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Parcel Tax or Sales Tax?

Context: The revenue produced by a sales tax versus a parcel tax can be similar. So which is best? 

Q#1: What is the revenue potential and how does potential revenue from a sales tax compare to a parcel tax? Answer: Equal revenue can be raised from a sales tax and from a parcel tax. 

  • Here's the numbers, assuming a tax passed in 2024 (for details, see Q#11-Q#14 in the article How Bad Could it be?)
  • $8.9M from a 1/2% sales tax
  • $4.5M from a 1/4% sales tax
  • $4.5M from a $300 parcel tax
  • $3.7M from a $250 parcel tax
  • Conclusion: The 1/2% sales tax produces the most revenue for the town, with the $250 parcel tax producing the lowest amount. The 1/4% sales tax and the $300 parcel tax produce the same revenue stream. Regardless, the point made here is that a sales tax or a parcel tax can bring in the same revenue for a City. 

Q#2: If a $300 parcel tax will raise the same revenue as a 1/4% sales tax, what is the difference? Answer: A parcel tax spreads the tax burden among property owners within the City, while a sales tax spreads it among all who shop within City limits. 

Q#3: Which is better, a sales tax or a parcel tax? Answer: To the extent the purpose of the tax is to support the general fund, then a sales tax makes sense (to me) because it spreads the the tax among those who use the City services that would be funded through the tax, rather than expecting only property owners within the City to carry the responsibility. 

  • Taking the example of the 1/4% sales tax versus the $300 parcel tax, the choices are:
  • Sales Tax: Charges those who shop in our town 25 cents on each $100 purchase.
  • Parcel Tax: Charges each property owner in the City $300 per year.
  • Both bring in the same revenue total over the next 7 years. 

Q#4: Is there an issue related to possible consolidation of our Fire Services that enters into this discussion about parcel tax vs sales tax? Yes, because consolidation would extend the annexing agency's parcel tax to Sebastopol property owners.

  • The open question is whether passing a parcel tax now to fund City general services creates future difficulties if and when Sebastopol property owners are faced with an additional parcel tax as a result of consolidation. 
  • As a reminder, the Sebastopol City Council has made no decision regarding consolidation of our Fire Services. The Ad Hoc Fire Commitee is still investigating the options and will report to the City Council when it has sufficient information. 

Q#5: Is one of these taxes (sales tax or parcel tax) less "regressive?" Answer: No, neither takes into consideration a person's income. They are both regressive because every person pays the same no matter what their level of wealth. See explanation of regressive vs progressive taxes here

Diana Rich, Sebastopol City Council
321 S. Main St. #60 
Sebastopol CA 95472
FPPC #1430199
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