New Local Taxes Shelved in California, Could Be Revived Next Year

Published August 7, 2011

California Senate President Pro Tem Darrell Steinberg (D-Sacremento) has shelved SB 23x, a bill that would have authorized cities, counties, and more than 1,000 school districts to levy a broad range of new taxes.


The bill would have allowed local officials to seek voter approval to impose local personal income taxes, sales taxes, car taxes, soda taxes, and other excise taxes on goods and services.


The bill had been approved by the state Senate and was to be sent to the Assembly, when Steinberg decided not to pursue the measure until next year in hopes of putting a broader coalition of supporters in place. The bill had won support from some labor and state employee associations but was strongly criticized by business and taxpayer groups.


Would Allow ‘Unlimited Taxes’

Jennifer Barrera, policy advocate for the California Chamber of Commerce, said the main reason businesspersons oppose the bill is it “creates uncertainty for businesses and investors given the unlimited taxes that 58 counties, more than 1,000 school districts, and over 70 community college districts could impose at the local level.”


“The scope of the bill is difficult to figure out, and that leads to numerous implementation concerns,” said David Wolfe, legislative director of the Howard Jarvis Taxpayers Association. “California’s sales tax rate being the highest and individual income tax being the third-highest in the nation, people are in no mood to give more.”


Scott Macdonald[STK1] , communications director for Californians Against Higher Taxes, said “Allowing counties to impose a local personal income tax would be another serious blow to California’s economy. Our state unemployment rate is second-highest in the nation at 12.3 percent. A recovery can’t gain any traction if government takes an ever-larger chunk out of the hands of consumers.”


1,000 Tax Jurisdictions

According to the California Taxpayers Association, the bill would force businesses to reckon with more than 1,000 tax jurisdictions, each of which could impose taxes with different applications, regulations, and rates.


P. Adam Smith, vice-president of the Distilled Spirit Council of the United States, said, “Allowing local governments and school districts to levy an additional tax on beverage alcohol would destroy jobs and further harm the state’s hospitality industry just when restaurants, hotels, and other retailers are trying to recover from the recession. This proposal would set a terrible precedent in the state’s tax code.”


Referendum Immunity Attempt

Steinberg had initially introduced this local taxation option as SB 653 but later amended it to a “Budget Trailer Bill” SB 23x to give it immunity from referendum, through which voters are asked to accept or reject a particular policy proposal passed by the legislature. But the Legislative Counsel of California soon declared the bill is not “referendum-proof.”


“SB 23x is not a valid budget trailer bill in either form or substance . . . that can be implemented immediately as a part of the budget” explained Barrera.


Steinberg may have known the bill would not pass the referendum test and definitely knew of the strong opposition. “I am acutely aware of the sensitivity and the business community, by and large, really dislikes the measure,” he said[STK2] .


Possible Return

Wolfe said if the bill comes back in any other form, it has to be clearer and would still have to pass the referendum test, “which would be a tall task.”


Smith said, “If revenue projections fail to materialize, the bill will be placed back on the active file. Also, some legislators that feel that we need increased revenues may have found a road map around the two-thirds vote requirement to raise taxes in the legislature.”


Macdonald said the public employee unions in support of the bill have a lot of influence on state lawmakers and could succeed in having them bring back the bill next year.


“But,” he said, “with the upcoming state election in November 2012, the Democrats might not be willing to push Californians too hard.”


Sreya Sarkar ([email protected]) writes from Chicago.