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Under state law, sales tax is charged on tangible, personal goods. Services are not taxed. Grocery items are not taxed. Prepared foods (at restaurants) and alcohol are taxed.
Link to California Department of Tax and Fee Administration Sales Tax Information: https://www.cdtfa.ca.gov/formspubs/pub452.pdf
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Measure Z is a measure placed by the City on the March 3, 2020 ballot asking if voters wish to increase the local sales tax to support at-risk City services. Measure Z would eliminate the existing ½-cent sales tax and replace it with a 1¼ sales tax. The increase would be ¾ cents for a new rate of 9.75%.
This ¾-cent difference would raise $2 million in new funds annually and would be deposited into Scotts Valley’s General Fund.
Measures Z includes a sunset of 12 years, when it would automatically expire.
Sales tax is deposited in the General Fund to pay for general city services. The police department and local dispatch make up 45% of the General Fund, in addition to public works such as streets, storm drain, sidewalk and parks maintenance and other supporting city services. The revenues from Measure Z would help prevent deep cuts in City services paid from the General Fund, with public safety being a significant portion of that.
With direction from the City Council, the City will have to cut millions more in General Fund programs and services. Up to now, the City’s cuts have been to components of the City other than public safety. With deficits in the range of $1-3 million and compounding, the City would be forced to reduce public safety services, given the proportion of the police department of the City’s General Fund budget (45%). We will be unable to keep SVPD just as it operates today unless a significant new revenue stabilizes the city. All of the General Fund services would be examined and reductions would be expected in parks, infrastructure and maintenance.
Anyone who purchases taxable goods in Scotts Valley pays the sales tax, not just residents of Scotts Valley.
It has been estimated that about 30 to 40 percent of the sales tax paid comes from non-residents. Scotts Valley provides shopping options for the greater region and for through-traffic on Highway 17. These visitors use City streets and services, including Scotts Valley’s notable public safety. Thus, the sales tax is paid by a wider range of people, who all benefit from City services.
Measure Z would generate a new ¾ of a cent for every dollar spent. If a family makes $10,000 a year in taxable purchases, there would be an additional $75 in sales tax with the new rate.
For a $50 dinner at a restaurant, it would be 38¢ more.
For a $100 purchase, it would be 75¢ more.
Sales tax revenue is deposited into the City’s General Fund, which is the main account for basic city services, such as public safety, public infrastructure improvements and maintenance and general operating city services. The General Fund is 45% allocated to the police department and safety services.
The current sales tax rate in Scotts Valley is 9.00%, the same as Capitola and the unincorporated County. In Santa Cruz and Watsonville, the rate is 9.25%.
The 9.00% sales tax in Scotts Valley is made up of a state sales tax portion (7.25%) and a local transactions and use tax portion (1.75%). Of the total 9.00% rate, the City of Scotts Valley receives 1.50%, which is one-and-a-half cents for every 9 cents collected. Translated into dollars, Scotts Valley receives 75 cents for every $50 spent on taxable goods.
Here is a breakdown of the sales tax allocation in Scotts Valley:
Also, see: https://www.cdtfa.ca.gov/taxes-and-fees/sut-rates-description.htm
If Measure Z does not pass, then the ¾-cent tax capacity is available for regional governmental bodies or organizations to seek. For instance, Scotts Valley shoppers currently pay 1.25% in local sales taxes from voter-supported regional measures for libraries, regional transportation and the bus system. These regional bodies could place a countywide tax measure on a future ballot to obtain the ¾-cent tax revenue, instead of it going to Scotts Valley.
It’s important to note that if Measure Z passes, it will not cure the City’s budget challenge. Measure Z is significant in that it would prevent major cuts to core City services, but the City will need to continue to support growth in the local economy and look to other revenues streams to create a stable and thriving City government.
Economic development is an important component of a healthy city budget. The Council is actively working on initiatives to support a strong local economy, which helps businesses, residents, and the City. The City has a Council Economic Development Committee to focus on this topic. The Council recently established a Town Center Exploratory Committee with the Mayor and Vice Mayor to redouble efforts to create this envisioned downtown gathering place, rich with shopping and restaurants. The City Council designated the Vice Mayor to focus City efforts on the replacement of Kmart.
In the recent years, the City supported the 1440 Multiversity and Four Points Sheraton hotel projects which have added greatly to Scotts Valley’s services and amenities and helped the City’s budget. Additionally, the City is engaged in the approved Marriott Residence Inn project to construction. This 120-room hotel would bring in additional hotel taxes to support community services.
Also, the City will look to ensuring that existing taxes are being fully and fairly collected. We plan to audit our tax rolls to ensure we gather uncollected revenues.
Kmart was one of our largest sales tax producers so this loss is significant. The loss of any business hurts the City’s finances, particularly businesses such as Kmart and Scotts Valley Sprinklers.
The City Council considered this matter in December 2019 and appointed the Vice Mayor to spearhead the retail replacement and economic development strategy. The City is working to identify a desirable replacement that will add to Scotts Valley’s retail amenities. This is significant in that the City did not have to act as the transaction is one between private parties. The City, however, did not want to be on the sidelines and so elected to get involved to help shape an outcome positive for the community.