REGIONAL REPORT : New State Taxes Levy Confusion as Debut Nears

For most small-business owners, it’s hard enough to mind the store without having to ponder the moral difference between a doughnut and a brownie. And that’s bad news for the new snack tax, which goes into effect Monday.

“I haven’t heard about the tax yet,� said Bill Thee, owner of Thee’s Bakery at Farmers Market, “but I usually have my head in the oven.�

Consumers are supposed to start helping reduce California’s $14.3-billion deficit next week, as they swallow new taxes on everything from Twinkies to Toyotas. But if the befuddled reactions of many small retailers are any guide, a lot of the intricate taxes could go uncollected.

Across-the-board sales taxes will increase 6% to 7.25%, according to a bill signed June 30 by Gov. Pete Wilson. That will bring the sales tax in Los Angeles County, including local taxes, to 8.25%. In addition, alcohol taxes and vehicle license fees will be increased. The new taxes are expected to bring in more than $220 million in annual revenues.

For mom-and-pop stores, sorting through the new tax rules may prove a headache--once they hear about the changes. Although the state mailed out 850,000 notices Monday explaining the new tax, many small retailers throughout the Southland were still unaware of it Wednesday.

“People are confused about what’s going to happen on Monday,� acknowledged Ernest J. Dronenburg Jr., a San Diego-based member of the State Board of Equalization, the agency charged with collecting the taxes. Retailers are doing the best they can, he said, but “they’re not exactly happy campers.�

Small retailers are taxed on a self-reporting basis, so unless owners keep careful count of candy bars, the tax may be hard to enforce. The agency plans to continue efforts to inform small retailers about the new taxes, in hopes of collecting more of them.

Sam Toma, manager of Super Jr. Market in downtown San Diego, was confident that his grocery store’s computerized cash register could be programmed easily to take in the rise in sales tax. But he was unaware that the range of taxable items had increased to include snack foods. Informed of the change, he said he might absorb the new taxes rather than alienate customers.

“We’ll pay it because we’d rather lose (revenue) than make our customers mad,� he said.

As Toma points out, food is one of the more complicated areas in the state’s new barrage of taxes. Technically, food will remain untaxed. But a new “snack tax� opens up some edibles to taxation for the first time, meaning that some foods aren’t worthy of the name.

Cheezits, Fiddle Faddle and Screaming Yellow Zonkers, among other treats, are “no longer classified as food products,� according to a 10-page document distributed by the Board of Equalization. Doughnuts are food; brownies are not. Saltine crackers are food, but Ryvita Crispbread is not.

To add to the confusion, the state and federal government don’t see eye to eye on comestibles. Uncle Sam’s food stamp program still calls Ding Dongs proper food, while the state considers them a snack.

So shoppers may prefer to use food stamps for their junk food binges. Since the state can’t charge tax to the federal government, Ding Dongs bought with food stamps will be untaxed and therefore cheaper than those bought with cash.

None of this fazes big chains with sophisticated computer systems. At Ralph’s, Vons and other large chains, computerized bar codes will tell the cash register to charge the increased sales tax on snacks, as well as bottled water, which is now also subject to a levy.

The state has been working closely with the stores to plug a list of thousands of items into their systems, including alcoholic beverages.

Wine has been hit with a “double whammy� this year, said John De Luca, president of the Wine Institute, which represents the California wine industry. Federal taxes on wine were increased from 17 cents a gallon to $1.07 in January of this year.

On Monday, state excise taxes will increase from 1 cent to 20 cents a gallon. In addition, wine will be hit with the 1.25 percentage-point across-the-board increase in the sales tax. Beer will be taxed at 20 cents a gallon, and distilled spirits will be taxed at $3.30 a gallon, with the strongest distilled liquors getting taxed at $6.60 per gallon.

At the Imperial Square Liquor store in the Athens District of Los Angeles, clerk George Allen predicted that sales, slow since the July 4 holiday, will be further dampened. To Allen and his customers, the new alcohol tax is just “another hassle.�

And a costly hassle at that. Allen figures that a half pint of Smirnoff vodka will jump from $2.65 to $3.29 at his store, while a half pint of Presidente brandy will rise from $3.63 to $4.23.

Steve Cameron, owner of Gus’s liquor in Woodland Hills, said the tax would deter his customers. “People say they must keep drinking and drinking no matter what the price, but believe it or not, they do cut back.� At the Wine Club in Santa Ana, on the other hand, marketing director Steve Baba didn’t see the tax increase fazing customers. “We’re sort of on the premium end here,� Baba said. “I don’t think it will really affect things much.�

Some liquor stores expect that people may stock up this weekend to beat the tax.

And automobile dealers say sales have already picked up slightly, as buyers become aware that they can save by buying early. On Monday, not only will sales taxes increase from 6% to 7.25%, vehicle license fees will increase from about $172 for a $10,000 car to $206.

That means an Acura Legend that cost $30,906 Sunday will cost $31,261 on Monday, according to John Paolucci of Acura Metro in Los Angeles.

At Campbell Ford in Garden Grove, sales manager Gary Robertson said his sales force has just started seeing an impact.

“We have had people specifically wanting to buy before Monday,� Robertson said, “and when we don’t have a particular model in stock and have to go to other dealers to find it, the customers want to know whether we can get it before Monday.�

Time staff writers Greg Johnson in San Diego, Bob Schwartz and John O’Dell in Orange County and Philipp Gollner in the San Fernando Valley contributed to this report.

* LEVIES ON MEDIA

Publications hit by tax; more assessments face cable TV. D6

A Taxing Situation California has enacted a variety of new taxes and increased some fees. The sales tax has been raised 1.25 percentage points, while vehicle license fees and Alcohol taxes have been increased. Some snacks and Newspapers are being taxed for the first time. All prices reflect Los Angeles County.

Item Base Other 8.25% Price Fees Sales Tax Six-pack $4.29 $.09* $.35 of beer Candy $.49 $.04 bar Weekly $3.00 $.25 newspaper subscription Car $10,000 $206** $825

* Alcohol taxes have been increased on all liquor products. ** Vehicle license fees, based on the price of the car, will be raised Aug. 1. New Sales Tax Rates for Southern California Counties. Los Angeles: 8.25% Orange: 7.75% Riverside: 7.75% San Bernardino: 7.75% San Diego: 8.25% Santa Barbara: 7.75% Ventura: 7.75%