California'S Tax System
C A L I F O R N I A’ S TA X S Y S T E ML E G I S L A T I V EA N A L Y S T ’ SO F F I C E
2INTRODUCTIONCalifornia’s state and local governments rely on three main taxes. The personalincome tax is the state’s main revenue source, the property tax is the majorlocal tax, and the state and local governments both receive revenue from thesales and use tax. In addition, many smaller taxes raise revenue for state andlocal 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 showsthat roughly two-thirds of tax revenues in California go to the state governmentwith the other one-third collected by local governments. The middle ring showseach tax as a share of the whole system. (Note that the line from the inner blackpie chart intersects with the sales and use tax segment to show the shares ofsales tax revenue that go to the state and to local governments.) The outer ringbreaks out each major tax by source. For example, the biggest source of personalincome 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.L A O Califor nia’s Tax System Over view
3OV E RV I E W O F C A L I F O R N I A ’ S TA X S Y S T E M2015-16WagesandSalariesottial N iedpidenRes r-OccueOwnROw esidne enr-O tiacc lupiedPropCommercertyial/IndustrialTaalsonPer me TaxocnIxomeent IncRetiremDividends,Interest, and RentLo calGasoline StationsBuilding Materials and Garden SuppliesresoriesStocessand AcClothingicle rsr VehMoto arts Dealeand PSaleUs s aneTdaxStoresOtherRetailBaersRe rs ans ta duraGenntsM eraatestandionructConststieL A O Califor nia’s Tax System Over viewOtherntir EheOtRealEPayrollainsnsioatorrpCoProperty TransfereCapitalGrthe,line d Oso anGa sel,DieMBusinessacufangrintuerch landis eoleWhUtilitiess IncomOttailReon- sNresesOth sineslerBusaBusinesxTanioatorrpssxeCoTa te TaxeelFu her StaHotelsStatexesce, and Applianal Tar LocOthes, Electronicsme FurnishingFurniture, HoOtherFood and Beverage StoresVehicle License FeeInsurance TaxTobacco TaxesAlcoholic Beverage Tax
41C H A P T E RL A O Califor nia’s Tax System Personal Income Tax (PIT)
5PERSONALI N C O M E TA XThe personal income tax (PIT) is a broad-based taxthat the state levies on most types of income, suchas wages and capital gains. The PIT is an importantrevenue source for the state government, generatingover 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 othertax in California’s tax system.L A O Califor nia’s Tax System Personal Income Tax (PIT)
6ABOUT TWO-THI RDS O F I NCO M ECOMES FROM WAG ES AND SALARI ES2015Capital Gains 118 BillionWages and Salaries 898 BillionPensions,Annuities,and IRADistributions 102 BillionDividends,Interest,and Rent 56 BillionBusinessIncome(MultipleOwners) 88 BillionBusinessIncome(Sole Owner) 53 BillionH OW DO PIT RATE S WO RK?Marginal and Effective Tax Rates, Single Filer, 2017Personal income tax rates are marginal, meaning that higher income increments are taxed athigher rates. For example, a single filer with taxable income of 300,000 is taxed at 1 percent onthe first 8,000 of their income, but 10.3 percent on the last 31,000 of their income. A taxpayer’shighest marginal rate is higher than their effective rate (the average rate at which their income istaxed). For example, a single filer with 100,000 in taxable income is taxed at 9.3 percent on theirlast dollar of income but their effective tax rate (before tax credits) is 6.7 percent.14%MarginalRateIncomeBetween1% 0K - 8K2% 8K - 19K4% 19K - 30K6% 30K - 42K8% 42K - 53K9.3% 53K - 269K410.3% 269K - 322K11.3% 322K - 537K212.3% 537K - 1M13.3% 1M and Over12Marginal Rate108Effective Rate6100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000L A O Califor nia’s Tax System Personal Income Tax (PIT)
7 60K in Wages 30K in Business IncomeCALCULATI NG THEPERSO NAL I NCO M E TAX BI LL 90K Adjusted Gross IncomeMarried Couple With One Dependent Filing Jointly, 2017Step 1 Add up IncomeAlmost two-thirds of all filers take the standard deductionStep 2 Add up DeductionsDo itemizeddeductions exceed 8,472 standarddeduction? 8K in Mortgage Interest 5K in Local Property Taxes 2K in Student Loan Interest 15K Itemized DeductionsYes: takeitemizedMarignalRate1%2%4%6%No: takestandardIncomeBetween 0- 16K 16K- 39K 39K- 62K 62K- 85KStep 3Step 4Calculate Taxable IncomeApply Tax Rates in Table AboveStep 5 Add up Tax Credits 90K Adjusted Gross Income 15K Itemized DeductionsFirst 16K Taxed atNext 23K Taxed atNext 23K Taxed atNext 23K Taxed at 400 Child Care Tax Credit 114 X 2 Personal Exemption Credit 353 Dependent Exemption Credit 75K Taxable Income1% 1642% 4514% 9026% 808Tax Liability Before Credits 2,325 981 Total Tax CreditsStep 6 Calculate Tax LiabilityTax Liability Before Credits 2,325Filers Itemizing Deductions Tend to Be Higher-Income TaxpayersStandardMinus Credits - 981ItemizedFinal Tax Bill -1M1M-5MOver 5ML A O Califor nia’s Tax System Personal Income Tax (PIT)
8B REAKDOWN OF D EDUCTI O NSIn Billions, 2015PIT deductions reduce taxpayers’ taxable incomes. In total, deductions reduced taxable incomeby about 200 billion in 2015. About 7 billion of the deductions shown here went unused becauseitemized deductions are phased out for high-income taxpayers.StandardDeduction 60.7MortgageInterest 52.9PropertyTaxes 30.1CharitableContributions 30.0Business andOther Expenses 20.4MedicalExpenses 10.6 4.3OtherW H O USES DEDUCTI O NS?Share of Deduction Value by Income Group, 2015Standard Deduction50%Mortgage InterestCharitable ContributionsMedical ExpensesBusiness and Other ExpensesProperty Taxes 1M and Over 500K - 1M 200K - 500K 100K - 200K 50K - 100K 20K - 50K 0K - 20K25L A O Califor nia’s Tax System Personal Income Tax (PIT)
9B R EAKDOWN OF C REDI TSIn Billions, 2015PIT credits reduce tax liabilities dollar for dollar, resulting in a dollar-for-dollar reduction in staterevenue. With the exception of the Earned Income Tax Credit (EITC), credits cannot reduce ataxpayer’s liability below zero. For this reason, the amount of credits shown in the chart is aboutdouble the amount of credits actually used by taxpayers to reduce liability.Dependent Credit 4.0Personal Credit 2.3Blind and SeniorCredit 0.4 0.3Enterprise Zones 0.2EITC 0.1Renter's Credit 1.1OtherEITC100WH O USES CREDITS?Share of Credit Value by Income Group, 2015Dependent Credit50%Personal Credit 500K - 1M 1M and over 200K - 500K 100K - 200K 20K - 50K 50K - 100K 0K - 20K25Enterprise Zones66Renter’s CreditBlind and Senior Credit55L A O Califor nia’s Tax System Personal Income Tax (PIT)
10PIT LIABILITY CONCENTRATED AMONG TOP EARNERSTax Statistics by Income Group, 2015Share of Tax Returns 0 to 20KShare of Adjusted Gross Income 50K to 100K13.0%0.4%10.7%8.3%1.7%Over 1M18.0%9.8%3.2%0.8%8.6%22.4%12.9% 500K to 1M2.0%19.1%21.2% 100K to 200K 300K to 500K0.1%31.0% 20K to 50K 200K to 300K3.7%27.7%Share of Tax Liability10.6%6.9%10.3%19.4%39.6%Over Half of PIT Liability for Over 1 Million GroupPaid by Filers With Adjusted Gross Income Over 5 Million21%10% 1Mto 2M 2Mto 3M7%5% 3M 4Mto 4M to 5M57%Over 5ML A O Califor nia’s Tax System Personal Income Tax (PIT)
11INCOME MAKEUP DIFFERENTFOR LOW- AND HIGH-INCOME TAXPAYERS2015The graphic below shows how taxpayers in different income groups derive their income. Some types ofincome, 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, accountfor a minority of the total incomes of the highest-income taxpayers, whose incomes are derived mostlyfrom capital gains, partnership income, and dividends, interest, and rent. (All other income—mostlyproprietors’ income—is shown in grey.)100%7550250-40K40K-70K70K-100K 100K-150K 150K-200K 200K-300K 300K-400K 400K-500K500K-1M1M-2M2M-3M3M-4M4M-5MHIGH-INCOME TAXPAYERS RELYMORE ON VOLATILE INCOME SOURCESTotal Percent Chang e , 2015 Dollars250%250%200200150150100Capital GainsPartnershipIncome100Retirement Income5050Wages and SalariesDividends, Interest, and Rent-50-5019962001200620112015199620012006L A O Califor nia’s Tax System Personal Income Tax (PIT)20112015Over 5M
12PIT MORE VOLATILE THAN PERSONAL INCOMEAnnual Percent Chang eAs the state’s main revenue source, the highly volatile PIT results in revenue uncertainty, thus complicatingstate 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.)40%30Personal Income Tax2010Personal Income-10-20-301997200220072012CAUSES OF PIT VOLATILITYAverag e Deviation, 1990 to 2014Average deviation (AD) is a measure of revenue volatility. With an AD of 12.2, the PIT is over five times morevolatile than personal income (2.3). About 40% of the higher volatility is due to the state’s choices aboutwhich 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.15105Volatility ofPersonal IncomeDefinition ofPIT BaseGraduatedRate StructureCreditsand DeductionsVolatility of PITL A O Califor nia’s Tax System Personal Income Tax (PIT)
13WITH VOLATILITY COMES GREATER REVENUE GROWTHThe 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 othergroup of taxpayers. This has contributed to PIT growth.Bulk of Income Growth Has Gone to High-Income Taxpayers.Adjusted Gross Income Per Retur n by Income Range, Total Percent Change, 2015 Dollars125%10075Top 1 Percentile5095th to 99th2590th to 95th80th to 90thBottom Four Quintiles-2519962001200620152011.Which Has Contributed to PIT Revenues Growing Much Faster Than RevenuesFrom Other State TaxesTotal Percent Change, 2015-16 Dollars150%125100Personal Income Tax7550Sales and Use Tax25Corporation Tax-251996-972001-022006-072011-12L A O Califor nia’s Tax System Personal Income Tax (PIT)2015-16
14VOLATILITY OF THE PIT BASEState law specifies which types of income are subject to thepersonal income tax. In general, California has chosen to taxrelatively volatile types of income, as illustrated by the charton the next page. The boxes are shaded by their volatilitymeasure (average deviation). An item with a measure of 6 istwice as volatile as an item with a measure of 3.Personal income is an economic statistic that includes mosttypes of income. Different portions of personal income aresubject to tax. Some portions of personal income are morevolatile 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. Californiaalso chooses to tax some types of income not included inpersonal income. In particular, capital gains income, with avolatility measure of 35, is more than twice as volatile as anyother part of the PIT base. Overall, the PIT base is almostthree times as volatile as personal income.L A O Califor nia’s Tax System Personal Income Tax (PIT)
15PIT BASE MORE VOLATILE THAN PERSONAL INCOMEAverag e Deviation, 1990-2014Average DeviationItems Not inPersonal IncomeUnder 33.1 - 6Capital Gains6.1 - 9Pensions and IRA Distributions9.1 - 12Personal IncomeTax BaseCapital GainsOver 12Pensions and IRA DistributionsComponents ofPersonal IncomeWages andSalariesDividends, Interest, and RentProprietor and PartnershipWages andSalariesDividends,Interest,and RentItems NotIncluded inPIT BaseWages and SalariesProprietor andPartnershipDividends, Interest, and RentProprietor and PartnershipTransferPaymentsTransfer PaymentsEmployer-PaidBenefitsEmployer-Paid BenefitsWithin these broad categories, some components of personal income are in thetax base and others are untaxed. For example, interest earned from corporatebonds is taxed but interest earned from municipal bonds is untaxed.L A O Califor nia’s Tax System Personal Income Tax (PIT)
16HIGHER INCOMES CONCENTRATED IN BAY AREA2013The graphic below shows how incomes by county compare to the statewide average. A blue shadeindicates that a county has fewer taxpayers in that income range, a yellow shade indicates the countyis 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 millionrange, the most of any county.Legend12.5 Times Less FrequentThan Statewide AverageRegionBay AreaLosAngelesSan DiegoCentralCoastSacramentoSanJoaquinValleyRest of StateInlandEmpireCounty 0 to 15K 15K to 30KEqual to State Average 30K to 50K 50K to 80K 80K to 150K 150K to 300K 300K to 500KAlamedaContra CostaMarinNapaSan BenitoSan FranciscoSan MateoSanta ClaraSolanoSonomaLos AngelesOrangeVenturaSan DiegoMontereySan Luis ObispoSanta CruzSanta BarbaraEl iposaMercedSan JoaquinStanislausAmadorButteCalaverasColusaDel maTrinityTulareTuolumneYubaRiversideSan BernardinoL A O Califor nia’s Tax System Personal Income Tax (PIT)4.6 Times More FrequentThan State Average 500K to 1MOver 1M
17BAY AR EA CONTRIBUTES DISPROPORTIONATELY TO PIT2014Per Capita Taxes Paid by RegionPercent of Personal Income Tax Paid50%40The Bay Area pays nearly 40% of thePIT but only makes up 20% of population.By contrast, Los Angeles’ tax paid (34%)is closer to its share of the population (36%).Bay AreaLos AngelesSan DiegoBay AreaCentral CoastLos AngelesSacramentoCentral Valley30Rest of StateInland Empire5001,5002,500 3,50020SanDiego101020304050Sacramento60SanJoaquin Central RestofValleyCoast StateInlandEmpire708090100%Percent of PopulationPIT PAID BY BAY AREA MORE VOLATILE THAN REST OF STATEAverag e Deviation, 1996-2014Average deviation (AD) is a measure of revenue volatility. With an AD of 16.3, personal income tax paid by BayArea residents from 1996-2014 was over 40 percent more volatile than for tax paid statewide (11.4).Bay Area16.3Central Coast12.0Statewide11.4San Diego10.0Los Angeles9.2Rest of StateSacramento7.57.4San Joaquin Valley7.0Inland Empire6.9L A O Califor nia’s Tax System Personal Income Tax (PIT)
182C H A P T E RL A O Califor nia’s Tax System Proper ty Tax
19P R O P E R T Y TA XFor many California taxpayers, the property tax bill is oneof the largest tax payments they make each year. Forthousands of California local governments—K–12 schools,community colleges, cities, counties, and special districts—revenue from property tax bills represents the foundationof their budgets. Cities, counties, and special districts useproperty tax revenues to support municipal services likepolice, fire, and parks. Property tax revenue remains in thecounty in which it is raised.Property taxes are levied by local governments on realproperty (principally land and buildings), as well as sometypes of personal property, which includes businessproperty (like manufacturing equipment), aircrafts, andvessels. Proposition 13 (1978) limits the property taxon real property to 1 percent of assessed value. UnderProposition 13, assessed value for real property is limitedto the price paid for the property increased each year by 2percent or inflation, whichever is lower. In contrast, personalproperty is taxed based on its market value. In 2016-17,statewide property tax revenues were about 60 billion.L A O Califor nia’s Tax System Proper ty Tax
20WHAT IS SUBJECT TO THE PRO PERTY TAX?2016-17This 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. Fora subset of property—like natural gas pipelines—the state determines the value of theproperty. Statewide, the assessed value of taxable property is over 5.7 trillion.Single Family Homes 2.9 TrillionPersonal Property 203 BillionVacant Land 115 BillionWatercraft 6 BillionCommercialand Industrial 1.1 TrillionMultifamilyand Condos 939 BillionState Assessed 103 BillionAgricultural and Rural Land 101 BillionAircraft 19 BillionOil, Minerals, and Gas 22 BillionL A O Califor nia’s Tax System Proper ty Tax
21SAMPLE ANNUAL PRO PERTY TAX BI LLSecured Property Tax for Fiscal Year July 1, 2016 to June 30, 2017Detail of Taxes DueProperty Owner InformationProperty ID: 1234567Mailing Address:Doe, Jane1234 ABC StreetSacramento, CA 00000Property Valuation on Jan 1, 20122016-17 RollAssessed ValueLandImprovements 115,000.00 242,000.00TotalLess Exemptions 357,000.00 7,000.00Net Assessed Value 350,000.00ExemptionsCertain exemptions can reducea property’s assessed value. Themost common is the homeowner’sexemption, which reduces anowner-occupied home’s assessedvalue by 7,000.Taxable ValueEach year, county assessors determineeach property’s assessed value,which includes the value of both landand buildings. Assessed value typicallyis based on a property’s purchaseprice. In the year a property ispurchased, it is taxed at its purchaseprice. Each year thereafter, its assessedvalue is increased by inflation or2 percent, whichever is lower. Uponresale, it is again taxed at its purchaseprice. If a property’s market value dipsbelow its inflation-adjusted purchaseprice, it is typically taxed on its marketvalue instead.AgencyRateGeneral Tax Levy1.0000 3,500.00Voter-Approved Debt RatesCityWater DistrictSchool DistrictCommunity College District0.02010.00180.10100.0102 70.356.30353.5035.70Direct LeviesSidewalk District AssessmentFlood Control District AssessmentStreet Lighting District AssessmentMello-Roos DistrictSchool District Parcel TaxTotal Taxes DueAmount 9.3664.3912.7186.51125.00 4,263.821st Installment2nd Installment 2,131.912,131.91Total PaymentCounty tax collectors divideproperties’ total tax bill into twopayments. The first payment isdue by December 10th andthe second payment is due byApril 10th. Many homeowners paytheir property taxes as part of theirmonthly mortgage and theirmortgage servicer pays the countyon the homeowners’ behalf.Other Taxes and ChargesLocal governments may levyother charges on property thatare not ad valorem taxes. Often,these charges are based onthe benefits the propertyownerreceives from the serviceor improvement.Ad Valorem TaxesTaxes based on the value ofproperty are known as ad valoremtaxes. Proposition 13 capped thead valorem property tax rate at1 percent plus voter-approvedadd-on rates to for certain debtrepayments.L A O Califor nia’s Tax System Proper ty Tax
22THE L I FE O F A HO USEThis graphic shows the value of a hypotheticalhome over time to demonstrate how differenttransactions and changes to a property affect aproperty owner’s tax bill.Market ValueThe price the home could be sold for.Assessed ValueThe basis of the property owner's tax bill.2008: Decline in ValueThe home's market value dips belowits inflation-adjusted purchase price.Proposition 8 (1978) allows thehome to be temporarily assessedbased on its market value instead.1978: Proposition 13Proposition 13 (1978) requires ahome's assessed value to be basedon its purchase price, increased byup to 2 percent per year for inflation.Whenever it is sold, it is again taxedat its purchase price. Proposition 13also rolled back assessed values totheir 1975 levels.1988: Transfer to ChildA property transfer typicallytriggers a reassessment. However,Proposition 58 (1986) allows thehome to transfer from the owner tothe child without a reassessmentto market value.2014: RecoveryThe home's market valuerecovers and it is againtaxed at its inflation-adjustedpurchase price.SOLD1970: Home PurchasedFrom 1970 to 1977 thehome is taxed based onits market value.1985: Bedroom AddedThe addition of a bedroomincreases the home's assessedvalue to reflect the added marketvalue of the bedroom but not thatoriginal home.2005: Home SoldThe home is sold andreassessed to market value,significantly increasing thetax bill.L A O Califor nia’s Tax System Proper ty Tax
23N E IGH BORS OFTEN FACE DI FFERENT TAX BURDE N SThis map shows the property taxes paid per 100,000 of market value for homes in a Los Angeles zip codein 2015. Property taxes are based on the assessed value, which typically grows more slowly than marketvalue. Because of this, significant differences arise among property owners solely because they purchasedtheir properties at different times.Property Taxes Per 100,000of Market ValueGreater Than 800 600 to 800 400 to 600 200 to 400Less Than 200L A O Califor nia’s Tax System Proper ty Tax
24TWO FAC TO R S D R I V E FUNDING F OR M UNICIPAL SERVIC E SPer Capita Assessed Value , 2016-17Property tax funding for municipal services—such as police, fire, and parks—generally ishigher in counties with higher assessed values.Municipal services funding also depends onthe share of property tax revenue allocated tomunicipal services relative to schools. Whileschools’ shares vary across counties, the stateallocates funding to schools to equalize thesedifferences.Del islausMaderaLassenButteSan JoaquinHumboldtSutterShastaSan TrinitySolanoModocYoloMariposaMendocinoSan BenitoTuolumneLos AngelesCalaverasMontereyVenturaAmadorSan DiegoSanta CruzAlamedaEl DoradoSonomaContra CostaOrangeSanta BarbaraColusaNevadaPlacerSierraSan Luis ObispoPlumasSanta ClaraInyoSan FranciscoNapaSan MateoMarinAssessed Value of PropertyMunicipal ServicesSchoolsWhile Contra Costa and Orange havesimilar property tax bases, Orange hasless available for municipal services.50,000100,000150,000200,000L A O Califor nia’s Tax System Proper ty Tax250,000 300,000
25RE V E N U E F O R M U N I CIPAL SERVICES VARIES WIDELYNorth CountiesTrinitySiskiyouDel LakeSierraGlenn ButteNevadaColusaSacramento AreaYubaSutterThis graphic shows the per-person propertytaxes available within each county in 2015-16for counties, cities, and special districts. Theamount of funding available in each countyreflects the level of municipal services thatresidents can expect to receive from their localgovernments.PlacerYoloSacramentoEl DoradoSonomaNapaMarinBay AreaSolanoAmadorSan Joaquin aMonoMaderaInyoFresnoSanta ClaraTulareInland EmpireKingsSan BenitoKernSantaCruz Central CoastSan BernardinoRiversideMontereyPer-Capita RevenueLess Than 410 410 - 520SanLuisObispoSantaBarbara 520 - 640 640 - 890VenturaOver 890PopulationOrangeLos AngelesLos Angeles Area50,000250,0001,000,000San DiegoSan Diego AreaImperialL A O Califor nia’s Tax System Proper ty Tax
26PRO P E RT Y TA X M O R E S TABL E T HAN PERSONAL INCOM E TAXAnnual Percent Chang eStable—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 personalincome tax, which is the state’s largest single source of revenue.30%Personal Income Tax2010-10Property Tax-20-3019801985199019952000200520102015PROP E RTY TAX HAS GROW N SI NCE PRO PO SI TI O N 1 3Governments ideally rely on revenue sources that grow sufficiently to cover any increases in the costs ofproviding services. Some argue that the property tax has not grown sufficiently to cover local government costssince the passage of Proposition 13 in 1978. Others argue property tax revenues have grown substantiallysince 1978. Below, we present two ways of measuring property tax revenue growth.Per Person Inflation-Adjusted (2015-16) Dollars 2,000Proposition 13As Share of California Economy (Personal Income)7%Proposition 6019701980L A O Califor nia’s Tax System Proper ty Tax199020002010
27PRO PERTY TAXES O N VEH I C L E SSTOPCalifornia levies a variety of charges on vehicles. Two of thelarger ones—the vehicle license fee (VLF) and the transportationimprovement fee (TIF)—effectively are property taxes on vehicles(but exempt from Proposition 13). Both taxes are levied on the car’sdepreciated value. Revenue from the VLF ( 2.6 billion in 2016-17)goes to cities and counties for health and human services and lawenforcement programs. Revenue from the TIF ( 1.5 billion projected in2018-19) goes to state and local agencies for transportation programs.Total Tax 187VLFTIFVehicleLicense FeeTransportationImprovementFeeApply the 0.65% VLF rate 21,070 X 0.65 137Determine the TIF owed.Find the fee in the chart tothe right that correspondsto the vehicle value( 21,070) 50TIF ScheduleValue of Vehicle Annual Fee 0 to 5k 25 5k to 25k 50 25k to 35k 100 35k to 60k 150Over 60k 175STARTDETERMINE VEHICLE'S VALUEIn the first year a vehicle is owned, its value is roughly thepurchase price. In subsequent years, this value isdepreciated based on the schedule to the right. For thisexample, we assume a four year-old car with an initialpurchase price of 30,100.The car's value in year four is: 30,100 x 70% 21,070.Depreciation ScheduleYears Owned1234567891011 and AfterL A O Califor nia’s Tax System Proper ty TaxDepreciation Rate100%90807060504030252015
283C H A P T E RL A O Califor nia’s Tax System Sales Tax
29SALES ANDU S E TA XCalifornia’s state and local governmentslevy a tax on retail sales of tangible personalproperty. This tax—called the sales and usetax (hereafter, sales tax)—is a significantsource of state and local revenue. In thischapter, we draw distinctions between theproducts that are subject to this tax and thosethat are not. We also provide information onthe variation in tax rates across the state andthe distribution of revenue among state andlocal programs.L A O Califor nia’s Tax System Sales Tax
30W H AT T H E S A L E S TA X I SThe sales tax is levied on the retail sale of tangible personal property. (“Tangible” refers to physical materials. “Personalproperty” is movable from one place to another.) The graphic below compares the amount of taxable sales (spendingon items subject to the sales tax) in 2015 with the amount of taxable sales that would be subject to the tax if not forexemptions. The icons show major categories of taxable sales and exemptions.Taxable Sales: 636 BillionClothingPersonal Care ProductsClothingFurnitureOffice SuppliesFurnitureExemptions: 221 cinesPrepared FoodsVehiclesUtilitiesGroceriesUtilitiesW H AT T H E S A L E S TA X I S N O THouseholds and businesses spend money on many services and other itemsPrescriptionthat are not subject to the sales tax,MedicinesInstead, theseitems are services (such as a haircut), intangible property (such as an e-book), and real property (such as land). For example, a consumer having theircar repaired would pay sales tax on parts like brake pads but would not pay sales tax on the labor associated with therepair. Spending on these items is severaltimesStudythe size of the salestax base.ServicesEducationalTransportationMedical ServicesPersonal odsgenerallyitems arenot tangiblePreparedpersonalproperty.Items Not Subject to Sales TaxTelecommunicationsEducational StudyTelecommunicationsMaintenanceand RepairsTransportation ServicesMaintenanceand RepairsHousingHousingPersonal Care ServicesMedical ServicesPersonal Care ServicesL A O Califor nia’s Tax System Sales Tax
31W H E R E I S S A L E S TA X C O L L E C T E D ?Share of Statewide Taxable Sales by Business Type , 2015Motor Vehicleand Parts DealersBars asoline StationsManufacturingClothing andAccessories StoresRentals, Real Estate,and ConstructionBuilding Materialsand Garden SuppliesFurniture, HomeFurnishings, Electronics,and Appliance StoresFood andBeverageStoresOther RetailersOther Non-RetailBusinesses2468L A O Califor nia’s Tax System Sales Tax101214%
32IN SOME REGIONS, CONSUMERSFA C E S E V E R A L D I F F E R E N T R AT E SRates as of April 1, 2018California’s sales tax rates vary across cities and counties, ranging from7.25 percent to 10.25 percent. These rate differences result from optionalsales taxes levied by local governments. (The minimum rate in the tworegions shown below is 7.75 cordPleasant HillSan PabloRichmondEl CerritoOrindaAlbanyContra Costa CountyMoraga7.75%8.25San Leandro8.75Alameda CountyHayward9.25Union City9.5Newark9.7510.010.25Los Angeles CountyEl MonteSouth El MonteSanta MonicaCommerceCulver CityPico RiveraInglewoodHawthorneSouth Gate DowneyLynwoodLa HabraComptonLa PalmaLong BeachStantonOrange CountyWestminsterFountain ValleyL A O Califor nia’s Tax System Sales Tax
33S A L E S TA X R AT E S I N C A L I F O R N I A C O U N T I E SRates as of April 1, yPlacerShastaTuolumneButteTehamaEl DoradoColusaGlennSiskiyouKernKingsYubaVenturaDel NorteSan Luis ObispoMonoLakeAmadorInyoMariposaNapaSan BernardinoOrangeSan DiegoNevadaSan BenitoSacramentoYoloMaderaImperialSanta ocinoTulareSolanoSonomaSan JoaquinSan FranciscoMarinContra
s d n t i a l O w e r-Occupied Alcoholic Beverage Tax O t h e r Entities 2015-16. 4 LAO Californias Tax System Personal Income Tax PIT 1CHAPTER. 5 LAO California s Tax System Personal Income Tax (PIT) The personal income tax (PIT) is a broad-based tax that the state levies on most types of income, such
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