We have updated our list of requested statewide legislation with a specific request that sales taxes collected by product sellers from purchases made in uincorporated areas be based on sales tax fees listed by the California Department of Tax and Fee Administration, rather than allowing a seller to compute sales taxes based on higher sales tax rates in nearby cities. Further, sales taxes should flow to purchase sites, not remote distribution sites.

Why is this necessary? Product sales made online do not necessarily collect accurate sales taxes. That's a problem for California consumers that shop online, particularly when there are so many different levels of sales taxes collected across the state. For instance, suppose you live somewhere in the state that uses the state's base rate for  sales taxes, 6% for the state plus 1.25% for local jurisdictions = 7.25%. That's what you might find in several rural counties. Or maybe you live in a county where voters have approved a higher rate, such as the additional 1/2% for transportation (roads, mostly) in Sacramento County, where the sales tax is 7.75%. Now consider that the sales tax rate can be higher still, such as exists in some cities like Oakland, where voters have approved increasing the local sales tax to 10.75%. It is really quite common for local jurisdictions to seek higher rates from their voters because the state only lets local jurisdictions keep 1.25% of sales taxes collected. If local voters approve additional sales taxes, the extra revenues stay with the generating jurisdiction. 

There can be multiple reasons for why sellers might bill for incorrect sales tax amounts:

• It is hard for sellers to keep up with changes in sales tax rates - by defaulting to the highest rate within a county or a zip code, sellers protect themselves from collecting insufficient sales taxes
• The seller's algorithm might be based on addresses within zip codes that are shared by two or more taxing jurisdictions, or
• The algorithm could be based on the city name the USPS associates with a specific location, whether that location is within the purchaser's named jurisdiction or not.

Here are examples of how those problems play out:

• ZIP CODES. Most of zip code 95821 in Sacramento County is unincorporated territory, but there are a few parts of the zip code that are within the city limits of the City of Sacramento. The County's sales tax is 7.75%, while the city's rate is 8.75%. So if you buy a $100 product online from a seller with a zip code-driven algorithm and you live in the unincorporated part of the zip code, you might pay $1 more than actually owed. While that might sound like a trivial amount for a transaction, it is a very big deal when you add up all the made by unincorporated area purchasers in the zip code, whether they are businesses or individuals.
• USPS NAMING CONVENTIONS. For understandable reasons, the USPS wants mail to use "complete and standardized addresses" as a way to ensure mail is delivered. So the USPS has a "City State" file that designates the approved "last line" in an address. Sometimes the "approved name" is the actual name of a community. Considering Sacramento County again, maybe it is Carmichael, Fair Oaks or Orangevale. But there are other places where the approved city name is something other than the actual community name. In Sacramento County, the "approved name" for places as diverse as Antelope, Arden Arcade and Foothill Farms is "Sacramento", which is generally understood to mean the "City of Sacramento". The City of Sacramento collects 9.75% for sales taxes, whereas the actual sales tax rate for the unincorporated communities is 7.75%. So, if you live in an unincorporated community in Sacramento County, you might be paying more than your community's sales tax. It's not hard to change names. In Riverside County, the City of Menifee was formed out of 3 different pre-city neighborhoods. The City of Menifee got the USPS to approve its name for the "City State" file. (Fortunately for Menifee, the cities in Riverside County pretty much all use the same sales tax rate. They got their "City State" name changed for community identity purposes.) 

Beyond the issue of consumers paying excessive costs is the question of where the money goes once collected. Should point-of-sale revenues flow to where the order was placed, or to the location of the distribution warehouse, or - in the case of unincorporated communities -  to counties generically (for use anywhere in the county) instead of to the unincorporated community where the purchase was made? At present, California's rules stipulate that sales taxes depend on where the merchandise is physically located at the time the sale takes place. Consumers are responsible for paying a "Use Tax" (surrogate sales taxe) for purchases made with out-of-state retailers. Most such companies, though, have agreed to apply California sales taxes instead. One impact of all these rules is that the state has put proposed new cities behind the 8-ball from the get-go, with long term alimony, lack of VLF revenues and reluctance to fund start-up costs as were enjoyed by other cities in the past. Denying sales tax revenues to the jurisdiction of a purchaser only adds to the problem. If you buy a sales-taxed item in a store in your community, the revenue can help your community. If a sales-taxed item is ordered online at your home or work site, the transaction is made as though you walked through the door of a local retailer - sales taxes from that purchase ought to be made available to the local community as well. Straigthening out the sales tax revenue picture would obviously be helpful to the financial prospects for new cities.

We know there are people who might disrespect us for making big deals out of nothing. Thing is, this isn't "nothing". Though we don't have access to all the available data base information, we're pretty sure that a dollar here and a dollar there adds up to a significant chunk of change when you take into consideration all of the sales transactions of businesses and individuals within the urbanized, unincorporated communities that are home to some 5-6 million Californians. We would like to bring some realism and sanity to the sales tax revenue situation. Lucky for all of us, it's an easy fix. The state has a terrific website where you can enter an address and get the officially-sanctioned sales tax rate. It's all automated and can become a chips-talking-to-chips situation, so it should not require commercial sales websites to do a lot of re-programming. Let's hope the Legislature will pay some attention to this!