For years, a half-cent lower sales tax has given Orange County merchants a thin advantage over their counterparts in Los Angeles County. Whether it saved consumers pennies on a pair of sneakers or hundreds of dollars on a grand piano, Orange County seemed a haven for smart shoppers.
Now bankruptcy is forcing the county to scrounge for cash, and it is finally looking to its sales tax. County Chief Executive Officer William J. Popejoy this week proposed raising the rate from 7.75% to 8.25%, the same level as in Los Angeles County, but higher than in its other neighboring counties of San Diego, Riverside and San Bernardino.
While the Board of Supervisors still must decide whether to put the question to voters--who get the final say--many Orange County merchants interviewed Thursday did not like the idea at all.
"It stinks," said Santa Ana piano dealer Irwin Goldman. "To raise taxes to pay for the blunders of government is not the right way to do it."
Many purchasers won't notice the tax difference on small items; even for products that cost $100, it would mean only an extra 50 cents. And the rich also may not care much about the incremental cost when buying a Rolls-Royce or Jaguar.
But the proposed tax increase would sock hard people of more modest means who buy cars, boats, appliances--and, presumably, musical instruments.
"To a lot of buyers, $50 to $100 makes the difference in making the deal," said Goldman, vice president of Field's Piano & Organs.
Over the years, he says, he has heard many comments from buyers who said they drove into Orange County knowing they could save a little on the sales tax. If the rate rises here, however, the Southland bargain center for sales taxes will be San Diego County, where it is 7.00%. Riverside and San Bernardino counties have 7.75% sales tax rates.
By and large, though, most people won't drive too far to save on sales taxes, said David Hayes, research manager for the State Board of Equalization in Sacramento.
"It doesn't make much of a difference," Hayes said. Even to venture into a nearby county to buy a major appliance wouldn't result in much of a savings, he said, because "you would probably lose it all on the delivery charge anyway."
Car dealers should not lose buyers to counties with lower sales tax rates. Under state law, the tax on car and boat purchases is based on where customers live, not where they buy. Still, new car dealers are notably sensitive to talk of a tax increase.
"I hate it," said John B.T. Campbell, who operates five dealerships in Orange County. "I am as absolutely opposed as I could be. From a business standpoint, it will hurt us."
Campbell said the sales tax, coming on top of higher interest rates for auto loans, could be the straw that breaks the Orange County buyer's back. Car sales had been recovering after five weak years, he said, but a sales tax increase could stall that recovery.
Customers "are already having a hard time here in Orange County to begin with," added Cecelia Portillo, owner of Latino Jewelers on Santa Ana's 4th Street shopping district.
Some of affluent Orange County's most affluent residents already have figured out how to beat the sales tax.
"None of my customers pay sales taxes anyway," said one yacht broker.
Some buyers, he said, took advantage of a loophole that allowed them to avoid paying sales taxes if they pledged to operate their boats out of state. That loophole was recently closed, but even without it, wealth might allow a buyer the luxury of frittering away an additional $400 in sales tax on the purchase of an $80,000 yacht.
"I don't think a half-percent (increase) is going to do anything," said Newport Beach yacht broker George Steinemann. The added tax would simply give those who are pressed to pay license fees and other charges "another reason not to buy a boat."
Even dealers of less expensive watercraft say they don't think the extra cost would sink their customer base.
"We sell a lot of vehicles to people in Los Angeles County, and the difference in tax is typically less than $100," said Tom Schumacher, manager of Honda/Kawasaki USA Sports Center in Lake Forest, which sells both personal watercraft and motorcycles. "It's not that much of an issue." One mall manager said that although a sales tax increase wouldn't be good, it probably won't hurt sales much.
"Ultimately, if you want to shop at the mall, it won't matter," said Westminster Mall general manager Nancy Feightner.
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Orange County supervisors may ask voters to approve a half-cent increase in the sales tax, boosting the rate to 8.25%. Traditionally, counties have received only a small share of the sales tax collected within their boundaries, and those sums have been falling amid economic weakness. Presumably, Orange County would keep the extra revenue from a tax hike. County revenue from sales taxes for six Southland counties, by fiscal year, in millions of dollars:
Sales tax rates and per-capita annual amount paid
Sales tax rate: 7.25%
Per-capita annual amount paid: $567
Sales tax rate: 8.25%
Per-capita annual amount paid: $659
Sales tax rate: 7.75%
Per-capita annual amount paid: $560
Sales tax rate: 7.75%
Per-capita annual amount paid: $550
Sales tax rate: 7.00%
Per-capita annual amount paid: $635
Sales tax rate: 7.75
Per-capita annual amount paid: $806
A half-cent increase in the Orange County sales tax would boost the price of a $50,000 car by $250. Based on the county's sales tax revenues last year, it would add about $137 million to county coffers if, as expected, the county keeps the entire amount.
Source: California Board of Equalization