A state sales tax jump could backfire

At 7.25%, the Golden State's statewide sales tax rate is the highest in the nation, according to a 2007 ranking. If Gov. Arnold Schwarzenegger's proposed three-year, 1.5-percentage-point increase goes into effect, it would solidify our lead over our closest competition -- Mississippi, New Jersey, Rhode Island and Tennessee, which all had 7% statewide rates according to the most recent ranking by the Tax Foundation.

And that could take sales away from retailers as consumers look to neighboring states and the Internet to avoid paying taxes.

"The higher the sales tax is, the more likely people are to buy things out of state or online," said Lynn Freer, president of Spidell Publishing in Anaheim, which produces information for tax professionals.

The effect could be especially noticeable in Los Angeles, where a higher state rate -- combined with the recently passed Measure R and other local levies -- would eventually push the sales tax paid within the city to 10.25%. That would be one of the highest levies of any U.S. municipality.

"There's something about that that double-digit rate," said Bill Ahern of the Tax Foundation, a nonpartisan research group in Washington that leans to the conservative side on tax issues. "People who never noticed the sales tax at 7.5% or 8% suddenly will notice it when it goes to 10%."

California is a little easier on the wallet when it comes to the total tax burden it imposes on its residents. The nation's most populous state ranks fifth in terms of total personal taxes paid, according to the Tax Foundation, which uses a complex formula that makes allowances for such things as sales taxes paid by tourists.

The U.S. Census Bureau, which uses a much simpler calculation to determine tax burden, ranks California No. 10.

The most controversial part of the governor's plan may be his proposal to levy a sales tax on a variety of services, including car repairs and veterinary care, that are currently untaxed. Efforts to impose such taxes have created strong backlashes in some states, notably Florida, where repeated attempts have failed.

Ahern noted that last year, Maryland lawmakers considered a full slate of new taxes, including levies on services such as tanning salons and computer repairs. All of the taxes made it into law -- except the proposed service levies, he said.