California sales tax

Local sales tax increase to reach ballot in Modesto, California

In November 2013, voters in the city of Modesto, California, defeated a proposed 1% increase in the local sales tax by just 507 votes. Undeterred by this narrow defeat, Modesto’s mayor and city council will again ask voters to approve a local sales tax increase on this November’s ballot, albeit only 0.5% this time. Recently, this new proposal – known as Measure G – survived a legal challenge by a local taxpayer group.

California imposes a statewide sales tax of 7.5%. Counties and cities may add their own tax on top of this rate. For example, sales in Modesto are presently taxed at 7.625%, although the city only receives 0.75%. The remainder goes to the state and Stanislaus County. Measure G would make the total sales tax 8.125%, raising Modesto’s share to 1.25%.Local sales tax increase

Modesto Mayor Garrad Marsh told the City Council in June additional taxes were necessary to provide “police and fire services and the rest on economic development and other essentials.” City officials estimate the 0.5% increase will yield an additional $14 million annual revenue. Steve Christensen, Modesto’s budget director, also told the council a 7.625% sales tax would not be out of line for California, as 84% of the state’s cities currently impose higher rates.

Needless to say, not all Modesto residents are eager to pay more in sales tax. The Stanislaus Taxpayers Association, which led the campaign to defeat the 1% increase in 2013, filed a lawsuit in early August, specifically challenging the ballot language of Measure G. When Modesto voters go to the polls in November, they will see a measure titled the “Safer Neighborhoods Initiative,” which promises “To make neighborhoods safer by restoring police patrols, crime prevention, gang suppression and youth development efforts; removing tagging; reducing nuisance properties; strengthening fire/emergency services; increasing neighborhood collaboration; and maintaining other general city services.”

The problem, according to the Stanislaus Taxpayers Association, is that nothing legally requires Modesto to dedicate the additional sales tax revenue to these purposes. Indeed, Measure G proposes a general sales tax increase, as indicated by the reference to “other general city services” in the language above. California law does authorize a city to collect a “special sales tax,” which must be used for a stated purpose. However, special sales taxes must be approved by a two-thirds vote, while a general increase only requires a simple majority.

The taxpayer association’s lawsuit argued the language of Measure G, which was prepared by the Modesto City Attorney’s office, would mislead voters into thinking they were voting on a dedicated, special sales tax rather than a general increase. The taxpayers association added it was inappropriate to refer to Measure G as an “Initiative,” which in California elections traditionally describe a voter-sponsored ballot question, not one placed by a city government. Accordingly, the group asked a judge to direct the city to either adopt different language or drop the ballot question altogether.

The judge did neither. On August 21, Stanislaus County Superior Court Judge Timothy W. Salter rejected the taxpayer association’s lawsuit. According to the Modesto Bee, Salter said changing or dropping Measure G at this point “would substantially interfere with the county election office’s ability to conduct the countywide November election,” and in any event, he was not convinced the language adopted by the city attorney was “false or misleading.”

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

Michigan voters to consider a statewide sales tax increase

Michigan voters will head to the polls on May 5 to approve (or reject) a proposed 1% increase in the statewide sales tax. Last December, Michigan Gov. Rick Snyder and the state’s legislature agreed to the referendum as part of a package to fund transportation and educational programs. If approved, Michigan would have a statewide sales tax of 7%, which would tie it with several states for second-highest in the country.

1% Michigan sales tax hike proposed

Michigan Gov. Rick Snyder and the state’s legislature have proposed a 1% statewide sales tax increase as part of a package to fund transportation and educational programs.

The referendum is necessary because the sales tax is written into the Michigan Constitution. Voters must approve any constitutional amendments proposed by the legislature. Michigan’s 1963 Constitution originally set the sales tax at 4%. In 1994, an amendment imposed an additional 2% tax, with the proceeds directed to the state’s public schools. The Constitution also exempts prescription drugs and groceries from the sales tax. If the referendum passes, sales of gasoline and diesel fuel will also be exempt from sales tax (although other gas taxes would increase).

A report commissioned by the Michigan legislature estimated raising the sales tax from 6% to 7% will generate about $1.6 billion in additional annual revenues. Most of this new revenue will go to roads and mass transit. Michigan schools are expected to receive an additional $300 million.

Who will win the campaign?

The referendum has sparked a spirited campaign among both supporters and opponents. A group called Protect MI Taxpayers emerged last December to rally opponents under the slogan “Stop Government Pickpocketing!” Since then, at least three other opposition groups have formed, according to the Detroit News, including Citizens Against Middle Class Tax Increases, the Coalition Against Higher Taxes and Special Interest Deals, and Concerned Taxpayers of Michigan.

On the flip side, a group called Safe Roads Yes is leading supporters of the referendum, officially known as Proposal 1. Established groups backing Proposal 1 include the Small Business Association of Michigan and the Michigan Infrastructure & Transportation Association, the trade association that represents the state’s road construction companies.

Political analysts estimate the total cost of the referendum campaign may exceed $15 million. EPIC-MRA, a Michigan-based polling firm, conducted a survey of 600 Michigan voters in late January on Proposal 1. In response to a question offering basic details of the sales tax increase, a slim plurality—46% to 41%—said they would vote for Proposal 1. However, when the pollsters provided more detailed information about Proposal 1, the “No” vote overtook the “Yes” side by a margin of 47% to 38%. EPIC-MRA noted its survey had a 4% margin of error. (It is unclear how much information voters will officially receive, as the Michigan Bureau of Elections has yet to approve final ballot language for Proposal 1.)

Ultimately, the success or failure of the referendum depends on who gets more of their supporters to the polls on May 5. Only 43% of Michigan voters turned out for last November’s statewide elections. And besides Proposal 1, the May 5 election only features contests for city and local offices, which are typically low-turnout affairs.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Missouri tax hike to fund transportation

Missouri legislators are endorsing a sales tax increase to replace dwindling fuel tax revenues. The three-quarter cent tax hike passed through the Senate handily the last week of April and was forwarded on to the state House. If both chambers approve an identical bill, the measure will appear on the state ballot in the fall. Missouri intends to use the tax hike to fund transportation.

Despite challenges there may someday be an Oregon sales tax

Oregon sales taxOregon is only one of five states in the United States that doesn’t have a sales tax. In a recent interview, Oregon Governor John Kitzhaber said that he hopes to change that one day. Right now, Oregon is extremely dependent on income taxes for revenues. Over two-thirds of Oregon’s revenues come from income taxes. In comparison, the average state gets 20 percent of total revenues from income taxes.

Kitzhaber worries that the state puts itself in a vulnerable position by relying so much on one source of income. Income taxes tend to fall significantly during economic downturns which would put Oregon in a tough situation. By adding an Oregon sales tax, the state would have a more diverse stream of income.

Kitzhaber is currently working with state legislators to come up with an overhaul of the state’s tax code. This is going to be a tough challenge as the Oregon government hasn’t made any significant changes to the tax code since 1957. Kitzhaber is also up for reelection in 2014 so this could interfere with the process of changing tax laws.

Ohio residents brace for higher sales tax rate

Ohio higher sales tax rateStarting September 1st, Ohio residents will need to pay a higher sales tax rate. Governor John Kasich has approved a plan that increases the state sales tax rate from 5.5 percent to 5.75 percent for the next two years. Kasich pushed for this sales tax increase so he could balance out a reduction in income tax rates. Ohio residents will pay on average about 10 percent less per year in income taxes.

This is the first time in eight years that Ohio has changed its sales tax rate. This bill also only affects the state income tax rate. County sales tax rates will remain the same.

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