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California: Upward Mobility Means Taxing More Services

  • Feb 12, 2015 | Gail Cole

 San Francisco is home to some of the wealthiest and poorest people in the nation.

A new philosophy of governance is needed in order for California to thrive this century. Modernizing its tax structure must be part of it. That’s the premise behind the Upward Mobility Act, or Senate Bill 8, introduced by Democratic Senator Bob Hertzberg.

The Upward Mobility Act seeks to expand “the application of the Sales and Use Tax law by imposing a tax on specified services.” It would also “incentivize entrepreneurship and business creation by evaluating the Corporate Tax Law, and… examine the impacts of a lower and simpler Personal Income Tax Law.”

Expanding sales and use tax to services is the natural response to the change in California’s economy. The bill reads as follows:

“California’s two trillion dollar economy has shifted from being mainly agricultural and manufacturing in the 1950s and 1960s, when the framework of today’s tax system was set, to one based on information and services, which now accounts for 80 percent of all economic activities in the state.”

The bill points out that more than 60% of California’s state revenue now comes from the Personal Income Tax, whereas in 1950, 61% of state revenue came from Sales and Use Tax. The Upward Mobility Act would therefore:

“Broaden the tax base by imposing a sales tax on services to increase revenues. … Health care services and education services would be exempted from the tax, and very small businesses with under $100,000 gross sales would be exempted from the sales tax on services.”

Local governments would not be permitted to increase or levy additional sales tax on services as they currently do with sales tax on goods.

According to Senator Hertzberg, “Since 1970, the poorest 20 percent of Californians have seen their household income grow by just 3.1 percent while the income of the richest 20 percent has climbed 74.6 percent.” This is evidenced by the fact that three of the ten American cities with the greatest disparity in wealth are in California: Los Angeles, Oakland, and San Francisco.

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photo credit: Golden Gate Bridge before Sunrise via photopin (license)

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.