CALIFORNIA STATE sales taxes will drop on Jan. 1

Somebody Check the Thermostat

I have some unbelievable news. Unbelievable because none of us ever thought this would happen. It is unbelievable because this news defies conventional wisdom and economic logic; because it defies governmental behavior. And unbelievable because this wasn’t supposed to happen until “Hell froze over.”

Taxes are going down.

That’s right. (#micdrop) On January 1, 2017 state sales tax is going down by .25%, or one-quarter of one percent. To be more accurate, a state sales tax hike that went into effect back on January 1, 2013 expires on December 31, 2016 – but the effect is the same. Sales tax you pay on things you buy will go down.

Let’s take a look at what this means. If you spend $100 on taxable items on December 31, 2016 you will pay $7.50 in (state only, not counting county or local) sales tax. If you spend that $100 on January 1, 2017 you only pay $7.25 of that same tax. That sounds almost inconsequential, but is it?

How about some examples of this on our lives? Good idea. Let’s look at some of the ways your taxes are going down.

There’s holiday shopping. National average spending at Christmas time was $882 in 2015. Ratchet that up for California by 50% and you’re likely to spend $1,323. And you are likely to spend $100 in sales tax. Under the new rates you’ll only spend $96 in sales tax.

Purchase a car. According to USA Today, the average nationwide ticket for a new car in April of 2016 was $33,560 – resulting in state sales tax in California of $2,517. On January 1, 2017 that number drops to $2,433. That is a saving of $84. The Sacramento Bee keeps pretty good tabs on this, and there were just shy of 2 million new cars sold in California during 2015 (up 11% from 2014). If the sales numbers hold, not up or down, in 2017 that is an impact on California state revenue of $168,000,000.

As we all know, much of state income is funneled back down to the counties and cities of California. So, I believe, many of the counties in California were anticipating the reduced state funding of local issues. That’s why a new wave of sales tax increases hit many counties in July of 2016. The complex web of tax revenues and beneficiaries will make it hard to determine who exactly will be better off. But I’m fairly certain that Hell is no cooler for the news.

What will I do? The new taxes are already here, the cuts will come in January, so I’m…

• Putting off major purchases until January
• Postponing Christmas a couple of weeks (lots of other savings to be had by waiting)
• Encouraging you to look at your planned spending the next six months and see if you can save

By the way – gasoline, diesel, jet and aviation fuel are all seeing a reduction in rate coming up also. But I drive a fully electric car, so I won’t be writing about that in the future. Sales taxes changes are important to know about because your money matters.

Chris can be reached by e-mail at chris@ymminc.com