Sales Tax Revenues are Dwindling

Pasadena Star News
By: Cynthia Kurtz
Published: 2/4/2015

Well maintained roads, clean parks, street lights, and the prompt arrival of police or firefighters in an emergency are services that businesses and residents alike depend on. We don’t often think about what basic services cost. In most cities and counties the primary source of funds for operations is the sales tax. But sales tax revenues are on the decline.

Local government gets just 0.75 percent of the 7.50 percent of the sale tax collected in California - 6.50 percent goes to the state and the remaining 0.25 percent goes into special transportation funds.
Hdl Companies, a local financial services company specializing in helping local government with tax related services, recently released a study about the diminishing and shifting local sales tax. They found that “after adjusting for inflation, per capita taxable sales in California have dropped over 15 percent in the last ten years.”

Hdl cites a number of reasons for the decline - most a reflection of how our tastes and priorities are changing.

First, and probably the most significant change, is the increased preference for shopping on-line rather than in stores. Shopping in stores fell eight percent during the 2014 holiday compared to the 2013 holiday period while on-line shopping increased by fifteen percent.

The National Retail Federation estimated that 44 percent of all holiday shopping was on-line. Fifty percent of office and school supplies are purchased on-line and 60 percent of consumer electronics.
On-line companies that have a physical presence in the state are required to collect sales taxes but those dollars don’t always get collected or returned to the city where the product was purchased.
Technology is reducing what is taxable. We use to buy books, CDs, DVDs, and computer software. But now consumers are more apt to get their music, movies and books digitally. The cloud holds and dispenses more and more of what we need.

What we are spending our hard earned dollars on is also changing. With the costs of necessities such as housing, healthcare, and education increasing as incomes stagnate or decline, there are fewer and fewer discretionary dollars to buy goods that are taxed.

In its effort to stimulate economic development and keep businesses in California, the Legislature has adopted new sales tax exemptions. We need to make California an affordable place to do business. But the exemptions have narrowed the tax base by some $11.5 billion annually and reduced city and county revenues.

Some local governments have responded by asking voters for special tax increases. Today there are 140 cities and 44 counties with tax overrides. Others are trying to increase their revenues by recruiting companies to move to their city or county often by offering sales tax rebates.
It is clear that tax codes are not keeping up with our changing lifestyles and technology. This isn’t just a local government funding problem. It is a problem for everyone who counts on these services.