CALIFORNIA’S TAX SYSTEM
LEGISLATIVE ANALYST’S OFFICE 2
INTRODUCTION
California’s state and local governments rely on three main taxes. The personal income tax is the state’s main revenue source, the property tax is the major local tax, and the state and local governments both receive revenue from the sales and use tax. In addition, many smaller taxes raise revenue for state and local government operations. In 2015-16, taxes in California raised a total of $220 billion—equal to nearly 10 percent of the state economy.
The chart to the right summarizes this tax system. The inner black pie chart shows that roughly two-thirds of tax revenues in California go to the state government with the other one-third collected by local governments. The middle ring shows each tax as a share of the whole system. (Note that the line from the inner black pie chart intersects with the sales and use tax segment to show the shares of sales tax revenue that go to the state and to local governments.) The outer ring breaks out each major tax by source. For example, the biggest source of personal income tax revenue is wage and salary income.
In addition to taxes, the state and local governments rely on federal funds, fees, and other sources of revenue to fund government operations. This publication, however, focuses solely on taxes levied in California.
LAO California’s Tax System | Overview 3
OVERVIEW OF CALIFORNIA’S TAX SYSTEM 2015-16
R Ow e s i n d e e r-Occupied n t i a l
No s ie t r la R Sa e d Ow s n id a n e s e n e r-Occupiedti g al a W
P ro p ert y Ta Co mmer x nal cial/In rso x e dustr Pe Ta Incom ial me ement Inco Retir L ividends, oc D t al Interest, and Ren Vehicle License Fee Other St ate s Taxe cal Bu her Lo siness Ot Income
C o F rp Hotels Ot u e o il h ta d l ra e n e Ta r t a x io C St n Tax ap es s xe it s Ta a a s le s l Other Non-e R s t Ga in r e s le a e i u a S n B s Ta s e Us ol g Utilities h n xe W ri tu s c C fa o u rs r n e p a il o a G r M t D a a e i t Business s e s io R s e s o
r n t s
r e li r s O e d n o n
t s l
a e , e, t h n l h t r S n and
e a a
u o r
O e i e
e s a t l
r t s
Property Transfer i c
e D a
i t Ot a s t
d a h
t e l s
B S
n t h s a e
R r a r e
e
E V
a Payroll l e h r
n
r O
a n c i P r l
e e o t t
R e o d h
G s o n e d M
a
a r Entities n M a G n o ti
c
s e ru s
e c
t e
r
s i l n
n o a
t p
o Stores i l
C s S p
p
e u
i e
r p
S
g
o A a s n
r d s e
e n
e d v
r
c a Insurance Tax e
a
c , s
G A B
c
d i
d d
n n
n n a o
a r
a t
d
g s c
l
o
n e
a Tobacco Taxes i l
o i
h r t F
e
E ,
o t Alcoholic Beverage Tax
l s
a C g
M n
i
g h
n s
i i d n
l r
i u
u
F
B
e
m
o
H
,
e
r
u
t
i
n
r
u F
LAO California’s Tax System | Overview 4
CHAPTER 1
LAO California’s Tax System | Personal Income Tax (PIT) 5
PERSONAL INCOME TAX
The personal income tax (PIT) is a broad-based tax that the state levies on most types of income, such as wages and capital gains. The PIT is an important revenue source for the state government, generating over two-thirds of the revenue for the General Fund— the state’s main operating account. In recent years, the PIT has generated more revenue than any other tax in California’s tax system.
LAO California’s Tax System | Personal Income Tax (PIT) 6
ABOUT TWO-THIRDS OF INCOME COMES FROM WAGES AND SALARIES
2015
Ca ital ains
Pensions siness a es an Salaries nn ities Income an I ( lti le istri tions ners)
i i en s siness Interest Income an ent (Sole ner)
HOW DO PIT RATES WORK? Marginal and Effective Tax Rates, Single Filer, 2017
Personal income tax rates are marginal, meaning that higher income increments are taxed at higher rates. For example, a single filer with taxable income of $300,000 is taxed at 1 percent on the first $8,000 of their income, but 10.3 percent on the last $31,000 of their income. A taxpayer’s highest marginal rate is higher than their effective rate (the average rate at which their income is taxed). For example, a single filer with $100,000 in taxable income is taxed at 9.3 percent on their last dollar of income but their effective tax rate (before tax credits) is 6.7 percent.
an er
LAO California’s Tax System | Personal Income Tax (PIT) 7
Income CALCULATING THE in a es in siness Income PERSONAL INCOME TAX BILL
A Married Couple With One Dependent Filing Jointly, 2017
e ctions lmost t o t ir s of all filers ta e t e stan ar e ction
in ort a e Interest o itemi e in ocal Pro erty Taxes e ctions excee in St ent oan Interest stan ar e ction ta e ta e itemi e stan ar
Calc late Taxa le Income ly Tax ates in Ta le o e Tax Cre its
ste ross Income irst Taxe at C il Care Tax Cre it Itemi e e ctions ext Taxe at Personal xem tion Cre it ext Taxe at e en ent xem tion Cre it ext Taxe at Total Tax Cre its Tax ia ility efore Cre its
Calc late Tax ia ility
Tax ia ility efore Cre its in s Cre its inal Tax ill
er
LAO California’s Tax System | Personal Income Tax (PIT) 8
BREAKDOWN OF DEDUCTIONS In Billions, 2015
PIT deductions reduce taxpayers’ taxable incomes. In total, deductions reduced taxable income by about $200 billion in 2015. About $7 billion of the deductions shown here went unused because itemized deductions are phased out for high-income taxpayers.
Stan ar e ction
ort a e Interest Pro erty Taxes
C arita le Contri tions siness an t er x enses
e ical x enses
t er
WHO USES DEDUCTIONS? Share of Deduction Value by Income Group, 2015
r e
n a
O
LAO California’s Tax System | Personal Income Tax (PIT) 9
BREAKDOWN OF CREDITS In Billions, 2015
PIT credits reduce tax liabilities dollar for dollar, resulting in a dollar-for-dollar reduction in state revenue. With the exception of the Earned Income Tax Credit (EITC), credits cannot reduce a taxpayer’s liability below zero. For this reason, the amount of credits shown in the chart is about double the amount of credits actually used by taxpayers to reduce liability.
e en ent Cre it
Personal Cre it
lin an Senior Cre it
nter rise ones
ITC
enter s Cre it
t er
WHO USES CREDITS? Share of Credit Value by Income Group, 2015
r e o
n a
LAO California’s Tax System | Personal Income Tax (PIT) 10
PIT LIABILITY CONCENTRATED AMONG TOP EARNERS
Tax Statistics by Income Group, 2015
A L
O
O L O A O
er to to to to
LAO California’s Tax System | Personal Income Tax (PIT) 11
INCOME MAKEUP DIFFERENT FOR LOW- AND HIGH-INCOME TAXPAYERS
2015
The graphic below shows how taxpayers in different income groups derive their income. Some types of income, including wages and salaries and retirement income (pensions, annuities, and IRA distributions) make up the majority of low- and middle-income taxpayers’ incomes. These sources, however, account for a minority of the total incomes of the highest-income taxpayers, whose incomes are derived mostly from capital gains, partnership income, and dividends, interest, and rent. (All other income—mostly proprietors’ income—is shown in grey.)
er
HIGH-INCOME TAXPAYERS RELY MORE ON VOLATILE INCOME SOURCES
Total Percent Change, 2015 Dollars
LAO California’s Tax System | Personal Income Tax (PIT) 12
PIT MORE VOLATILE THAN PERSONAL INCOME Annual Percent Change
As the state’s main revenue source, the highly volatile PIT results in revenue uncertainty, thus complicating state budgeting. (Personal income is an overall measure of the economy that includes individuals’ wages, business income, and various other types of income, but that excludes capital gains income.)
Personal Income Tax
Personal Income
CAUSES OF PIT VOLATILITY Average Deviation, 1990 to 2014
Average deviation (AD) is a measure of revenue volatility. With an AD of 12.2, the PIT is over five times more volatile than personal income (2.3). About 40% of the higher volatility is due to the state’s choices about which types of income to tax. Another 40% is due to taxing higher income at higher rates. The last 20% comes from PIT credits and deductions, which mostly reduce the relatively stable part of the tax base.
olatility of efinition of ra ate Cre its olatility of PIT Personal Income PIT ase ate Str ct re an e ctions
LAO California’s Tax System | Personal Income Tax (PIT) 13
WITH VOLATILITY COMES GREATER REVENUE GROWTH
The top 1% of taxpayers typically pay between 40% and 50% of the PIT. Their incomes are highly volatile, which has contributed to PIT volatility. On the other hand, their incomes also have grown more than any other group of taxpayers. This has contributed to PIT growth.
Bulk of Income Growth Has Gone to High-Income Taxpayers... Adjusted Gross Income Per Return by Income Range, Total Percent Change, 2015 Dollars
...Which Has Contributed to PIT Revenues Growing Much Faster Than Revenues From Other State Taxes Total Percent Change, 2015-16 Dollars
LAO California’s Tax System | Personal Income Tax (PIT) 14
VOLATILITY OF THE PIT BASE
State law specifies which types of income are subject to the personal income tax. In general, California has chosen to tax relatively volatile types of income, as illustrated by the chart on the next page. The boxes are shaded by their volatility measure (average deviation). An item with a measure of 6 is twice as volatile as an item with a measure of 3.
Personal income is an economic statistic that includes most types of income. Different portions of personal income are subject to tax. Some portions of personal income are more volatile than others. For example, the portion of dividends, interest, and rent flowing to the PIT base is more volatile (darker) than the portion not in the PIT base. California also chooses to tax some types of income not included in personal income. In particular, capital gains income, with a volatility measure of 35, is more than twice as volatile as any other part of the PIT base. Overall, the PIT base is almost three times as volatile as personal income.
LAO California’s Tax System | Personal Income Tax (PIT) 15
PIT BASE MORE VOLATILE THAN PERSONAL INCOME Average Deviation, 1990-2014
A n er Ca ital ains Pensions an I istri tions er Ca ital ains Pensions an I istri tions
a es an Salaries
a es an i i en s Interest an ent Salaries Pro rietor an Partners i
i i en s Interest an ent a es an Salaries
Pro rietor an i i en s Interest an ent Partners i Pro rietor an Partners i Transfer Payments Transfer Payments m loyer Pai enefits m loyer Pai enefits
it in t ese roa cate ories some com onents of ersonal income are in t e tax ase an ot ers are ntaxe or exam le interest earne from cor orate on s is taxe t interest earne from m nici al on s is ntaxe
LAO California’s Tax System | Personal Income Tax (PIT) 16
HIGHER INCOMES CONCENTRATED IN BAY AREA 2013
The graphic below shows how incomes by county compare to the statewide average. A blue shade indicates that a county has fewer taxpayers in that income range, a yellow shade indicates the county is near the statewide average, and an orange shade indicates they have more taxpayers in that range. Compared to the statewide average, Marin county has 4.6 times more taxpayers in the over $1 million range, the most of any county.
L
T T T T
O C C N A C L A O D O C D C C D N I I N T T T T R
LAO California’s Tax System | Personal Income Tax (PIT) 17
BAY AREA CONTRIBUTES DISPROPORTIONATELY TO PIT
2014
The Bay Area pays nearly 40% of the PIT but only makes up 20% of population. ay rea By contrast, Los Angeles’ tax paid (34%) os n eles is closer to its share of the population (36%). A San ie o Central Coast L A Sacramento Central alley est of State Inlan m ire
PIT PAID BY BAY AREA MORE VOLATILE THAN REST OF STATE
Average Deviation, 1996-2014
Average deviation (AD) is a measure of revenue volatility. With an AD of 16.3, personal income tax paid by Bay Area residents from 1996-2014 was over 40 percent more volatile than for tax paid statewide (11.4).
Bay Area
Central Coast
Statewide
San Diego
Los Angeles
Rest of State
Sacramento
San Joaquin Valley
Inland Empire
LAO California’s Tax System | Personal Income Tax (PIT) 18
CHAPTER 2
LAO California’s Tax System | Property Tax 19
PROPERTY TAX
For many California taxpayers, the property tax bill is one of the largest tax payments they make each year. For thousands of California local governments—K–12 schools, community colleges, cities, counties, and special districts— revenue from property tax bills represents the foundation of their budgets. Cities, counties, and special districts use property tax revenues to support municipal services like police, fire, and parks. Property tax revenue remains in the county in which it is raised.
Property taxes are levied by local governments on real property (principally land and buildings), as well as some types of personal property, which includes business property (like manufacturing equipment), aircrafts, and vessels. Proposition 13 (1978) limits the property tax on real property to 1 percent of assessed value. Under Proposition 13, assessed value for real property is limited to the price paid for the property increased each year by 2 percent or inflation, whichever is lower. In contrast, personal property is taxed based on its market value. In 2016-17, statewide property tax revenues were about $60 billion.
LAO California’s Tax System | Property Tax 20
WHAT IS SUBJECT TO THE PROPERTY TAX?
2016-17
This figure shows the assessed value of each type of property subject to the property tax. In most cases, county assessors determine the value of property within the county. For a subset of property—like natural gas pipelines—the state determines the value of the property. Statewide, the assessed value of taxable property is over $5.7 trillion.
Trillion
illion
illion L illion
A illion illion Trillion A L illion
A illion O illion
LAO California’s Tax System | Property Tax 21
SAMPLE ANNUAL PROPERTY TAX BILL
O
A A A oe ane L C Street Sa ramento C A City ater istri t S ool istri t Comm nity Colle e istri t L Si e al istri t ssessment loo Control istri t ssessment A Street i tin istri t ssessment ello oos istri t an S ool istri t Par el Tax mpro ements Total ess xemptions st nstallment et ssesse al e n nstallment
Certain exemptions an re e Co nty tax olle tors i i e a property’s assesse al e T e properties’ total tax ill into t o most ommon is t e omeo ner’s payments T e first payment is exemption i re es an e y e em er t an o ner o pie ome’s assesse t e se on payment is e y al e y pril t any omeo ners pay t eir property taxes as part of t eir mont ly mort a e an t eir mort a e ser i er pays t e o nty on t e omeo ners’ e alf a year o nty assessors etermine ea property’s assesse al e O i in l es t e al e of ot lan o al o ernments may le y an il in s ssesse al e typi ally ot er ar es on property t at is ase on a property’s p r ase are not a alorem taxes ften pri e n t e year a property is t ese ar es are ase on p r ase it is taxe at its p r ase t e enefits t e propertyo ner pri e a year t ereafter its assesse re ei es from t e ser i e al e is in rease y inflation or or impro ement per ent i e er is lo er pon resale it is a ain taxe at its p r ase pri e f a property’s mar et al e ips A elo its inflation a ste p r ase Taxes ase on t e al e of pri e it is typi ally taxe on its mar et property are no n as a alorem al e instea taxes Proposition appe t e a alorem property tax rate at per ent pl s oter appro e a on rates to for ertain e t repayments
LAO California’s Tax System | Property Tax 22
THE LIFE OF A HOUSE
This graphic shows the value of a hypothetical home over time to demonstrate how different transactions and changes to a property affect a property owner’s tax bill.
T e pri e t e ome o l e sol for
A T e asis of t e property o ner s tax ill T e ome s mar et al e ips elo its inflation a ste p r ase pri e Proposition allo s t e ome to e temporarily assesse ase on its mar et al e instea
property transfer typi ally Proposition re ires a tri ers a reassessment o e er ome s assesse al e to e ase Proposition allo s t e on its p r ase pri e in rease y ome to transfer from t e o ner to p to per ent per year for inflation t e il it o t a reassessment ene er it is sol it is a ain taxe to mar et al e at its p r ase pri e Proposition also rolle a assesse al es to t eir le els
T e ome s mar et al e re o ers an it is a ain taxe at its inflation a ste p r ase pri e
OL
A T e a ition of a e room T e ome is sol an reassesse to mar et al e rom to t e in reases t e ome s assesse al e to refle t t e a e mar et si nifi antly in reasin t e ome is taxe ase on tax ill its mar et al e al e of t e e room t not t at ori inal ome
LAO California’s Tax System | Property Tax 23
NEIGHBORS OFTEN FACE DIFFERENT TAX BURDENS
This map shows the property taxes paid per $100,000 of market value for homes in a Los Angeles zip code in 2015. Property taxes are based on the assessed value, which typically grows more slowly than market value. Because of this, significant differences arise among property owners solely because they purchased their properties at different times.
reater T an
to
to
to
ess T an
LAO California’s Tax System | Property Tax 24
TWO FACTORS DRIVE FUNDING FOR MUNICIPAL SERVICES
Per Capita Assessed Value, 2016-17
el orte Property tax funding for municipal services— T lare such as police, fire, and parks—generally is mperial higher in counties with higher assessed values. a Municipal services funding also depends on resno in s the share of property tax revenue allocated to Te ama municipal services relative to schools. While er e schools’ shares vary across counties, the state Stanisla s allocates funding to schools to equalize these a era differences. assen tte A San oa in m ol t S tter S asta San ernar ino Sa ramento ern a e Sis iyo lenn i ersi e Trinity Solano o o olo ariposa en o ino San enito T ol mne os n eles Cala eras onterey ent ra ma or San ie o Santa Cr lame a l ora o Sonoma Contra Costa ile Contra Costa an ran e a e ran e similar property tax ases ran e as Santa ar ara less a aila le for m ni ipal ser i es Col sa e a a Pla er Sierra San is ispo Pl mas Santa Clara nyo San ran is o apa San ateo arin
LAO California’s Tax System | Property Tax 25
REVENUE FOR MUNICIPAL SERVICES VARIES WIDELY
This graphic shows the per-person property Trinity taxes available within each county in 2015-16 el orte Sis iyo mol t o o for counties, cities, and special districts. The S asta assen amount of funding available in each county en o ino Pl mas Te ama reflects the level of municipal services that a e Sierra A residents can expect to receive from their local lenn tte Col sa e a a governments. S tter a Pla er olo Sa ramento l ora o
Sonoma Solano ma or apa
arin Contra A Costa San San oa in ran is o lpine Cala eras lame a Stanisla s San T ol mne ateo ariposa ono er e a era
nyo Santa Clara resno T lare in s San enito ern
Santa San ernar ino Cr i ersi e
onterey San ess T an is Santa ispo ar ara ent ra ran e er os n eles
L A A
A San ie o mperial
LAO California’s Tax System | Property Tax 26
PROPERTY TAX MORE STABLE THAN PERSONAL INCOME TAX
Annual Percent Change
Stable—or predictable—revenues allow governments to provide consistent levels of service. The property tax— the largest single source of local government revenue—is a stable revenue source compared to the personal income tax, which is the state’s largest single source of revenue.
PROPERTY TAX HAS GROWN SINCE PROPOSITION 13
Governments ideally rely on revenue sources that grow sufficiently to cover any increases in the costs of providing services. Some argue that the property tax has not grown sufficiently to cover local government costs since the passage of Proposition 13 in 1978. Others argue property tax revenues have grown substantially since 1978. Below, we present two ways of measuring property tax revenue growth.
A A
LAO California’s Tax System | Property Tax 27
PROPERTY TAXES ON VEHICLES
STOP California levies a variety of charges on vehicles. Two of the larger ones—the vehicle license fee (VLF) and the transportation improvement fee (TIF)—effectively are property taxes on vehicles Total Tax = $187 (but exempt from Proposition 13). Both taxes are levied on the car’s depreciated value. Revenue from the VLF ($2.6 billion in 2016-17) goes to cities and counties for health and human services and law enforcement programs. Revenue from the TIF ($1.5 billion projected in 2018-19) goes to state and local agencies for transportation programs.
L Vehicle Transportation License Fee Improvement Fee TIF Schedule Value of Vehicle Annual Fee $0 to $5k $25 $5k to $25k $50 Determine the TIF owed. $25k to $35k $100 $35k to $60k $150 Apply the 0.65% VLF rate Find the fee in the chart to Over $60k $175 the right that corresponds $21,070 X 0.65 = $137 to the vehicle value ($21,070) = $50
A
L AL Depreciation Schedule n n t et e firstfirst yearyear aa e i le e i le isis o ne o ne itsits al e al e isis ro lyro ly t et e Years Owned Depreciation Rate p r ase pri e n s se ent years t is al e is 1 100% 2 90 epre iate ase on t e s e le to t e ri t or t is 3 80 4 70 example e ass me a fo r year ol ar it an initial 5 60 p r ase pri e of 6 50 7 40 8 30 9 25 T e ar s al e in year fo r is 10 20 11 and After 15
LAO California’s Tax System | Property Tax 28
CHAPTER 3
LAO California’s Tax System | Sales Tax 29
SALES AND USE TAX
California’s state and local governments levy a tax on retail sales of tangible personal property. This tax—called the sales and use tax (hereafter, sales tax)—is a significant source of state and local revenue. In this chapter, we draw distinctions between the products that are subject to this tax and those that are not. We also provide information on the variation in tax rates across the state and the distribution of revenue among state and local programs.
LAO California’s Tax System | Sales Tax 30
WHAT THE SALES TAX IS
The sales tax is levied on the retail sale of tangible personal property. (“Tangible” refers to physical materials. “Personal property” is movable from one place to another.) The graphic below compares the amount of taxable sales (spending on items subject to the sales tax) in 2015 with the amount of taxable sales that would be subject to the tax if not for exemptions. The icons show major categories of taxable sales and exemptions.
Taxable Sales: $636 Billion Exemptions: $221 Billion
Clot in rnit re e i les ro eries tilities
res ri tion ersonal Care ro ts ffi e S lies lian es re are oo s e i ines
Clot in rnit re e i les ro eries tilities
WHAT THE SALES TAX IS NOT
Households and businesses spend money on many services and other items res ri tion that are not subject to the sales tax, ersonal Caregenerally ro ts because ffi e those S lies items are lian es not tangible re are personal oo s property. Instead, these e i ines items are services (such as a hair cut), intangible property (such as an e-book), and real property (such as land). For example, a consumer having their car repaired would pay sales tax on parts like brake pads but would not pay sales tax on the labor associated with the repair. Spending on these items is several ational times St ythe size of the salesTrans ortation tax base. Ser i es e i al Ser i es
Items Not Subject to Sales Tax
Tele omm ni ations aintenan e o sin ersonal Care Ser i es an e airs ational St y Trans ortation Ser i es e i al Ser i es
Tele omm ni ations aintenan e o sin ersonal Care Ser i es an e airs
LAO California’s Tax System | Sales Tax 31
WHERE IS SALES TAX COLLECTED?
Share of Statewide Taxable Sales by Business Type, 2015
Motor Vehicle and Parts Dealers
Bars and Restaurants
Wholesalers
General Merchandise Stores
Gasoline Stations
Manufacturing
Clothing and Accessories Stores
Rentals, Real Estate, and Construction
Building Materials and Garden Supplies
Furniture, Home Furnishings, Electronics, and Appliance Stores
Food and Beverage Stores
Other Retailers
Other Non-Retail Businesses
2 4 6 8 10 12 14%
LAO California’s Tax System | Sales Tax 32
IN SOME REGIONS, CONSUMERS FACE SEVERAL DIFFERENT RATES
Rates as of April 1, 2018
California’s sales tax rates vary across cities and counties, ranging from 7.25 percent to 10.25 percent. These rate differences result from optional sales taxes levied by local governments. (The minimum rate in the two regions shown below is 7.75 percent.)
Pittsburg Hercules Pinole Martinez Antioch San Pablo Concord Richmond Pleasant Hill El Cerrito Orinda Albany Moraga
7.75%
8.25 San Leandro 8.75 Hayward A 9.25 Union City 9.5 Newark 9.75
10.0
10.25
L A El Monte South El Monte Santa Monica Culver City Commerce Pico Rivera
Inglewood South Gate Downey Hawthorne Lynwood La Habra
Compton
La Palma
Long Beach Stanton O Westminster
Fountain Valley
LAO California’s Tax System | Sales Tax 33
SALES TAX RATES IN CALIFORNIA COUNTIES Rates as of April 1, 2018
Population-Weighted Minimum Average Maximum Legend Alpine L Calaveras er ent of o lation as of an ary Lassen Modoc Plumas Sierra Sutter Trinity Placer Shasta Tuolumne Butte Tehama El Dorado Colusa Glenn elo o e Siskiyou Kern Kings Yuba Ventura Del Norte San Luis Obispo Mono Lake Amador Inyo Mariposa Napa San Bernardino Orange San Diego Nevada San Benito Sacramento Yolo Madera Imperial Santa Barbara Fresno Merced Stanislaus Humboldt Riverside Mendocino Tulare Solano Sonoma San Joaquin San Francisco Marin Contra Costa Monterey Santa Cruz San Mateo Santa Clara Alameda Los Angeles 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5%
LAO California’s Tax System | Sales Tax 34
DISTRIBUTION OF SALES TAX REVENUE
This graphic shows how sales and use tax revenues were distributed to the state, state-funded local programs, and local governments in 2016-17.
illion
illion
L illion
illion
illion T e eneral n t e state s main o eratin a o nt ro i es f n in rimarily for e ation ealt an so ial ser i es an riminal sti e ro rams
illion L illion Total sales an se tax re en e
illion illion illion O illion
O illion
illion illion illion eneral f n in for ity an o nty ro rams
LAO California’s Tax System | Sales Tax 35
PER CAPITA SALES TAX COLLECTIONS BY COUNTY
2015-16
DEL NORTE SISKIYOU MODOC Range of Per Capita Tax Collections by County For Major California Taxes Excludes Alpine and Mono Counties
HUMBOLDT TRINITY TEHAMA SHASTA LASSEN Personal Income Tax
MENDOCINO GLENN BUTTE PLUMAS SIERRA
Property Tax
LAKE COLUSA YUBA NEVADA
Sales and SONOMA Use Tax
NAPA YOLO SUTTER PLACER
MARIN
EL SOLANO SACRAMENTO DORADO
SAN CONTRA SAN AMADOR ALPINE FRANCISCO COSTA JOAQUIN
SAN MATEO ALAMEDA STANISLAUSCALAVERAS TUOLUMNE
SANTA SANTA MERCED MARIPOSA MONO CRUZ CLARA
Number of Counties in Each Group
SAN Less Than $700 8 MONTEREY FRESNO MADERA BENITO
$700-1000 13
$1001-$1225 19 KINGS TULARE INYO
$1226-$1400 8
SAN LUIS KERN Over $1400 10 OBISPO
SANTA LOS SAN VENTURA BARBARA ANGELES BERNARDINO
ORANGE RIVERSIDE
SAN DIEGO IMPERIAL
LAO California’s Tax System | Sales Tax 36
SALES TAX GROWTH SLOWER THAN PROPERTY AND INCOME TAXES
Total Percent Change, 2015-16 Dollars
One Reason: Taxable Sales Have Shrunk ...Because Prices of Goods Have Grown as a Share of the Economy... More Slowly Than Prices of Services Taxable Sales as Share of Personal Income Total Percent Change
LAO California’s Tax System | Sales Tax 37
LAO California’s Tax System | Sales Tax 38
CHAPTER 4
LAO California’s Tax System | Other Taxes 39
OTHER TAXES
Beyond the three main taxes covered earlier in this report, the state and local governments levy a variety of smaller taxes that collectively sum to just over 10 percent of all tax revenue collected in the state. These include taxes on corporations, tobacco, alcohol, diesel and gasoline, insurance, and hotels. (Tobacco, alcohol, and fuels are also subject to the sales tax covered in Chapter 3.)
LAO California’s Tax System | Other Taxes 40 WHO PAYS CORPORATION TAX?
2015
California levies a tax on net corporate income. For most corporations, the tax rate is 8.84 percent. California only taxes the portion of income that was earned in California.
Manufacturing
Retail Manufacturing
Retail Companies in these four industries make up 24% of corporate taxpayers but pay 68% of the tax.
Holding Companies in these four Companies industriesFinancia lmake up 24% Other of corporate taxpayers but Services pay 68% of the tax. HCooldminmgunication, ComTrpaannsipeosrtation, Financial CoOntshterur ction and Utilities Services Real Estate Communication, Transportation, A relatively large number of Hospitality Construction and Utilities corporations in this industry and Food had no net income or a net loss. Services Professional,
Real Estate Scientific, and Technical Services Agriculture and Mining A relatively large number of Hospitality corporations in this industry and Food had no net income or a net loss. Services Profes sional, L Scientific, and Technical Services Agriculture 2 Percenta ndof Mi nCorporateing Taxpayers Pay 85 Percent of the Tax Tax Statistics by Income Group, 2015 L
Net corporate income is all revenues less most of the costs of doing business. These deductions may include the cost of raw materials, rent, interest payments, and employee compensation. L Many companies have more deductions than their gross revenue, resulting in a net loss. L
L L L
L
LAO California’s Tax System | Other Taxes 41 CORPORATION TAX CREDITS BY INDUSTRY 2015
Corporations may apply a credit against their taxes for investing money in ways that further certain policy goals. In the figure below, the darker, inner pie shows a breakdown of credits in 2015. The lighter, outer segments show the distribution of the two largest credits among various types of corporations.
The state began phasing out enterprise zone credits in 2013. etail
The state began phasing out enterprise zone credits in 2013. Other etail le tri al an le troni i ment an fa t rin Other le tri al an ol in Com anies le troni i ment an fa t rin illion inan e rofessions an Te hni al ol in Com anies Trans ortation an tilities illion O inan e illion illion rofessionsL an Te hni al illion Other an fa t rin Trans ortation an tilities illion O illion illion L illion Other an fa t rin illion harma e ti als oo ro ts Other nformation Chemi als n strial Se tors Se tor harma e ti als oo ro ts Other nformation Chemi als n strial Se tors Se tor
Corporate Profits More Volatile Than State Economy Annual Percent Change Corporate Profits
Corporate Profits Gross State Product
Gross State Product
LAO California’s Tax System | Other Taxes 42
FUEL TAXES
California levies several taxes that specifically apply to transportation fuel. These taxes include gasoline and diesel excise taxes, which are collected from distributors when they remove the fuel from terminals or refineries. They also include diesel sales taxes, which are collected at the point of retail sale, just like other sales taxes.
Fuel Taxes Raise About $9 Billion Annually 2018-19 Projections
Gasoline $7.1 Excise Tax Billion
Diesel $1.2 Excise Tax Billion
Diesel $0.8 Sales Tax Billion
Over 18 Billion Gallons of Fuel Sold Annually 2018-19 Projections
Diesel 2.8 Billion Gallons Gasoline 15.8 Billion Gallons
Over Half of Fuel Tax Revenues Spent on State Highways 2018-19 Projections
Public Transportation
Local Streets State Highways and Roads
Other
LAO California’s Tax System | Other Taxes 43
INSURANCE TAX
The state levies a 2.35 percent tax on insurance premiums. Insurance companies pay the insurance tax instead of the corporate income tax.
Insurance Tax Base: $137 Billion in Premiums 2016
Life Insurers Commercial Auto $3 Billion Other $12 Billion
Life Personal Auto Homeowners $16 Billion $8 Billion $25 Billion Medical Professional Liability $450 Million
Marine $3 Billion
Annuity Workers' Fire $24 Billion Compensation $948 Million $13 Billion Accident and Health Mortgage Guarantee $16 Billion $459 Million Other $12 Billion $2 Billion Property and Casualty
Earthquake Title Insurers $1 Billion
Insurance Tax Generates $2.3 Billion Trends in Insurance Tax Base State General Fund, 2016 Annual Premiums, In Billions
$80 Property & Casualty Life
60 Life Property & Casualty 40 Title Special rules apply to title and ocean 20 marine insurers Ocean Marine Title
1991 1996 2001 2006 2011 2016
LAO California’s Tax System | Other Taxes 44
ALCOHOLIC BEVERAGE TAX
The state levies an excise tax on alcoholic beverages. The tax is levied on distributors (such as wholesalers) based on the volume and type of beverage sold. Revenue from this tax is deposited into the state General Fund, which provides funding primarily for education, health and social services, and criminal justice programs. Revenues from the tax totaled $363 million in 2015-16.
$4 Million $26 Million
$136 Million
$198 Million
Alcohol Consumption Trends Annual Drinks Per Capita
300
250 Beer 200
150 Spirits
100 Wine 50
1960 1970 1980 1990 2000 2010
LAO California’s Tax System | Other Taxes 45
TOBACCO TAXES
The state levies excise taxes on tobacco products. The taxes are levied on distributors (such as wholesalers). The tobacco tax is levied on cigarettes on a per-cigarette basis. Currently, the tax rate is equivalent to $2.87 per pack. The tobacco tax on other tobacco products—such as chewing tobacco and electronic cigarettes—is levied as a percent of the wholesale price. The current rate is equivalent to $3.37 per pack of cigarettes.
Breakdown of Tobacco Tax Rates and Spending
Cigarettes Other Tobacco Products
Proposition 56 rate: Medi-Cal and various other purposes $2 $2
Proposition 10 rate: early childhood development programs $.50 $.50
$0.02 for breast cancer research
Proposition 99 rate: tobacco-related programs, other health programs, environmental protection, $0.25 $0.87 and recreational purposes
$0.10 deposited into state General Fund
Tobacco Tax Revenues Have Increased Annual Per Capita Consumption of Cigarettes Due to Rate Increases Has Decreased Dramatically 2018-19 Dollars, In Billions Packs Per Year
Proposition 56
Proposition 10 Proposition 99 Legislative Increase
LAO California’s Tax System | Other Taxes 46
HOTEL TAXES Hotel Taxes as a Share of Total Tax Revenues
Transient occupancy taxes are imposed on stays at hotels, motels, and similar accommodations. As such, the tax typically is paid by visitors from outside of the city or county in which the tax is levied. While some cities rely heavily on the hotel tax, statewide the tax makes up less than 10 percent of city tax revenues.
10 20 30 40 50 60 70% Mammoth Lakes Yountville Calistoga Solvang Avalon Pismo Beach Angels Anaheim Indian Wells Big Bear Lake Rancho Mirage Burlingame South Lake Tahoe Bishop Half Moon Bay Ojai Hotel Tax Revenues Have Doubled Since Great Recession 2015-16 Dollars, In Billions Monterey $3 Dana Point
Hotel taxes make up Morro Bay more than 25 percent Goleta of general purpose Millbrae 2 tax revenues in 39 cities. Counties Fort Bragg West Hollywood Crescent City 1 Palm Springs Cities Carmel-by-the-Sea Plymouth Carpinteria 2002-03 2015-16 Westlake Village Coronado Most Hotel Spending Is Where Rate is 10% or 14% Pacific Grove In Billions, 2015-16 Point Arena $8 Needles 7 Sonoma 6 Palm Desert Napa 5 Healdsburg 4 Garden Grove 3 Buellton By contrast, hotel tax 2 revenues in these four San Diego 1 cities make up a lower San Francisco share of city budgets, but make up about Los Angeles <7% 7-8 8-9 9-10 10-11 11-12 12-13 13-14 14-15 >15% 40 percent of all hotel San Jose taxes collected in the state. Statewide Average
LAO California’s Tax System | Other Taxes 47 ADDITIONAL LAO RESOURCES
GENERAL RESOURCES LAO Economy & Taxes Blog (www.lao.ca.gov/LAOEconTax) and Twitter (@LAOEconTax)
PERSONAL INCOME TAX Volatility of the Personal Income Tax Base (Report) Volatility of California’s Personal Income Tax Structure (Report)
PROPERTY TAX Understanding California’s Property Taxes (Report) Understanding Your Property Tax Bill (Blog Series) Calculating Your 1 Percent Tax (Video) The 1 Percent Tax—Where Does Your Money Go? (Video) Common Claims About Proposition 13 (Report) The Property Tax Inheritance Exclusion (Report)
SALES AND USE TAX Understanding California’s Sales Tax (Report) Why Have Sales Taxes Grown Slower Than the Economy (Report)
TAX EXPENDITURES Review of the California Competes Tax Credit (Report) California’s First Film Tax Credit Program (Report) Community Development Financial Institution Tax Credit (Report) Options for Modifying the State Child Care Tax Credit (Report)
LAO California’s Tax System 48
LAO PUBLICATIONS This report was prepared by Ryan Miller and Vu Chu, with assistance from Carolyn Chu, Justin Garosi, Seth Kerstein, Brian Uhler, and Brian Weatherford. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov.
LAO California’s Tax System