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California's sales and vehicle taxes head down

Your mocha as well as your new Maserati will cost less starting Friday as temporary California tax hikes expire.

July 01, 2011|By Shane Goldmacher and Esmeralda Bermudez, Los Angeles Times
  • Starting Friday, the statewide sales tax rate drops by one percentage point  a penny on the dollar  and the annual vehicle license charge that drivers pay tumbles by 43%.
Starting Friday, the statewide sales tax rate drops by one percentage point… (Justin Sullivan / Getty…)

Reporting from Sacramento and Los Angeles -- Millions of California shoppers and car owners are in for some rare good news from Sacramento: tax cuts.

Starting Friday, the statewide sales tax rate drops by one percentage point — a penny on the dollar — and the annual vehicle license charge that drivers pay tumbles by 43%.

The expiring increases, which were placed on the books in 2009 as California teetered toward insolvency, will provide significant savings for many people. On average, a family of four will save more than $1,000 a year when income tax hikes that expired in January are factored in, according to Republican lawmakers.

"Within a year's time, I know I'll feel the impact on my pocketbook," said Mike Tanner, a 56-year-old retired phone company technician from South Pasadena.

The state sales tax reverts to 7.25%, though many municipalities add their own levies, and the good news spread across California on Thursday: Every item — a car, a couch, an ice cream cone — will soon cost less. Consumers making big-ticket purchases will see the most difference.

A new car buyer who scoops up a $25,000 ride this weekend, for instance, will pay $250 less in sales tax. And the smaller yearly vehicle fee — dropping from 1.15% of a car's value to 0.65% — on the new car will save the owner $125.

The budget the governor signed Thursday raises vehicle registration fees by $12, but any owner of a car worth more than $2,400 will still experience a tax cut.

At Goudy Honda in Alhambra, General Sales Manager Michael DeVille has been designing an advertising campaign around the tax-cut buzz, planning to promote the incentive online and in newspapers. And every salesman has been charged with telling every customer about it.

"It's going to go real nice with the Fourth of July," DeVille said.

But like every other promotion, he expects this one will lose momentum in about a month. Then, he said, his salesmen will be hustling again just to make a sale.

In Sacramento, Republican lawmakers took a victory lap at a downtown Ford dealership. They declared Friday "Freedom from Higher Taxes Day" and patted each other on the back for their refusal to renew the higher tax rates in budget talks this year — the top priority of Gov. Jerry Brown and Democrats in the Legislature, who wanted the levies to help balance the state's books.

"We kept politicians out of the taxpayers' wallets," said Assembly Minority Leader Connie Conway (R-Tulare), standing at a podium in the dealership parking lot.

Assemblyman Tim Donnelly (R-San Bernardino) said the vanishing taxes would be a boon to a California job market that has stagnated at near 12% unemployment. "The death of these taxes is the rebirth of our economy," he said.

Democrats disagreed. They said letting billions in taxes lapse as California faced a huge deficit amounted to governmental malpractice. Many of the steepest spending cutbacks they enacted in the budget — suspending a program to help teen mothers, slashing welfare grants by 8% and cutting cash aid for the elderly and disabled — also go into effect Friday.

Larry Powell, a math teacher at East L.A. Community College, lamented some of those reductions.

As he sipped his $4 mocha at a coffee shop in Pasadena, he wasn't celebrating an impending four-cent discount. He was thinking about the effect the tax cut would have on low-income families.

"I'd much rather pay that 1%," he said.

But Sean Tyler, who helps manage three of his brother's mattress stores, saw more than just financial gain from the tax cut.

"It creates hope," he said in Pasadena on Thursday. "It gives people something positive after so much bad news about the economy."

Tyler and his family opened their first Mattress City store in 2008, just as the recession was taking hold. They've used discounts, balloons, light-up signs and bulletins reading "Blowout Sale!" to get people's attention.

His methods have kept customers coming through the doors, but at the expense of profits.

Now, he said, "We'll be able to offer them one more extra discount."

shane.goldmacher@latimes.com

esmeralda.bermudez@latimes.com

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