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Tax hike looms in distance

Increase will bring in $1.187B in state revenue

Posted: March 15, 2009 1:46 a.m.
Updated: March 15, 2009 4:30 a.m.

Richard Caston, center, discusses microwaves with Patty and Jerry Fly as they buy new appliances before the sales-tax increase in April.

 
The 1-percent tax increase coming April 1 won't make fools out of Patty and Jerry Fly. The Flys made sure they purchased a new double oven, refrigerator, dish washer, microwave oven and stove top on Friday - beating out the tax hike coming in about two and a half weeks.

"We've been looking for a while but thought we better buy before the new tax law goes into effect," said Patty Fly.

California lawmakers passed the sales-tax increase as a provision of the state budget agreement, signed last month by Gov. Arnold Schwarzenegger, that aimed to close the state's $42 billion budget deficit.

The Flys' shiny new appliances - purchased from Caston's TV and Appliance to complete a remodeled kitchen - cost the couple $654 in sales tax.

"I saved like 80 bucks," Patty Fly said, comparing her total to what she would have paid after April 1.

"It doesn't sound like a lot, but it is," she said. In this tough economy, the Valencia couple is saving where they can.

"We don't go out to eat as much," she said. "We were going to buy a new car but we're going to put that on hold - we're just going to run (the one we have) into the ground."

The statewide 1-percent, sales-and-use tax increase will generate $1.18 billion in new general fund revenue for the remainder of the 2008-09 fiscal year, and another $4.63 billion in the 2009-10 fiscal year, according to a California Board of Equalization news release.

The statewide sales-tax hike could expire July 1, 2011. But the increase will remain in effect an additional year if voters approve Proposition 1A, the Budget Stabilization Act, in a statewide election on May 19.

With the half-cent sales-tax increase approved in November by Los Angeles County voters - which takes effect in July - sales tax in the county will rise to 9.75 percent.

"Nobody seems to know when the taxes are going up," said a sales associate at Caston's. "Joe Consumer is aware there is an increase but they're not aware of when it is happening."

Owner Rick Caston agreed, but doesn't anticipate a decline in business if people find out too late.

"What we'll probably end up doing is a promotion," he said.

Bob Corson, director of sales at Frontier Toyota, said the dealership is doing all it can to make people aware the tax increase is coming, as well as notifying them of the recently approved federal tax breaks for new-car buyers.

"It's nice to see the state supporting our business with incentives as well as what we're doing," he said as he created an e-mail blast for customers Friday about the tax information. "It's good team work."

Under the deal approved by Congress, new car or truck buyers who purchase before Dec. 31, 2009, can deduct - on their federal tax returns - the state and local sales tax paid on up to $49,500 of the purchase price.

Corson said he's seen a "significant increase" in business since the tax break went into effect.

But he also attributed the upswing in business to the impending state sales tax increase and the onset of the typical selling season.

People should consult with those who prepare their taxes about certain stipulations on the tax incentives, Corson said.

Sales manager Brian Umansky of Power Dodge of Valencia also said he's noticed a little upward trend of new car buyers, but couldn't tell "if that's because of that stimulus or people starting to feel better because refunds are coming tax-wise."

Not all will take advantage of the time left in March before the 1-percent sales-tax increase.

After receiving a pay cut at work, the Jensens of Castaic just can't afford to.

"We want a big-screen TV; we need a car," said Chris Jensen. "We can't afford it."

Louella Youngbauer of Saugus thinks the increase was needed.

"I don't think it's going to make a big difference in terms of my purchases," she said.

"It can make a big impact (on the state budget) considering all the people in the state of California. I think something needed to be done."

The Associated Press contributed to this report.

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