The city of Sacramento is seeing a tax boost from residents purchasing big-ticket items – even on cars bought in Roseville or couches ordered in Folsom.
Sacramento voters in 2012 increased the city’s sales tax by a half-cent on the dollar on the promise of using funds for police, fire and recreation services that were hit hard by budget cuts in the recession. The tax hike began in April 2013 and will expire March 31, 2019.
While voters might have had purchases at midtown boutiques or Arden Fair mall in mind when they approved Measure U, Sacramento officials say they are also benefiting from a lesser-known aspect of California tax law that directs revenue back to the cities in which shoppers reside.
As a “transactions and use tax,” Measure U is generating more for the city than a traditional “sales and use tax” would. It is based not only on the point of sale, but on the buyer’s address or delivery location. In the case of new automobiles, the city collects the half-cent Measure U tax whether a Sacramento resident purchases the vehicle from a local dealer or from one outside the city.
Leyne Milstein, city finance director, noted that under state law, automobile sales are taxed according to the buyer’s address, not the location where the vehicle is purchased. A Sacramento resident buying a car in Roseville, for example, would pay the 7.5 percent statewide sales and use tax, as well as Sacramento County’s half-cent countywide Measure A tax for transportation improvements – also a transactions and use tax – and the city of Sacramento’s half-cent Measure U tax.
Through Measure U, the city also receives the half-cent tax on items purchased outside the city and delivered to the buyer in the seller’s vehicle. This typically involves big-ticket items that require delivery service. Sacramento residents purchasing furniture or appliances in Folsom, for example, would pay the Measure U tax if the store delivered the merchandise to the buyer’s home. Buyers who chose to transport the purchases themselves wouldn’t pay the Measure U tax.
The tax also applies to leases and business-to-business transactions, such as business services, electronic equipment and energy sales.
The city reported that 26 percent of Measure U tax revenue was generated by the general retail sector, 23 percent each by the transportation sector and business-to-business transactions, 17 percent by food products, 9 percent by construction and 2 percent by miscellaneous sectors. Milstein said she did not know what percentage of Measure U revenue came from purchases outside the city.
As the City Council reviews Sacramento’s proposed budget for the coming fiscal year, approximately $31.8 million in Measure U revenue is projected for 2014-15, Milstein said. Of that amount, nearly $12.6 million would go to the Police Department and fund 14 new full-time positions. The Fire Department would receive $11.7 million and the Parks Department $4.6 million. The Measure U budget also includes a $2.3 million annual reserve.
The city’s proposed general fund budget for 2014-15 is $377 million.
“We can’t come close to getting back to where we were when we started cutting in 2008-09,” said Milstein, noting that $247 million in cumulative budget cuts have been made citywide since then.
Although Measure U is helping restore key services, it was intended as a temporary measure to bridge the gap until the city’s general fund rebounded. But Milstein said the general fund is not growing fast enough to compensate for the loss of revenue when Measure U expires in 2019.
Some vendors have collected Measure U taxes in error, the city has determined.
“There are vendors who only provide services in the county and they’re remitting the half-cent sales tax (to the city),” Milstein said.
That means some non-Sacramento residents and businesses have mistakenly paid the city tax. An analysis by the city’s sales tax consultant indicates approximately $4.5 million was remitted to the city in error.
The taxes are paid to the state Board of Equalization, which is working to correct the errors, but Milstein said the process is complicated and may take some time. Customers can go back to retailers if they believe they have paid the tax in error, she said. As the corrections are made, the Board of Equalization will reduce tax allocations to Sacramento to compensate for the erroneously collected amounts.
Residents inside and outside the city can determine their tax rate by entering their address on the Board of Equalization’s website, https://maps.gis.ca.gov/boe/TaxRates.