Chas Alamo
(916) 319-8357
Personal Income Tax, Employment, and Labor Law
Ann Hollingshead
(916) 319-8305
State Budget and Federal Funding
Nick Schroeder
(916) 319-8314
Public Employment, CalPERS, Elections, Veterans Affairs
Brian Uhler
(916) 319-8328
Deputy Legislative Analyst: Economy, Taxes, and Labor
Seth Kerstein
(916) 319-8365
Sales and Excise Taxes and Demographics


Economy and Taxes

To browse all LAO publications, visit our Publications page.


Effects of Cigarette Taxes on Smoking Behavior

December 17, 2015 - Presented to: Conference Committee on SBX2 2 and ABX2 1, Second Extraordinary Session


Understanding California’s Sales Tax

May 6, 2015 - California’s state and local governments levy a tax on retail sales of tangible goods. This report begins with an overview of California’s sales and use tax. It then provides more detail about which transactions are subject to this tax, the variation in tax rates across the state, the distribution of revenue among state and local governments, and revenue growth over the last few decades.
(5/12/15: Correction made to expiry date of manufacturing equipment exemption.)
(5/12/15: Correction made to difference in sales tax for gasoline.)


The 2015-16 Budget: Cigarette Tax and Licensing Programs

April 22, 2015 - California imposes excise taxes on cigarettes and on other tobacco products such as cigars and chewing tobacco. The state also licenses tobacco sellers and distributors. Recently, there has been considerable legislative interest in the cost of these programs, which are administered by the State Board of Equalization (BOE). The Legislature faces two key decisions: (1) how to pay for BOE’s cigarette and tobacco programs, and (2) how much to spend on them. This report recommends that the state use excise tax revenue to pay for excise tax administration but not for the tobacco licensing program. To address the imbalance between the licensing program’s costs and revenue, we further recommend the Legislature (1) temporarily increase fees on tobacco retailers, wholesalers, and distributors, and (2) direct BOE and the California Department of Justice to explore options to reduce the program’s costs by promoting electronic filing of schedules and tax returns.


The 2015-16 Budget: Possible May Revision Scenarios

April 7, 2015 - This report provides a preview of possible budgetary outcomes that the state’s elected leaders may face while finalizing the 2015–16 budget package in May and June. We do not produce a new revenue or budget outlook in this report. Rather, we consider the key factors that will affect May estimates. In general, this report’s scenarios discuss revenues and spending relative to the administration’s January 2015 budget estimates.


Overview of Sharing Economy and Short-Term Rentals

March 18, 2015 - Prepared for: Committee on Local Government and Assembly Revenue and Taxation Committee


State Employee Health Benefits: Policy Implications of Offering a High Deductible Health Plan

March 18, 2015 - Presented to Assembly Public Employees, Retirement, and Social Security Committee Presented to Senate Public Employment and Retirement Committee


California’s High Housing Costs: Causes and Consequences

March 17, 2015 -

Living in decent, affordable, and reasonably located housing is vitally important to every Californian. Unfortunately, housing in California is extremely expensive and, as a result, many households are forced to make serious trade-offs in order to live here. While many factors have a role in driving California's high housing costs, the most important is the significant shortage of housing in the state's highly coveted coastal communities. We advise the Legislature to address this housing shortfall by changing policies to facilitate significantly more private home and apartment building in California's coastal urban communities.

See our February 9, 2016 follow up to this report: Perspectives on Helping Low-Income Californians Afford Housing.


California’s Major Revenue Sources and Tax Agencies

February 23, 2015 - Presented to: Assembly Revenue and Taxation Committee


Unclaimed Property: Rethinking the State’s Lost & Found Program

February 10, 2015 - California law has long required banks, insurance companies, and many other types of entities to transfer to the State Controller’s Office (SCO) personal property considered abandoned by owners. The SCO has made important strides in reuniting this "unclaimed property" with owners recently, but faces budgetary and statutory constraints in reuniting even more such property. Since the 1950s, the state has accumulated over $7 billion in unclaimed property belonging to individuals, businesses, and local governments. Because property not reunited with owners becomes state General Fund revenue, the unclaimed property law creates an incentive for the state to reunite less property with owners. We recommend performance measures, or targets, for the unclaimed property program that place a greater emphasis on reuniting more property with owners and offer 19 options for meeting that goal.


Options for a State Earned Income Tax Credit

December 18, 2014 - In June 2014, the Legislature directed the LAO to prepare a report analyzing the costs, benefits, and trade-offs of various options for a state earned income tax credit (EITC) that would supplement the federal credit. This report discusses considerations for adopting a state EITC and provides three options for the Legislature's consideration.


Film and Television Production: Overview of Motion Picture Industry and State Tax Credits

April 30, 2014 - This report provides background information on the motion picture industry and offers preliminary observations regarding the California film and television production tax credit. This report does not make recommendations regarding the tax credit or any proposed legislation. We highlight several factors for the Legislature to consider when reviewing the tax credit in our report.


A Look at Voter-Approval Requirements for Local Taxes

March 20, 2014 - For about 100 years, California’s local governments generally could raise taxes without directly securing their residents’ consent. Beginning in 1978, the state’s voters amended the California Constitution several times to require that local government tax increases be approved by local voters. Recently, the Legislature has shown interest in exploring changes to voter-approval requirements for local taxes. Several proposals to place changes before the voters have been introduced during the current legislative session. This report was developed to provide context for discussions about changing these requirements. After a brief introduction to local governments in California, the report (1) summarizes the state's existing system of voter-approval requirements for local taxes, (2) explains how the state's complex voter-approval system evolved, and (3) reviews outcomes of local tax elections over the past 15 years.


The 2014-15 Budget: Pilot Program to Improve Property Tax Administration

March 13, 2014 - In this report, we provide an overview of local property tax administration and review the administration's proposed three-year pilot program to improve tax administration and generate state General Fund savings. In particular, we (1) describe how the current property tax system weakens the incentive counties have to fund property tax administration, (2) review and evaluate the administration's three-year pilot program to improve county incentives, and (3) provide recommendations regarding the pilot's design. In our view, the administration's pilot program merits the Legislature's serious consideration but could be improved by incorporating several modifications. These include: ensuring each county has the same fiscal incentive to participate, providing participating counties greater funding certainty, promoting representative and consistently measured results, and potentially increasing near-term state savings on school spending.


Letter to Honorable Mark Leno on Corporation Tax Trends

March 13, 2014 - This letter responds to a request concerning California corporate tax trends, as discussed in the January 23, 2014 meeting of the Senate Committee on Budget and Fiscal Review. In nominal terms, the state's corporation tax has tended to grow over time, but it is a volatile tax. Moreover, since the mid-1980s, various legislative actions have reduced revenues this tax produces for the state General Fund.


Why Have Sales Taxes Grown Slower Than the Economy?

August 5, 2013 - The sales and use tax is the state’s second largest revenue source as well as a major funding source for cities, counties, and some special districts. Historically, consumers have spent about the same share of their income each year on taxable items, meaning that sales taxes generally kept pace with growth in the state's economy. Starting in 1980, however, California consumers began to spend a growing share of their income each year on nontaxable items, especially services, and a declining share of their income on taxable goods. Although total consumer spending kept pace with the state’s economy, this shift in spending caused growth in taxable sales to lag behind growth in the state’s economy. Correspondingly, total sales tax revenues for the state and local governments have grown somewhat slower than the state's economy since 1980, despite periodic increases in the tax rate.