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Rise in Sales Tax Generates Little Uproar

Commerce: Quarter-cent hike, mandated by law because of state budget reserve shortfall, takes effect today but is not expected to harm sales.


Many California retailers are looking at today's quarter-cent sales tax hike as a New Year's Day headache. But few were anticipating any dramatic impact on sales, even for big-ticket items.

State law mandates that when the budget reserve dips below a certain level, the sales tax automatically inches up at the start of the next year to help make up the shortfall. Conversely, when the state is flush with cash, as it was in 2000, the sales tax rate drops by a quarter cent, which it did Jan. 1, 2001.

The statewide base sales tax rate will rise to 7.25% today, but the levy is higher in many counties because of special assessments for transit or other local purposes. In Los Angeles County, the rate rose from 8% to 8.25%, one of the highest in the state. In Orange, Riverside and San Bernardino counties the new rate is 7.75%, while in Ventura County--which has no add-ons--the tax is the base rate of 7.25%.

For everyday items, the change will be almost imperceptible to many consumers: On a $100 purchase in L.A. County, it means paying $8.25 in taxes instead of $8.

The pennies add up, though, and the state will gain an estimated $1.1 billion in revenue, assuming spending patterns remain as state budget analysts predicted last year. The estimates were not revised to account for the current economic slowdown.

Even with consumers more cost-conscious, retailers were not overly anxious about the impact of the tax hike.

"I don't think it's going to affect me," said Roger Vernon, owner of Vernon Jewelers in Calabasas, who's been in the jewelry business for 24 years. "People who are buying big-ticket items are still going to buy them. You're talking about $12.50 on a sale of $5,000.

"If they're ready to spend $5,000, $12 is not going to affect them."

Vernon and other jewelers near the Los Angeles County border were not worried about losing business to Ventura County, where the rate is a full percentage point lower.

"If somebody complains, I will pay [the difference myself] instead of losing the sale," said Krikor Sandjian, owner of Design by Gregory, a jewelry sales and repair shop in Agoura Hills. "We don't want to lose any business out of this."

When the tax went down by a quarter point Jan. 1, 2001, Sandjian said most of his customers barely noticed.

"It didn't register that much with them," said Sandjian, who handles mainly repairs and special orders averaging $300.

Retailers anticipated much the same reaction this time.

Auto dealers needn't worry about customers making a run for the county border to save money, either. State law mandates that for cars, boats and airplanes, sales tax is charged based on the county of residence, not on where the item is purchased. The law was passed precisely to prevent buyers from crossing county lines to save money on major purchases.

Likewise, for the purchase of some business machinery, sales tax is based on where the item will be used.

Fred Main, senior vice president of the California Chamber of Commerce, said the sales tax makes the state less competitive than other states, such as Nevada, which does not charge an equivalent sales and use tax on new machinery. A number of states--including Alaska, Oregon, New Hampshire and Delaware--have no state sales tax.

Even though California offers a credit on most of the tax, Main said the sales tax increase makes it that much more expensive for companies to expand here.

"That's been a constant concern for California business owners for the past several years," Main said. "This just makes it worse."

Some business owners may actually see revenue increase as a result of the change.

Bud Chapman, president of Cash Register Systems in Santa Ana, said he's anticipating getting several hundred phone calls the next couple of days as many merchants scramble to get their cash registers reprogrammed.

Merchants are liable to the state for the higher tax even if their machines are still programmed for the old rate. Chapman said his technicians get an earful from business owners annoyed about having to reprogram their computerized cash registers.

"Right now, phone calls are trickling in, about 30 or 40," said Chapman, who's been in the business for 28 years. "But wait until [Jan.] 1 or 2. I'll have to pull technicians off of their routes just to handle the phones."

Chapman said he can either talk the business owner through the conversion process over the phone for $25 or send someone out for $50.

But Chapman doesn't see this as a valuable new revenue stream.

"This is more of an annoyance than it is a moneymaker," Chapman said. "I'd rather just make our [normal] rounds."

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