Around Town: Sales Tax 101 (August 23, 2020)
Both Victorville and Apple Valley have placed measures for sales tax increases on their local 2020 ballot. Let’s dig a little deeper to get an understanding of sales taxes and their history in California.
California’s first state sales tax was passed in 1933, with a 2.50% rate. A Los Angeles Times editorial criticized the new tax as being too large saying that “no rate should exceed 1%.” Boy, have the times, and the Times, changed.
Sales-and-use taxes in California are among the highest in the United States. They are considered a proportional tax because the more you spend, the more you pay. Sales taxes are imposed on retailers for the privilege of selling personal property at retail, now including out-of-state e-commerce sales. Retailers are not obligated to pass this extra cost along to the consumer, but I am not aware of one that does not.
In 1996 voters approved Proposition 218, which requires voter approval of all proposed local sales tax increases. There have already been letters in the Daily Press questioning the veracity of local politicians who are asking for a tax increase for “any general government purpose” rather than for something specific like police, roads or other defined services.
You can thank Prop 2018 for that. Under the law, “Special sales taxes” dedicated for one or more specific purpose require two-thirds voter approval. A sales tax increase for “general government spending” only requires a majority — 50% plus one vote — to pass. Two-thirds yes votes locally are extremely rare and expensive campaigns to run. The Apple Valley Fire Bond from 2018 was a rare exception that got overwhelming two-thirds approval from voters.
To answer the question of why not specify that you want the extra money for police or parks is easy. That measure will never get enough votes to pass.
Of the current 7.75% sales tax rate imposed in San Bernardino County, only 1% comes back to the cities that generate and collect the tax. That is essentially one penny for every dollar spent in your city. The state gets the majority to spend on their social programs, salaries and benefits.
A driver of the need for increased revenue among local cities is skyrocketing public employee pension costs. You can cut existing employees, but the pension deficit and increased local pension contribution demands from the state do not go away. The state pension fund has missed its investment targets continually over the last several years, and the investment guru at CalPERS just resigned under a cloud.
When you layer this on top of the reduced taxable income flowing to California because of COVID-19-related unemployment and business closures, it is understandable why state funds flowing to local cities have been cut.
Meanwhile, as cities cut services, programs and people, the dramatic increase in crime due to our decriminalization of crime and catch-and-release court system has put pressure on local cities to increase funding for law enforcement expenses.
Apple Valley’s Measure O will generate an estimated $7 million in new revenue. According to Town Council member Art Bishop, high on their list is increased police funding.
“We have not added a uniformed officer to our contract in Apple Valley since 2014,” Bishop said, “and we expect our law enforcement costs to increase about $1 million each year for the next three years under the current contract.”
Apple Valley currently receives about $6 million in sales tax revenue from the state.
One thing in Apple Valley’s favor is that Brightline’s high-speed rail project, as well as the related retail, could generate new, non-resident-based sales tax income. There will not be any internal political battles over the proposed increase. All five sitting Town Council members endorse Measure O, and Council members Bishop and Larry Cusack are running for reelection unopposed in November.
There is going to be an overwhelming demand among families and residents for the return of a full slate of recreational programs and services once the pandemic is behind us. Apple Valley is always rated the best place to live in the High Desert for a reason. Permanently lose those programs and services — on top of all the other challenges to remaining in California — and the exodus will begin. If forced, Apple Valley’s leaders say they will cut everything before they must cut police and road maintenance if no new revenue is found.
Any new tax rate passed in Victorville or Apple Valley would not take effect until 2021. For now, voters in those municipalities must decide if they want to pay a little more and keep it right here, or wait for the state or county to increase the taxes for their own use.
It reminds me of an old game show from the days of black-and-white TV: “Who Do You Trust?”
Contact Pat Orr at [email protected].
Source: Pat Orr, Daily Press