Marin Voice: Hidden, overt cost of sales tax adding up for consumers
Sales taxes are ubiquitous. All but five states use them to fund state and local governments.
While there are differences among the states as to rates and what items are tax exempt, within Marin the difference between the highest and lowest sales tax rate is pretty small. The highest rate is San Rafael at 9.25% while the county and many cities share the lowest rate of 8.25%.
According to the latest reports by the California Department of Fee and Tax Administration, in 2020 Marin County businesses and residents paid almost $450 million in sales taxes. On average, that’s more than $1,700 per person or $4,200 per household.
Did anyone think they paid that much last year? As the sales tax is only on taxable items, how could the amount be so large per person or household?
As a consumer, how much you pay directly in sales taxes is dependent on your overall income and spending patterns, whether you’ve purchased taxable goods in other counties and whether you’ve bought an expensive taxable item (like a car or appliance, for example). You see this amount specified on receipts even when buying taxable goods online.
But consumers aren’t the only ones paying sales taxes. Businesses do too when they buy taxable items. And much of what they pay is part of the cost of doing business, like labor or rent. Businesses pass these costs onto consumers through pretax retail prices, even on nontaxable items and services.
According to the liberal think tank, the Institute on Taxation and Economic Policy (ITEP), “these business-input sales taxes add to the cost of producing goods and services, and are therefore mostly passed forward to consumers in the form of higher retail prices.”
What you don’t see is the amount of tax buried in the pretax price of all goods and services. On taxable items you’re actually paying the tax twice because part of the pretax price includes costs of hidden sales taxes.
For instance, consider what happens when you buy a banana at Safeway. Food is tax exempt; Safeway isn’t. There is no sales tax for the banana on your receipt. However, Safeway has paid sales taxes on the taxable goods needed to manage its offices and stores. It’s part of the cost of doing business and much of that cost is passed along in the pretax retail price, even when the item – like the banana – is tax exempt.
This means that much of the sales tax is hidden from consumers as well as from businesses. In fact, the full cost buried in the price of any purchase can only be known by estimating how different businesses absorb extra costs in the goods and services they purchase. The ITEP thinks “most” of this cost is buried in retail prices.
Sales taxes are the most regressive tax commonly used to fund local governments. Less affluent households save a lot less of their income than more affluent households do. As a consequence, the less affluent pay more tax as a proportion of their incomes than the more affluent.
Liberal voters and politicians regularly decry the unfairness of our economy and support many programs to help the less affluent. But, as soon as a sales tax is proposed for a cherished purpose, the inequities and burdens of the tax on the less affluent are ignored.
In 2020, there were 130 sales tax measures on local ballots in California. Twenty-seven measures were on ballots the Bay Area. Over three-quarters of them were approved by the liberal voters of our region.
Mike Arnold, of Novato, is a local economist.