Struggling California retailers face a temporary one cent sales tax increase as part of a deal to close the state’s $42 billion budget deficit and break a 14-week legislative deadlock.
The sales tax boost would be combined with a 5 percent surcharge on personal income tax, an increased gasoline levy and higher fees, as well as widespread spending cuts. The taxes would expire in two years, but voters could choose to extend them.
However, corporations that don’t have out-of-state facilities would receive a tax break. They would have the option of changing how they calculate their state taxes, choosing to be taxed on sales only, instead of a formula based on size of payroll, sales and California property they own.
Industry executives and economists said the spending agreement was positive news for the troubled economy of the most populous state and might have a slight trickle-down effect at the cash register.
“Psychologically, just getting a deal signed will help,” said Ilse Metchek, executive director of the California Fashion Association. However, Metchek said the sales tax increase could also drive consumers to shop online, where sales from out-of-state retailers aren’t taxed.
California’s bond rating has fallen to last place nationally, which means the state is unable to easily borrow money to operate. State government workers are being furloughed without pay for two days a month, bridge and road construction has been halted and funds for schools and universities have been cut. The state has suspended tax refunds and payments to vendors. The unemployment rate is 9.3 percent.
“There’s been much chaos,” said Jack Kyser, senior vice president and chief economist with the Los Angeles Economic Development Corp. “With a budget agreement, at least there is some certainty, even though the solution is going to cause pain for consumers and businesses,”
The sales tax would rise to 9.75 percent in Los Angeles County, 8.75 percent in San Diego and 9.5 percent in San Francisco, which is considering another half-cent increase to close an estimated $576 million city budget deficit.
The federal government’s $789 billion economic stimulus plan could offset some of the cuts in the form of job-creating projects. However, Kyser said, “The economy will continue to struggle into 2010 and more budget problems will crop up.”
Jon Havemen, a partner in Beacon Economics in San Francisco, said a 1 cent increase in the sales tax would have a “negligible effect on consumer spending.”
“The issues facing retailers in this economy are so much more than a 1 cent increase in sales tax,” he said.
The legislature is expected to vote on the tax today.
Breaking: @cushnieetochs’ co-founders @carlycushnie and @ochsmichelle are parting ways. After a 10-year run, Ochs is leaving the brand. Get the full story on WWD.com – link in bio. #wwdnews #wwdfashion
@maybelline’s Kanako Takase had snow bunnies in mind when creating the beauty look for @philipppleininternational. Playing off of the bedazzled snowboards in the collection, Takase mixed two highlighters together for a luminous sheen. #wwdbeauty #nyfw (📷: @jilliansollazzo)
“There’s a huge gap between the old way of doing things and today. It takes the youth to help evolve that. You have to count on the kids today to help lead you into the future. A lot of these retailers are stuck in the past. Communication is the biggest thing,” said @ronniefieg of @kith on the youth’s role in retail. On Monday night, Jeff Staple moderated a keynote session with Fieg and @syresmith at Assembly - a series of workshops, talks and keynotes addressing topics or issues in the apparel industry. Head to WWD.com to read more advice from Fieg and what Smith thinks of his dad @willsmith’s Instagram account and sustainability (📷: @weston.wells)
@joansmalls closed the @michaelkors fall 2018 show in black sequined pants and a varsity T printed with 19 on the front and 81 on the back. 1981 – the year Kors went into business. #wwdfashion #nfyw (📷: @giovanni_giannoni_photo)
“You think your life is going to be a certain way, and nothing you thought would happen ends up happening. Never in my wildest dreams did I think I’d be designing clothes and working with Mickey Drexler, and building something I’m deeply proud of,” said Jenna Lyons. Nine months after leaving @jcrew, Lyons is exploring the meaning of happiness. Read the interview, where Lyons talks about reinvention and more on WWD.com – link in bio. #wwdfashion (📷: Farrell) #jennalyons #jcrew