About that sales tax

New taxes up for consideration at the Oakland City Council meeting (PDF) tomorrow include a marijuana tax (PDF) (covered thoroughly by Becks), a new parcel tax for park maintenance (PDF) (which I wrote about here), and, finally, a temporary sales tax hike (PDF).

Unlike the park parcel tax, the sales tax (proposed by District 4 Councilmember Jean Quan) is not earmarked for any specific purpose – it’s just money for the General Fund. This means that, unlike most local taxes, it will only require a yes vote of 50% to pass. This low threshold for passage makes it particularly appealing to lawmakers desperate for cash, and particularly vexing for citizens who are tired of feeding the City’s endless appetite for more and more of residents’ money. Half of people will vote for pretty much anything. (Perhaps you are wondering, if this is so easy to pass, why haven’t they done it already? It’s because they couldn’t. Until 2004, cities had to go to the State legislature (PDF) to get their own sales tax, now they can just put it on the ballot.)

The sales tax in Oakland is currently 9.75%. That includes the State-set rate of 8.25% (click here to see how that breaks down), .5% for Alameda County health services, .5% for ACTIA (county transportation stuff), and .5% for BART. The Council has a choice tomorrow night of placing on the ballot either a .25% increase or a .5% increase. The .25% increase would generate roughly $8 million annually for the City, and the .5% increase would generate around $16 million (about half a million of which would be given away to OO-funded programs under the Council’s “compromise”). There are currently two cities in the entire State of California that have a sales tax rate greater than 9.75%, so if we do end up passing the hike, we will be joining Pico Rivera and South Gate in a very exclusive little club.

Let’s see, what else? Oh, so technically this isn’t a sales tax, it’s a “transaction and use tax (TUT)” which is mostly the same in practice, although different theoretically – sales tax is a tax on the retailer selling you something, but a TUT is a tax on you for buying anything, and you’re supposed to pay your local TUT no matter where in the State you are. For practical reasons, the State mostly lets retailers just apply their local TUT to all their sales (it wouldn’t be realistic to expect the clerk at Amoeba to check my address and add an extra .5% tax to my purchase cause I live in Oakland). But there are exceptions. First, it you get something shipped to you, you are supposed to pay your local TUT no matter where you bought it. Second, if you are buying a car, you have to pay the TUT for the city the car is registered in, not the city you purchased it in. Half a percent of the cost of something pricey like a car is kind of a lot of money, and if this tax passes, you will not be able to escape that cost by running off to Vacaville or whatever for your purchase.

Allegedly, this tax (PDF) would last only for three years, to which I say: what-ever. There is no such thing as a temporary tax in Oakland, and if you support this because you think it will actually be just for a few years, you’re a fool. The pressures on the City’s budget are not going to be any less three years from now, folks. The economy will hopefully have recovered by then, but the City is going to have to start paying for Measure Y officers out of the General Fund, since Measure Y will run out of money, and we’re going to have to start contributing to PFRS to the tune of tens of millions of dollars per year. If this passes, in three years, it will be right back on the ballot, with the exact same threats of library and park closures if we don’t extend it. So keep that it mind.

48 thoughts on “About that sales tax

  1. bennett

    The approach of government revenue generation wherein they reason that they can “tax and fine” their way out of this mess, is ill advised IMHO.

    Already in many retail stores, merchant net margins are less than the Sales Tax, once you factor the bank charge of the plastic-card used by most customers – especially Am X.

    How that is fair I cannot process.

    When are we going to hear about agreements by unions to allow reduction in pay and entitlements? When are we going to remove excess government processes and systems that load the costs of projects beyond private sector comparables? When are we go to see our Cities and State invest in business development incentives and user-friendly solutions that make it MORE likely that our rapidily dying “mom and pop” sole-proprioterships survive the ‘melt down’?

    In summary – I believe we have reached the tipping point wherein the sales tax rate, especially absent an internet-normalization component, is SO HIGH that any proportional yield-increase from the higher tax will be offset by the reduction in sales. 10% up in taxes = 10% lower sales – zero sum game. Add to that, this will contribute to even more businesses closing. Therefore, unless you like boarded up storefronts and failed shopping malls, this may not be the best idea.

    PS – Where is my “bail out?”

  2. Ralph

    here is what i understand, this city could use some more republicans. those pesky progressives on council seem to think we can tax our way out of this deficit. here is the ugly truth – we won’t.

    at some point, they need to do what they are not doing make the tough decision and cut ineffective and inefficient programs and services.

    and bring people and new business to the city

  3. TheBoss

    Being a car dealer in Oakland would be so terrible. First, you have the state raising the VLF fee, which creates a massive incentive for people to keep older cars which pay a lower rate. Then, you have the state raising sales taxes in a recession, making buying a car even more onerous. Finally, the city wants to raise taxes yet again, just to make sure no one buys a car.

    I actually went down to the Broadway Auto Row a couple weekends ago to check things out. I saw lots of salespeople and few customers.

  4. V Smoothe Post author

    The tax would apply only to Oakland residents buying a car. Cars purchased in Oakland by people who don’t live here would not be subject to the TUT, but cars purchased by Oaklanders in any other city in California would be.

  5. TheBoss

    Good point, though I bet most people who buy cars here are from Oakland. Also, you have to bank on people understanding that nuance of taxation, which is not necessarily a good bet. I mean, if you know that you pay 10% in Oakland, it would be natural to assume you’d pay that on a car as well.

  6. V Smoothe Post author

    True. The trickiness of the tax makes it even more distasteful. With respect to car sales, the Council is all concerned about retention of dealerships in Oakland, and next week, the Community and Economic Development Committee will receive a report on strategies to support such businesses (PDF). The recommended strategies include connecting the dealerships with employment placement services, so laid off dealership staff can be swiftly retrained for other jobs. Gotta love that positive attitude!

  7. bennett

    The other challenge linked with this is positioning – a classic failure to market to the public the value proposition of the Government services in relation to their cost. As Government et al has developed a fully integrated monopoly, there is little one can do except drop-out completely, to avoid the taxation meted out. That unfortunately does kill “the little guy”

    Imagine if there were only one restaurant in town that gave poor service, mediocre food, high prices and by decree could force you dine there twice a week under penalty of law. Incentive to change? Heck no. I wish (sardonically) that the services and products we offer were required purchases by law, like insurance is – but that just is not the case…

    Thomas Jefferson would not like what is going on.

  8. Chris Kidd

    Thomas Jefferson would also be appaled by our multi-racial society. He would also be scared to death of cars and airplanes.

  9. Ralph

    on the issue of the car…this might surprise city council, but there are people who do not live in Oakland but plan to move to Oakland. In anticipation of such a move, they make big ticket purchases in Oakland. Now I know we aren’t talking a lot of people, but why discourage people from making that purchase when every other jurisdiction is substantially less.

  10. Max Allstadt

    Any possibility of a counter-measure on the ballot which freezes the current rate for the next 10 years, or even lowers it? I bet the business community could be convinced to pay for a signature drive…

  11. Sean Sullivan

    Sales Taxes are Regressive Taxes and always affect those with the least resources the most. This town doesn’t need more republicans, it needs leadership that thinks about the impact of its actions. I know we are sure to hear “we’ll all have to share the pain” as if this is really going to be the tax that forces our council to cut back their Starbucks and Whole Foods runs.

    A simple percentage increase is as deadly to those living below the poverty line as it is to Oakland’s beleaguered car dealerships. In fact, its a tax that penalizes local business owners and undermines the supposed support we give to small, independent mom and pop shops in Oakland.

    This town does not need more republicans. The currently democratic in name council is ready to undermine the many attempts of the homegrown business community to create a local, living economy. The national slander of Republicans is that Democrats “tax and spend” here we’re ready to prove that we “tax and lose”.

  12. Robert

    I plan to vote against any sales tax increase, at least until after concessions of some sort have been negotiated with the employees. But I really don’t think that in the short run even a 0.5% increase is going to divert business out of Oakland to other communities. I rarely spend more than $100 at a time when I go to a store, and in a rational world am I going to spend $3.50 riding the bus (or more driving) just to save $0.50? Now if it was $1000 for an LCD TV that might be different, but there are far more powerful considerations in making that kind of purchase. Now over time, it will might have an impact on where mom and pop decide to open their store. Other arguments, such as its unfair to the poor, and we will never get rid of the tax are far more powerful.

  13. Ken O

    Sean, thanks.

    All taxes are “distortionary.”

    We should tax things we DON’T want:

    ….pollution, waste, more CARS (Richard Register’s “Auto Sprawl Syndrome”), chain stores, made in China plastic junk, McDonalds and other fast food joints, especially corporate ones, corporate cigarettes, corporate carbonated soft drinks, corporate banks, parking spaces (yes, more residential permits!! Berkeley has it right.)

    and NOT tax things we do want:

    …more local business, BICYCLES, local food, high quality tap water, strong charter schools, art galleries, wine bars, clothes swaps and 2nd hand shops, shoe/clothing/car/bike repair shops, local banks and credit unions, gondolas on lake merritt, income (wages/jobs- we want more jobs and wages right??)

    I attribute the taxation concept to Herman Daly, Beyond Growth

    City of Oakland needs to cut expenses. (partly w/ green initiatives)

  14. Ken O

    All: wouldn’t it help if we could see the entire city budget in a clear presentation? Then as a community we can see what money is being spent on and make arguments a bit more easily.

    The IRS in their annual tax booklet includes a chart of federal income and expenses. (although, not assets and liabilities)

    Is there something like this for City of Oakland’s budget?

    I get the feeling this city’s budget will need to shrink in perpetuity. I don’t see a recovery anywhere near 2000-2006 levels. Same thing applies to other cities.

  15. Ralph

    sean, i am willing to live with democrats who are pro capitalism and growth (and not just local independent ma and pa business – i want some corporations). More than anything I would like to see an influx of new ideas.

    but i am deeply troubled that city council would choose to tax the people who can least afford it. some of the kids and families I work with never leave Oakland. they are going to be caught in the tax. those who have reason to travel to a low tax jurisdiction (ltj) are going to make purchases in the LTJ.

    i really wish council will think this

  16. len raphael

    staff and council members understand that oakland under their aegis will continue to be unattractive/scary to out of towners to shop here no matter what the perceived sales tax rates are. the people who shop here now do so out of neccessity or convenience. so i have no doubt raising the tax rate will increase revenue and not have much effect on retail sales.

    -len raphael
    temescal

  17. Ken O

    Oakland needs to tax our city’s biggest carbon monoxide/dioxide/particulate matter/ozone emitters. Unfortunately, much of this is under state/federal jurisdiction.

    And also people who pump out perchlorethylene (toxic dry cleaners) should be taxed. It’s bad for both the clothing wearer and the dry cleaning workers! Cancerous.
    http://en.wikipedia.org/wiki/Tetrachloroethylene

    Now THAT would get us some revenue!

    We should also tax people driving through Oakland’s streets and freeways who cause lots of pollution.

    Most of all, tax the Port of Oakland’s dirty ships. Those ships belch out unsmogged pollution to the tune of 30,000 cars worth of pollution each. I give thanks for the “recession” every day. Huge silver lining there – less driving and less container shipping polluters. The way our economy is set up is unsustainable.

    An unsustainable way of life can’t continue. Why try to drag it out by giving more incentives to car dealers? Writing’s on the wall. We need to support alternate modes. I sold my last car in 2006. This saves me tons of (a) gas money (b) insurance money (c) repair and maintenance money and (d) grief. I spend some of the excess money saved at local Oakland businesses. Neat eh?

  18. californio

    Is the City Council really going to get Amazon, eBay, and all the rest of the online sellers to collect this tax and distribute it to Oakland? If the TUT applies to online purchases delivered to Oakland, it’s a logistical nightmare just to collect. What if Amazon just refuses to collect it? Are they under some kind of legal obligation to do so? What about the other 100K online retailers out there? If the individual purchaser is supposed to pay it (what, voluntarily?) good luck trying to collect.

    Maybe it’s worth thinking about the practical ramifications of passing such a tax beforehand. It’s easy to imagine collection costs exceeding any gain in gross revenue.

    As far as marijuana tax is concerned, if marijuana is considered a medicine, then taxing it might be open to legal challenge. Can a city decide to tax one “medicine” and not another? If marijuana is still technically illegal in the state, can it be taxed? How much will legal challenges to it cost the city?

  19. Ralph

    californio, you make a valid point about collection. walking home from lake merritt bart I had one thought how is the city going to collect this tax and isn’t the cost of collection going to exceed the amount recovered?

    could i avoid this tax by giving a relative money to buy a vehicle in a LTJ, then some time later (30 – 60 – 90 days) take title through a gift or transfer of ownership. and if the tax is ONLY 3 years why not just defer big ticket purchases for 3 years

  20. r kaplan

    In response to question about cannabis tax: It is a proposal to create a business tax classification, similar to what we have for other types of businesses (including health related ones). By the way, aspirin is taxed already, and California says med cannabis dispensaries should pay sales tax. Oakland has 4 permitted dispensaries – no reason not to take them into account in our business tax structure.
    Finally – the new Fed AG (Eric Holder) says US gov will no longer go after med cannabis when it is allowed by State law.

  21. len raphael

    oakland will only be able to collect the additional use tax from individuals on out of town vehicle and boat personal purchases. any other non business purchases, would have to rely on residents self reporting the use tax on their annual california income tax returns.

    Individuals would no more self report oakland use tax than they would report Amazon purchases they are supposed to report now.

    However, businesses would have a high compliance in remitting the use tax on outside oakland purchases because there’s a fairly high audit rate of businesses for sales and use tax understatements. They have to report out of district purchase on their quarterly california sales tax returns.

  22. Ralph

    might as well tax medical marijuana to the max, agenda from the 01-17-08 Measure Z Oversight Committee* meeting indicate that medical marijuana is just a step en route to sell MJ to the masses

    Zoning – Zoning should be reasonable, unlike the current medical dispensary ordinance. 200 feet from churches or schools in a densely populated city like Oakland is more reasonable than the current 1000 foot distance requirement for MCD’s. The arts and entertainment district should be zoned to allow cannabis outlets, regardless of proximity of schools.

    Now there are many who support medical marijuana and if it were regulated by the DEA I could see the value. But when you hear young people erupt in cheers when P Hogan says she will be the mayor who smokes you know they don’t get it. We have children in Oakland who can barely read. Born underweight, these kids are developmentally behind their hill born peers on every level and in their eyes the city has legitimized smoking pot so why not smoke. And do not get me started on the black market for prescriptions.

    Cannabis clubs don’t care to whom they sell. If we want to kill Oakland’s future one young person at a time, I see absolutely no reason not to tax to the max those people whose sole interest the profit motive without regard to the community which is destroyed.

    * for the record this was something found on the internet, someone with more knowledge may be able to put it into context

  23. Mike Caton

    I completely second Ken O about taxing things we want less of. If you tax purchases, people will purchase less. It always disincentivizes the taxed activity. If you must tax, tax pollution, tax trash, fine families of truant kids. Best of all, don’t add more taxes and force the city to make do.

    So if I buy a car in Fremont, how does Oakland know I didn’t pay the $75 sales tax I owe? Note to Oakland city officials reading this blog: I did not.

  24. MarleenLee

    Thanks for posting that link, Chris. While I appreciate “community involvement” in the budget process, to some degree, I have no interest in wasting my time listening to ranting wackos talk about how we wouldn’t need the police if we just gave them whatever they wanted. That article highlighted how meetings like this tend to attract these sorts of nutballs.

  25. californio

    V,

    I understand this when it applies to local dealers. But is a dealer in Reno supposed to know of some kind of Oakland tax? And again, what about online purchases?

    Still seems to me like the issue of collection would be enormous, requiring at least a few new FTE’s (!), but maybe there’s something I’m missing?

  26. V Smoothe Post author

    Well, it only applies to purchases within California. If you buy stuff out of State, you’re personally responsible for reporting that to the State and paying the tax on it, but almost nobody actually does that. The reason it’s different for cars is because you have to register your car with the DMV, so the State does know what you bought. Collection compliance isn’t an issue for City staff – the State Board of Equalization deals with that. Their website has a number of FAQs that might help answer your questions.

  27. bennett

    V is right – Veh transfer fees are managed through the registration process, distributed back to the countiees/cties. If one drives a car with a valid out of state plate you may “get away with it”, but technically, you are supposed register it as CA vehicle at your address which is where the sales tax on the purchase is calculated.

    It is POSSIBLE, one could circumvent that if you bought elsewhere, drove around the country for a x-days ( per the code) and then simply registered a car you already owned and used in this state – they do not require you to pay sales tax on a car you own, if you relocated here from Nevada for example. Could one be bothered?

  28. californio

    So this boils down to a tax on cars, and mostly new cars. I was thinking every time you ordered Chinese from San Leandro (not often I trust) the delivery guy would have to calculate the tax, but only if he knows he’s over the border, etc., etc.

    I can’t imagine this making a dent in the budget deficit.

  29. californio

    One more thing. I noticed that in answer to a query, Dan Lindheim stated that Oakland wasn’t ready to declare bankruptcy. Why not, if we’re that much in the red? Anyone have an idea when city paychecks actually cease? What does it take to follow in the footsteps of Vallejo?

    Seems to me all they’re proposing just prolongs the inevitable. Do they really expect to raise $81M or whatever it is by taxing bags of dope and new cars? Get real.

    So glad, also, that Mayor Dellums looked those folks in the eye. Help is on the way.

  30. V Smoothe Post author

    I think I may have made this seem more complicated than it is. Not on purpose, of course. A TUT is just like sales tax, EXCEPT that it applies to cars you buy, even if you buy them outside of Oakland. And non-Oakland residents won’t pay it on cars they buy here.

    I’m working on a whole post about the town hall, which will go up probably tomorrow, but basically, what Lindheim said is that bankruptcy would not help Oakland much.

  31. Max Allstadt

    How realistic is the enforceability of this tax? It really seems like there are many circumstances where it will be impossible to collect.

    And while we’re at it, did Lindheim really say he was going to cut OPD to 600 officers in order to balance the budget? That’s easy for him to say, he lives in Berkeley, so he won’t be endangering his own family.

  32. V Smoothe

    The use tax is no different from a sales tax in terms of enforcability.

    Regarding Lindheim, he mentioned that as a possibility, but please wait until I post about the meeting before getting worked up about that.

  33. Max Allstadt

    Fair enough. dto510 twittered the possibility of cuts earlier today. Seemed outrageous. I’ll wait for details.

  34. Ralph

    is there a compelling reason to attend tonight’s council mtg. i’m listening now but I i got the feeling that the tax is a done deal. council is going to ask us to vote one way of the other and most people I would think would be against so i am trying to determine if attending is worth it.

  35. len raphael

    the distinction between sales and use tax probably is no never mind in this situation. consider them as just sales tax.

    use tax compliance by mid to larger businesses is high because it is enforced by a fairly high rate of audits of businesses holding sales tax permits. (most big businessess do, of small businesses, strictly service businesses do not).

    Federal government agencies are not subject to sales or use but most non-profits, state and local agencies are subject to use tax. (interesting to think the city is taxing itself?)

    so this new use tax would be very collectible from vehicle purchasers, businesses and non profits that have sales tax permits, plus poor people who don’t do their big ticket shopping on the net or Walnut Creek.

  36. Ralph

    thank god for hurdles…i really like IDLF, he seems to be the only one with any courage and he seems to understand the people’s frustration with council. How can council in good conscious as the residents to pay higher taxes when council is not examining how to provide more with less and council recently gave away $2MM.

  37. V Smoothe Post author

    I will not get to writing a post about tonight’s meeting until Thursday, but just FYI, Council did not vote to put the TUT on the ballot (required 6 votes, De La Fuente, Brunner, and Brooks said no, Larry Reid abstained, Kernighan, Nadel, Quan, and Kaplan said yes). They voted unanimously for the marijuana dispensary tax at 18%. They decided to delay consideration of the parks parcel tax until the fall.

    They did nothing on armed security – a motion to hire the armed security (rather than using the money to pay for OPD overtime) tied, and the Mayor will have the opportunity to break the tie at the next meeting.

  38. californio

    Rebecca, V tells us you voted Yes on the TUT. I’d be interested in hearing your reasoning behind the vote. Are there really no alternatives to new taxes? I’m not intimately familiar with the budget details but would like very much to know how you thought it through.

  39. Jonathan C. Breault

    Nothing occurs without context and this is true with Oakland’s proposal to increase the sales tax. The best way to stimulate economic growth is to tax consumption and reward savings and investment. Given that we tax savings and investment thus discouraging this important activity compounding the problem with additional consumption tax stifles growth and literally kills businesses. Oakland can ill afford to discourage business formation and expansion but it never seems reluctant to try just that. Apparently the politicians around here are not aware of the economic truism which is that higher taxes mean lower receipts because a greater portion of the economic pie becomes stagnant and is not dynamic which is the propellant that causes growth. More money taken out of the private economy by government means less economic activity which means fewer businesses succeeding employing fewer people who are thus less able to consume and grown the economy. Oakland has just about taxed itself to death. Oakland is not quite terminally ill but if the political establishment has much to do with it Oakland is the next Vallejo.

  40. Sophie

    I read your website every week, its great and got lots of information to take in and lots of interesting articles.

  41. Steve Lowe

    No matter how much we tax booze and ciggies, folks keep buying it, and so it will be with marijuana when it, too, is finally and fully legalized. So let’s get to it, not only for the revenue but for all the savings we get by cutting out the CAMP expenses and also (my personal favorite) the expense of all the rangers it takes to keep Californians out of our parks because, ostensibly, we can no longer justify the expense of keeping them open; so, therefore, the only people in the parks are the marijuana growers who (a) get as much land as they need for free, and (b) start as many or more fires per year as did the bad and/or inadvertent campers of old.

    As fire season approaches, think about your gov’t inaction in action – and all the rangers out there, bored as hell and taking a secret puff now and then to relieve the monotony.

    And the Russkies thought they had a chance of taking over someday!

  42. len raphael

    reread the sales tax proposal. sooner than later we’ll have to raise sales taxes and parcel taxes no matter how drastic we’ll be able to cut outlays.
    fed and state cuts, likely continuing declines in real estate tax revenue etc.

    raising sales taxes to a historic high before a bunch of neighboring areas raise their rates, is the same mistake we made with parking meters.

    we don’t want to get tagged as the first major city in California to have a 10% sales tax. There will be other cities doing it, wait a year.

  43. len raphael

    V, your sarcastic comment about oakland retraining ex car salespeople. selling cars has a lot in common with selling solar power systems. shouldn’t take our usual 100k cost per trainee to show results.

    trainiing them to sell dope and dope products? maybe the parts people.

    mechanics. without some more light industry here, that’ll be tough.