CALIFORNIA’S TAX SYSTEM
Gold Panners
How to set up our tax system in El Dorado STATE will be one of the major concerns of the people. We need to study other states that have low taxes and are fiscally sound. First let’s examine how California collects our taxes. This information is a compilation from several years. Thanks to Ray Nutting for finding this for us. This chart also shows that El Dorado can fiscally be an independent STATE. Please feel free to send your thoughts and other supportive documents and/or requests to present your findings at our General Meetings and to our email, republic4eldoradostate@gmail.com. We all need to learn together how best to organize and tax, with the least and most effective taxes, for the operation of our STATE as a limited government state.
Next, the People of El Dorado STATE need to determine how and where they intend their taxes be SPENT!
Limited Government does not require high taxes and gives Liberty back to the People.
I have taken the liberty to edit and condense the following information. There are many more charts and details on the complete print out: ca-tax-system-041218.pdf
Sharon
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.
CALIFORNIA’S TAX SYSTEM
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.
ABOUT TWO-THIRDS OF INCOME COMES FROM WAGES AND SALARIES
HOW DO PIT RATES WORK? 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.
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.
HIGHER INCOMES CONCENTRATED IN BAY AREA. El Dorado ranks in the high middle along with Sacramento, Placer, and Yolo counties. Page 16.
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.
Property tax funding for municipal services—such as police, fire, and parks—generally is higher in counties with higher assessed values. Municipal services funding also depends on the share of property tax revenue allocated to municipal services relative to schools. While schools’ shares vary across counties, the state allocates funding to schools to equalize these differences.
El Dorado County ranks just under the $100,000 mark per year 2016-17 assessment, which is in the higher mid-level of the state.
PROPERTY TAX MORE STABLE THAN PERSONAL INCOME TAX. 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 TAXES ON VEHICLES. 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 (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.
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.
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.
WHAT THE SALES TAX IS NOT. Households and businesses spend money on many services and other items that are not subject to the sales tax, generally because those items are not tangible personal property. Instead, these items are services (such as a haircut), 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 times the size of the sales tax base.
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. (See page 34)
PER CAPITA SALES TAX COLLECTIONS BY COUNTY. See page 35 for the county rankings.
SALES TAX GROWTH IS LOWER THAN PROPERTY AND INCOME TAXES.
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.
WHO PAYS CORPORATION TAX?
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. 2 Percent of Corporate Taxpayers Pay 85 Percent of the Tax.
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. Over Half of Fuel Tax Revenues Spent on State Highways, 2018-19 Projections.
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.
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.
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.
HOTEL TAXES
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.
ADDITIONAL LAO RESOURCES
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.
GENERAL RESOURCES, page 47
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)