” said Richard Luna, owner of de Luna Jewelers in downtown Davis. “I don’t care if it’s a penny extra.“
The state legislature passed the sales tax increase earlier this year as part of a $42 billion budget deficit plan.
The total increases in the state’s taxes are about $12.5 billion, raising the statewide sales tax rate to 8.25 percent, according to the State Board of Equalization. Additionally, each county has a sales tax rate, bringing Davis‘ total sales tax to 8.75 percent. The UC Davis campus is exempt from county sales tax, so the on-campus sales tax is 8.25 percent. The current sales tax rate will expire on July 1, 2011.
Sales tax is one of the four major sources that affect the California State General Fund Budget, according to the LAO 2009-2010 Budget Analysis Series. The other three are personal income tax, corporate tax and property tax. The sales tax is the second largest source after the income tax.
Other tax increases include a 0.5 percent increase in fees to license vehicles, which will also expire in 2011. A 0.25 percent increase in the personal income tax will affect the 2009 and 2010 tax years, and another reduces the dependent care credit that parents and caregivers can get from the state by $300.
However, many state officials and businesses fear that the increased sales tax will deter California consumers from buying.
“If consumers stand on the sideline and don’t purchase because of it, you can have a problem where there will be no net increase,” said Bart Johnson, manager of Woodland Motors.
Though Johnson recognizes the effect the increases will have on consumers, he believes good business practices will overcome any problems. Nonetheless, he said he still does not see the rationale behind the increases.
“I don’t see how any tax increase can benefit a business in the state of California when taxed,” he said. “California has lost a lot of businesses who have moved out of state because of their taxation issues.“
The local businesses essentially are collectors of the sales tax, said Luna of de Luna Jewelers. If customers don’t want to pay the tax, it hurts both the business and the economy.
Luna said the common consumer carries the burden of the budget deficit.
“It seems like the people who are earning wages and working hard are the ones paying the taxes,” he said. “Here they are hitting us over the head again. The people are often generous, but that’s because they want to be. People are not generous about having to pay more taxes.“
The Davis Chamber of Commerce maintains the official position that a “sufficient sales tax base” is necessary for providing citizens of Davis with the amenities they need and desire. The Chamber did not have any comment about the recent sales tax increase.
Rosalie Paine, co-president of the Downtown Davis Business Association, or DDBA, and co-owner of Nestware, a downtown Davis home décor retailer, claimed the increase has generated conversation among her customers. Most of her customers, said Paine, have decided that the sales tax is unnecessary for the state budget.
DDBA Administrator Joy Cohan offered further insight on the increases‘ effect on downtown Davis businesses.
“The DDBA member businesses have not reported any specific concerns related to the recent sales tax increase,” Cohan said. “However, it clearly adds to the burdens of downtown Davis‘ retailers and small business owners in an already challenging economic environment.“
The tax increase could last until 2012. California voters will decide whether or not to extend the tax increases an extra year in a special election to take place on May 19. The election will also feature a number of other budget-related initiatives.
RONNY SMITH can be reached at city@theaggie.org.
