You may have heard of several states that have sales tax holidays every July or August, just for back-to-school purposes. They eliminate sales tax from computers, books, and even new shoes, as they are considered necessary tools for a successful education. Some states hold sales tax holidays at different points of the year, too — not just for parents looking to save some money before the start of the new school year or wanting to bulk-buy cheap office supplies. They offer discounts on energy-efficient appliances or emergency-preparedness supplies, for example.
But California doesn’t have any sales tax holidays, as of this writing. Why?
In this post, we’ll examine how sales tax holidays work, how many states have an annual sales tax holiday, what Californians pay in sales taxes, and how to save money by shopping in specific areas or at specific merchants in Los Angeles.
How do sales tax holidays work?
Forty-five states collect state sales taxes. It’s up to state lawmakers to decide if and when California should have a sales tax holiday, and if they will reoccur. Just because one state had a sales tax holiday last year doesn’t mean they will this year (Louisiana once offered a 0% sales tax holiday but changed it in 2016 to be a discounted tax rate of 3%); some states also impose limits on how much you can buy during a tax-free period. Finally, a sales tax holiday doesn’t mean “no taxes” in all cases: there’s still city, county, and district sales taxes that may need to be accounted for!
That said, some states do offer some generous deals during tax holidays — even if they come with the headache of busy parking lots and long lines. Missouri residents, for example, were able to buy more than $3,500 worth of items during their sales tax holiday this summer, $1,500 of which was just allotted for new computers and a matching $1,500 for computer peripherals.
In New Mexico, the state with a sales tax holiday that’s closest to California, consumers can purchase a $1,000 computer, $500 in related equipment, $100 in clothing, and $30 in school supplies without paying state sales tax during one weekend in August. However, New Mexico does not require every one of its retailers to participate.
South Carolina might have the sweetest sales tax holiday deals over the summer: It’s the only state out of 16 with sales tax holidays that doesn’t limit the purchase amount, so long as the items fit the category. That means families can stock up sans sales tax on school or office supplies, computers and equipment, clothing and accessories — even bed and bath items — one weekend a year, any price. Talk about savings!
Just how much do Californians pay in sales tax?
When you think about just how expensive it is to live in Los Angeles, from paying more for car insurance and going out to eat to sky-high housing prices, our state-level sales tax rate matches as the highest out of all 50 states, at 7.25%. In California, we’ll also pay more for food, clothing, and prescription drugs — even feminine products — because of the state sales tax here. Some states exempt these items from sales tax collection or collect a lesser sales tax on them.
Additionally, as mentioned above, the state sales tax isn’t all you’re paying for when you buy a product. The average local tax rate for California is 1%, making the combined tax rate 8.25%. Some good news here: Although California ranks 1st in terms of state sales tax, it drops down to 10th when taking local tax rate into account. Louisiana is 1st in this regard, with a combined tax rate of 9.98% — though the cost of living in Louisiana overall is a bit lower than California. For example, if you were moving from Los Angeles to New Orleans and making $60,000 per year here, your equivalent income in the “Big Easy” would be about $40,300 per year. You could take a nearly 33% pay cut and still maintain your L.A. standard of living in NOLA. You’ll also pay about $1,400 per month less for rent.
And don’t forget about specific city or county taxes. While the average local tax rate for California is a 1% add-on to the state sales tax, as of July 1, 2017, Los Angeles County residents’ new district tax rate is 9.25%. This comes after a 0.5% tax rate increase approved by voters in November 2016 called Measure M, a comprehensive plan to improve traffic congestion and access to public transportation.
Can sales tax be a good thing?
Although it can be disheartening to see on your receipts, yes. Sales tax revenue goes into the state’s general fund, which is used to create (or keep afloat) many programs in education, health and human services, and corrections (the top three spending areas for the State of California). The proposed bill to eliminate sales tax on tampons, for example, was expected to reduce California state general fund revenues by $10.5 million a year, according to the LA Times. When the state is hurting for funds, that pain often will be passed along to its taxpayers, in one form or another. On the flip side, the tampon tax issue remains controversial because of how much the cheaper products could help low-income women.
In a veto message on a previous failed attempt waive the tampon tax, Gov. Jerry Brown said “tax breaks are the same as new spending — they both cost the general fund money.”
So, if California went sales tax free for one weekend, what could that possibly amount to? A study from the Federal Reserve System in March 2017 notes that these holidays are extremely beneficial to low-income consumers “since necessities comprise a relatively large share of their overall spending.”
Retail businesses view sales-tax holidays favorably because they purportedly encourage shopping activity, and some policymakers have argued that these temporary fiscal policies provide a net stimulus to economic activity. Understanding how consumers respond to these policies is therefore important, both for evaluating the likely impact on state budgets and for understanding the magnitude and timing of their economic effects.
Overall, consumers respond well to tax holidays — they may even spend a bit more money on other goods that aren’t tax-free, giving retailers a boost.
So, how can we save money on taxes?
Whether or not California decides to run sales tax holidays, there are a few things we can do to save money on taxes. For one, you can shop outside of L.A. County if it’s convenient, say if you work in or plan to visit Joshua Tree in San Bernardino County, where the tax rate is 7.75%. Be aware of shopping in some cities in L.A. County, as they may have an even higher rate than the county’s 9.25% (like Long Beach, where you’ll pay 10.25% sales tax).
If you shop in Silicon Valley at Goodwill, a nonprofit thrift store, you won’t be charged sales tax. You will, however, be charged a California Refund Value (CRV) tax of 5 cents on any commercial beverage purchase less than 24 ounces.
Shopping online, unfortunately, won’t help you save (at least where taxes are concerned) — Amazon now collects state sales tax from all 45 states, unless you buy from third-party vendors.
Despite L.A. County’s tax rate, it’s still best to shop as local as you can. Depending on the merchant, the amount of money you save on groceries and more could be a trade off!
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