April 2nd, 2009 6:25 PM by Lehel Szucs
In the first of $13 billion in tax hikes, the state sales tax will go up 1 cent on the dollar today until at least 2011.
Raising the sales tax is part of a series of higher taxes and fees in store for Californians as part of legislation Gov. Arnold Schwarzenegger signed on Feb. 19.
State officials insist that increasing sales and income taxes, along with a boost in the vehicle license fee, are vital if the state is to shore up a $42 billion deficit, which continues to grow by the billions.
"We're in a very dire situation," said Assemblyman Mike
That situation will only become more dire, Eng said, if voters don't pass a series of ballot measures on May 19, one of which would extend the sales tax to 2012.
But it was the impending sales tax that until today businesses used as a selling point and consumers used to find a good deal.
Reynolds Buick Pontiac GMC in West Covina has been getting the word out about the hike, taking out full-page ads and opening longer hours.
"Today is your last chance ..." one ad read on Tuesday.
Apparently, it's working.
"It was a very busy weekend," said Michael Froehling, sales manager at Reynolds. "I have to believe that has something do with it. People aren't going, `Well I have to hurry and get a car ... but the impetus is still there."
That impetus helped Reynolds sell about 35 vehicles over a weekend that might normally see about 24 sales, Froehling said.
But an even greater impetus for sales and promotion could be when the vehicle license fee kicks in on May 19, said Jason Puga, general sales manager at Volkswagen Pasadena.
Over at Music Revolution in Whittier, owner William Garcia is already gearing up for the after-sales-tax-increase days.
Just like he did late last year, he's organizing a "F-Taxes" sale on his CDs and gift items.
It's better for his bottom line to eat the 1 percent sales tax than to offer 10 percent discounts across the board, he said.
"It makes people feel we're on their side," he said of his clientele, generally younger rocksters into music.
In the meantime, Garcia said he's been giving his customers a heads-up on the upcoming tax hikes.
For Garcia, the sales tax hike won't be devastating.
But for businesses where high-priced items are sold, the pinch of the sales tax will be felt, and consumers won't be thrilled.
"They hate it," said Richard Giss, a retail analyst at Deloitte & Touche in Los Angeles. "They hate sales tax, period. It's something that just increased the cost of goods that they buy."
True, it's only a penny on the dollar, which won't hurt much if you're buying a pack of chewing gum.
"Now if you are buying a new car, there's a lot of dollars in there," Giss said. "It adds up. But what it really does, is it causes people once again to think about the total cost of what they buy."
And in an economy trying to get its big wheels rolling again, people need to buy, Giss said.
That's part of why the tax hikes have garnered such controversy.
"We had the highest sales, income and gas taxes in the nation before this," said John Kobylt, the KFI radio talk show host who has led a revolt against the hikes. "At what point is (the state) just spending too much money?"
But Eng said the Legislature has already sliced away $18 billion in services in its attempt to hash out a state budget.
In that hashing out, lawmakers and the governor also paved the way for more fees.
Get ready, here's a list of what's to come:
The Vehicle License Fee will bump up from .65 percent to nearly 1.15 percent of a vehicle's value, beginning May 19 until June 30, 2013.
The personal income tax rate will go up .25 percent from tax years 2009 to 2012.
The personal income tax exemption credit for dependents will go from $309 to $99.
But that's not all.
On May 19, voters will have the chance to approve six ballot measures that the governor said will reform the state's budget and either extend or limit the tax increases.
Proposition 1A: If voters approve it, the temporary sales tax hike will be extended until June 2012. It would also put a 5-percent-a-year cap on legislative spending increases.
Proposition 1B: Would shift $8 billion from the general fund into the state's schools fund beginning in 2011, only if Prop. 1A also passes.
Proposition 1C: Would allow the state to sell $5 billion in future state lottery proceeds and use them to fill budget gaps.
Proposition 1D: Would shift Prop. 10 cigarette tax revenue away from preschools to other children's programs for five years.
Proposition 1E: Proposes shifting state money out of a voter-approved mental health screening fund to pay for low-income children's medical screenings. The screenings would have been paid through the general fund. But the shift could make up for cuts to the fund, officials said.
Proposition 1F: Would ban lawmakers from giving themselves raises in deficit years.