Sales and use taxes in California (state and local) are collected by the California Department of Tax and Fee Administration, whereas income and franchise taxes are collected by the
Franchise Tax Board. At 7.25%,
California has the highest minimum statewide sales tax rate in the United States.
Groceries,
diapers,
soap,
medical devices,
feminine hygiene products are all excluded from the California sales taxes. The statewide base sales tax rate of 7.25% is allocated as follows: • 7.25% – State + Local • 6.00% – State • 3.9375% – State – General Fund • 0.50% – State – Local Public Safety Fund • 0.50% – State – Local Revenue Fund for local health and social services • 1.0625% – State – Local Revenue Fund (2011) • 1.25% –
Uniform Local Tax • 0.25% – Local County – Transportation funds • 1.00% – Local City/County – Operational funds The statewide sales tax in California was first imposed on August 1, 1933, at the rate of 2.50% under the "Retail Sales Act of 1933." No local sales taxes were levied at that time. In an editorial dated September 5, 1933, the
Los Angeles Times had criticized the 2.50% sales tax rate in stating that the "sales-tax rate should not have exceeded 1 per cent" and that the tax rate was "so high as to discourage business, which will make the tax less productive."
Local sales taxes Supplementary local sales taxes may be added by cities, counties, service authorities, and various special districts. Local county sales taxes for transportation purposes are especially popular in California. Additional local sales taxes levied by counties and municipalities are formally called "District Taxes." The effect from local sales taxes is that sales tax rates vary in California from 7.25% (in areas where no additional local sales taxes are levied) to 11.25% (two cities located in Los Angeles County). For example, the city of
Sacramento, the state capital, has a combined 8.75% sales tax rate, and
Los Angeles, the largest city in California, has a combined 9.50% sales tax rate. As of July 1, 2022, 62 local jurisdictions levy no additional local sales tax, while 6 cities (all located in
Alameda County) have the highest combined sales tax rate in California at 10.75%. However, this is a statutory restriction and the
California Legislature routinely allows some local governments, through the adoption of separate legislation, to exceed the 2.00 percent local tax rate cap. The 2.00 percent local tax rate cap is exceeded in any city with a combined sales tax rate in excess of 9.25% (7.25% statewide tax rate plus the 2.00% tax rate cap). As of July 1, 2022, 140 California local jurisdictions have a combined sales tax rate in excess of the 2.00 percent local tax rate cap: SB 566 legally authorized all California cities to levy additional local sales taxes. SB 566 also increased the maximum combined local sales tax rate (local sales tax rate cap) that can be levied by local governments from 1.50% to the current 2.00%. As of April 1, 2017, 176 cities and 32 counties have approved local sales tax increases. Not only has the number of local city sales taxes greatly increased since the passage of SB 566, but the magnitude of the sales tax increases (as measured by the sales tax rate increase) has also significantly increased as more cities are seeking larger sales tax rate increases. Whether simple majority voter approval or two-thirds voter approval is required depends upon the type of sales tax levied and the type of local government imposing the sales tax. Unrestricted
general sales taxes are subject to majority vote approval by local voters. General sales taxes can be spent by local politicians for any general governmental purpose, including public employee salaries and benefits. General sales tax spending decisions are made after the tax election by local politicians as part of the regular annual local government budget process.
Special sales taxes dedicated for one or more specific purposes are subject to two-thirds voter approval by local voters. Any sales tax imposed by a local government other than a city or a county (e.g., a special district such as a local transportation agency) must be a special tax subject to two-thirds voter approval by local voters. Proposition 218 does not legally authorize any local government to levy a sales tax. The legal authority to levy a local sales tax must come from a state statute. A two-thirds vote of all members of the legislative body of the local government is usually required before a local sales tax measure may be presented to voters at an election.
Relationship between sales tax increases and public employee costs In 2016, the driving force behind many local sales tax increases is skyrocketing public pension costs and public employee retiree healthcare. Research has shown that local sales tax increases are concentrated in California localities that have the largest pension problems.
County transportation sales taxes Countywide sales taxes for transportation purposes are very popular in California. However, transportation sales taxes are regressive and also shift the financial base of transportation systems from user fees to taxes paid by all taxpayers without regard to direct reliance on those transportation systems. Some counties have passed multiple transportation sales taxes increases such as
Los Angeles County that has passed four transportation sales tax increases for a combined rate of 2.00%.
Local sales tax reduction or repeal using Proposition 218 Proposition 218 ("Right to Vote on Taxes Act") was a 1996 initiative constitutional amendment approved by California voters.
Proposition 218 includes a provision constitutionally reserving to local voters the right to use the initiative power to reduce or repeal any local tax, assessment, fee or charge, including provision for a significantly reduced petition signature requirement to qualify a measure on the ballot. A local sales tax, including a sales tax previously approved by local voters, is generally subject to reduction or repeal using the
local initiative power under Proposition 218. A local sales tax used to repay bonds is a legally more complex situation because federal contract impairment issues may preclude the exercise of the local initiative power under Proposition 218. Local voter-approved transportation sales taxes often include at least a portion of the tax proceeds to repay bonds. Advice from
legal counsel is generally needed in situations where bonds have been issued and sales tax revenues have been pledged to repay the bonds. A local
compensatory initiative under Proposition 218 is an alternative option when contract impairment problems are present.
Recent statewide sales tax increases Recent temporary statewide sales tax increases include: • From April 1, 2009
until June 30, 2011, the state sales and use tax increased by 1% from 7.25% to 8.25% as a result of the
2008-2009 California budget crisis. • Effective January 1, 2013, the state sales and use tax increased by 0.25% from 7.25% to 7.50% as a result of
Proposition 30 passed by California voters in the November 6, 2012 election. The change was a four-year temporary tax increase that expired on December 31, 2016.
Taxation of online sales As of July 1, 2011, California applies sales tax to online retailer purchases. It is the retailer's responsibility to collect the state sales tax on all purchases made within (or shipped to) California regardless where the retailer/supplier is located. Businesses with multiple locations in the state may attribute all online sales taxes to a single jurisdiction, which had led to district-shopping for revenue-sharing deals with cities that return a portion of the collected sales tax to the business. In 2019,
SB 531 was approved by the legislature to close this loophole, but was vetoed by Governor
Gavin Newsom.
Exemptions Occasional or one-time sales not part of a regular business are exempt, except that sales of three or more non-food animals (puppies, kittens, etc.) per year are taxed. There are also exemptions for numerous specific products, from telephone lines and poles, to
liquid petroleum gas for farm machinery, to coins, to public transit vehicles. There are
partial exemptions for such varied items as racehorse breeding stock,
teleproduction service equipment, farm machinery, and timber-harvesting equipment. For an organized list of exemptions, with estimates for how much revenue the state loses and the people saves for each, see Publication 61 of the Board of Equalization. Sales tax is charged on
gasoline. The tax is levied on both the gasoline and on the federal and state excise taxes, resulting in a form of "double taxation". The sales tax is included in the metered price at the pump. The California excise tax on gasoline as of mid-2011 is 35.7 cents per gallon for motor fuel plus a 2.25% sales and use tax, 13 cents per gallon for diesel plus a 9.12% sales and use tax. The California Department of Tax and Fee Administration provides an online list of sales taxes in the local communities of the state. Thus, a customer can generally avoid sales tax liability by purchasing a downloadable version of software instead of a physical version.
Debate Critics of the current California sales tax system contend that it gives local governments an incentive to promote commercial development (through zoning and other regulations – otherwise known as "fiscalization of land use") over residential development, including the use of eminent domain condemnation proceedings to transfer real estate to higher sales tax generating businesses. == Property tax ==