PD Editorial: Stop tinkering and fix state’s tax system

If a Sonoma County resident buys a new car from a dealership in Tulare County, the sales tax is assessed at Sonoma County tax rates, and the local share is allocated to the appropriate Sonoma County jurisdictions to pay for local public services.

If that same Sonoma County resident buys a TV using Best Buy's website, and the order is filled from the company's distribution center in Dinuba, a small city in Tulare County, a little more than half of the local sales tax dollars go to Dinuba.

The rest of the sales tax money goes to Best Buy.

No, the appliance and electronics chain isn't a branch of state or local government. Neither is it the only e-retailer to lock up a share of sales tax revenue in return for building a new distribution warehouse and crediting all online sales to that location.

QVC, Macy's, Nordstrom, the Gap and Amazon have similar deals in other California cities, often for 50% to 85% of local taxes on their sales, with some of the agreements lasting for decades, according to Bloomberg Tax and state Senate records.

Don't try promising your purchases to a particular city for a sales tax rebate. Sweetheart deals like these aren't available for ordinary taxpayers.

Senate Bill 531, by state Sen. Steven Glazer, D-Orinda, would prohibit cities from entering any similar arrangements in the future. Glazer's bill is awaiting a vote on the Senate floor.

Sales tax kickbacks are just one aspect of California's tax system getting overdue scrutiny in Sacramento this year.

Gov. Gavin Newsom made headlines last week with a proposal to rescind sales taxes on tampons and diapers. “We can afford to do that,” he said, “and it's the right thing to do.”

He's probably right. California already classifies prescription medication and food as essentials that shouldn't be subject to taxation.

At the same time, however, Newsom is backing a new surcharge on water bills. The cause is righteous: assisting low-income communities saddled with contaminated water. But the surcharge would be a tax on one of life's essentials.

Meanwhile, it turns out the exemption for diapers and menstrual products would last just two years, a fact not mentioned during the governor's May 7 news conference. Why not a permanent tax break? Newsom explained later that the state needs flexibility in the event of an economic downturn.

Again, he's probably right. But temporary tax holidays aren't the answer. Ask Gray Davis about restoring the “car tax” after the dot-com bust. Nor is the answer a system that exempts food - except for fast food, and then only if it's served hot. Follow that?

California needs to rethink its boom-and-bust tax system, and the time to do it is now, when the state is flush.

In a recession - and the current expansion has lasted for 10 years - state budget forecasters project a $70 billion revenue hit over three years. With all due respect to Rahm Emanuel (“You never want a serious crisis to go to waste”), a tax overhaul isn't going to happen when the state is struggling to balance its books and under pressure to keep money flowing to public schools and local governments.

Proposals for a wider, flatter tax system less susceptible to wild revenue swings have been circulating in Sacramento for years. But it never seems to be the right time to act. Now is the time to think ahead. It will be too late when the state hits the skids again.

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