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California To Raise Sales Tax
Volume 587

California's legislature recently approved a 1% sales tax hike, increasing what was already among the highest state tax rates in the nation. The change, effective April 1, will raise the California sales tax to a temporary minimum of 8.25%. Although the increase is designed to help close a $42 billion budget deficit, it could worsen the business climate, especially for distributors in the state. "I definitely think it is going to have an impact," says Jean Obad, owner of Diamond Stitch (asi/180213). "New customers shopping around are the ones looking at the bottom line for estimates. They'll want to order smaller quantities or shop online."

Mike Juels, president of Corporate Images (asi/169081), believes the tax hike will have a major effect. "This is just another dagger in our hearts," Juels says. "California sales tax is due when billed versus when collected. A distributor is prepaying sales tax. We're paying it in before we even collect the funds from our customers."

The change in sales tax will mostly affect California-based companies. Distributors who buy products from California suppliers will not have to pay the tax unless the products are sent to an end-user in California. In addition to the sales tax increase, the budget also includes a hike in vehicle license fees, which will likely affect companies with a large number of trucks. Technically, both the vehicle and sales tax increases will expire within two or three years, depending on the outcome of upcoming state referendums. "The business climate is really ugly out there," Juels says.

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