A bill is moving through the state legislature that would have a tremendous impact on local jurisdictions, businesses and residents. Senate Bill 653 (Steinberg) would make drastic changes to California’s tax structure by providing counties, community college districts and county offices of education new authority to enact taxes. SB 653 seeks to fundamentally change the financial relationship between state and local governments. As the state plans to significantly cut back its funding stream to counties, municipalities and special districts, the bill opens up new revenue possibilities at the expense of taxpayers. SB 653 will result in higher taxes across a state where economic recovery is severely lagging behind the rest of the nation. California’s unemployment rate remains at 12 percent, well above the national rate of 9.2 percent. Numerous concerns and potential complications surrounding SB 653 have been raised by business groups, including VICA and the CalChamber. Restrictions on the ability of counties, community college districts and county education offices to propose local personal income, sales, use, excise and vehicle taxes have persisted for decades. SB 653 would change that. The authority of these diverse local governments to enact different taxes at varying rates would create inconsistency and uncertainty for businesses. Under SB 653, employers would be required to withhold and remit personal income taxes imposed by counties, community college districts and county offices of education. Businesses with employees who live in different communities would be required to comply with the unique tax jurisdictions for each employee. Imagine the record-keeping nightmare for a small business with employees spread across county and education district lines. Businesses could be faced with managing compliance for as many as 188 different local tax jurisdictions (including: 58 counties, 58 county offices of education and 72 community college districts). That number does not even include city, state and federal tax laws that are already in place. California currently has the highest sales and use tax rates in the nation. The state rate is set at 8.25 percent with local governments retaining the ability to add up to 2 percent. SB 653 does not include a cap on the taxing rights it grants, giving jurisdictions the authority to raise taxes without a limit. California sales and use taxes could far exceed 10.25 percent, ensuring the state’s continuing economic stagnation. In addition to sales and use tax increases, the 188 new local tax jurisdictions created by SB 653 would be empowered to impose new Vehicle License Fees of up to 1.35 percent. This taxing ability will not only hit taxpayers’ wallets, but increases the cost to the state for administering the potentially divergent taxes between various counties and districts. Higher taxes and distinctive laws between districts and counties provide unfair competitive advantages for businesses in different jurisdictions. Business leaders often draw attention to the fact that diverse tax rates from state to state impact economic development. The new taxing powers in SB 653 could create the same dynamic within the state. The varying tax rates can also put communities at odds. The heavier focus on local taxes to fund local government would create an additional burden on lower-income communities. Communities with a higher tax base would have a clear advantage over lower-income areas, increasing the divide between wealth and poverty. While a two-thirds majority is needed to raise taxes in California, SB 653 exploits a loophole in state law that would allow counties to enact new, higher taxes without a super-majority. SB 653 is not the solution to the state’s fiscal problems, and we cannot allow local jurisdictions to be handed the authority to tax businesses and residents out of the state. Do you think counties, community college districts and county offices of education should be allowed to enact taxes? How will local funding be maintained as the state budget continues to be cut? Email your responses or thoughts about the column to [email protected].