San Mateo County seeks to stretch the California sales tax cap
San Mateo County
Voters in San Mateo, a city in the heart of California’s Silicon Valley, will decide in November whether to retain a 0.25% sales and use a tax approved in a prior referendum six years ago. If adopted, “Measure S” would extend the local tax until March 2048. San Mateo City Manager Larry Patterson said in an interview posted to the city’s website the additional sales tax revenue is necessary to make up for shortfalls in the city’s budget. “Since 1990, the State has taken nearly $50 Million from San Mateo to address its own budget deficit,” Patterson said, adding San Mateo “has over $35 Million dollars in critical street and road repairs with no available funding sources.”
Indeed, even if voters keep the current 0.25% surcharge – which keeps San Mateo’s overall sales tax at 9.25% – it may not be enough to satisfy local demands for additional funds. According to the San Mateo Daily Journal, the county’s transportation authority would like to consider an additional 0.5% sales tax increase to finance additional road and public transportation projects. Together with Measure S, this would bring the sales tax within the City of San Mateo to 9.75%.
California law presently sets a statewide sales tax rate of 7.25%. Cities and counties may add up to an additional 2 percentage points, making the maximum allowable sales tax cap in any California jurisdiction 9.5%. This would obviously prevent San Mateo officials from seeking an additional 0.5% increase, as that would bring the total rate above the statewide maximum.
To that end, the California legislature adopted a bill on September 11 which would grant San Mateo County the ability to adopt the additional 0.5% increase without running afoul of the statewide sales tax cap. The provision specifically applies to San Mateo. (A second provision authorizes Monterey County, located to the south of San Mateo, to adopt a 0.375% increase). Such special legislation is generally prohibited under California’s constitution, but the legislature said the “unique fiscal pressures experienced by the San Mateo County Transportation Authority in providing essential transportation programs” justified the county-specific measures.
Earlier this year, the legislature did approve an increase in the statewide sales tax cap on local surcharges from 2% to 3%, which would have eliminated the need for the special San Mateo legislation. But Gov. Jerry Brown vetoed that bill on August 17. “Although I have approved raising the limit for individual counties,” Brown said in his veto message, “I am reluctant to approve this measure in view of all the taxes being discussed and proposed for the 2016 ballot.” As of this writing, Brown has yet to sign or veto the proposed increase for San Mateo and Monterey counties.
If Brown signs the bill, San Mateo voters will likely face a second referendum in November 2016 on a new 0.5% sales tax increase. Unlike this year’s vote on the 0.25% extension, which requires a simple majority, the new tax must be approved by a two-thirds majority, because it is a special tax for transportation purposes.
S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info
Lucinda Rowlands has been the general manager at Zip2Tax since 2010. She has extensively researched sales and use tax regulations in order to help small businesses navigate complicated tax rules.