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Disappearing Down a Black Hole |
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Sales Tax
By Rickey Gelb
The Economy - One of folk singer and writer Pete Seeger’s biggest hits was “Where have all the Flowers Gone.”
The same could be said about our sales tax…where has all our sales tax gone?
Many of us believe that the City of Los Angeles collects our sales tax and pours it down a big black hole. I believe that there is a good chance that our city does not really receive all that it is entitled to. This seems hard to fathom, but I think that it is true.
Property taxes are the City’s biggest source of revenues and many assume that sales tax is a close second. In checking the numbers, I discovered that the City’s business license fee is a much greater revenue source than is sales tax.
Furthermore, utility taxes, including the so-called illegal tax charged on cell phones, bring in more funds than does the sales tax. Virtually all retail businesses charge sales tax and almost everything we spend our hard-earned money on is taxable, except rent, services and food. So back to my above question, where has all the sales tax gone?
With this question in mind, I checked with a few people who have significant knowledge in this field. I asked about car dealers and how much Los Angeles receives from these high-dollar retailers. After hearing the answers and checking with other sources, it seems that the amount of payment received by the State – and in turn local cities – is about only one third of the total sales amount reported by these auto dealers. This is a big number when you are talking about hundreds of millions of dollars, if not billions, of sales each year. So, my question again, where is all the sales tax?
I found that a large percentage of the vehicles sold here are actually leased. Therefore, with the exception of the down payment, the revenue stream is slowed down because sales tax is only collected on the monthly payment amount.
This sounds good, at first, until you realize that leases continue on for years and the money coming in after a period of time should catch up. I calculated that during the lease term almost half of the value, and therefore taxes, would be collected, with the balance paid when the leased car is resold. Based on this, the State will have collected the full sales tax on the entire value of the vehicle. Unfortunately, when you look at the numbers, something is missing.
Most car dealers sell their lease contracts to major banks or national finance companies. Most of these lenders (even thought they operate in our city) have all the payments, including the sales tax, mailed to a small city located out of state. I have brought this to the attention of many of our local elected officials and tax authorities and they assure me that the lenders are forwarding their sales tax collections back to California.
This also sounds good at first, until you consider how many different municipalities and zip codes we have in our country. How can the lenders keep track of this information? Do they possibly have a system in place to identify which state and city is entitled to the sales tax? One doesn’t have to be too skeptical a soul to believe that most of the out-of-state car lease payments don’t find their way back to Los Angeles’ coffers.
All I know is that based on the vehicle sales in the City of Los Angeles, it does not appear that it is getting its full allotted share of the taxes paid. Are these large banks and finance companies holding on to these billions of dollars waiting to be asked for them? Is the state retaining those tax collections paid on monthly lease payments and putting the money into The State’s General Fund?
I say it is time to wake up our city and state controllers, along with the State Board of Equalization, and find out where our money is. We have billions of dollars at stake and California and local governments are accountable to make sure this money is spent and distributed as required by law.
(Rickey Gelb is a developer and the Managing Partner of the Gelb Group-A Family of Companies. Gelb is an occasional contributor to CityWatch.) _
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