Overtaxed and tired of it

November 2019

By Scott Logue

North Tustin residents continue to be overtaxed based on zipcode.  Scott Logue revisits the topic.

The City of Santa Ana has achieved the coveted (by government standards) accolade of securing the highest taxes in Orange County. The citizens of unincorporated North Tustin, sharing the same zip code as Santa Ana, noticed they were paying sales tax to that city for cars and online purchases. How, you may ask, did we pass into the universe where one city benefits from the plundering of its neighbors?

Vehicle sales tax is calculated by where the car is garaged, but car buyers from North Tustin are reporting thousands of dollars charged inappropriately by dealerships that apply Santa Ana’s higher tax rate to those who garage their cars in North Tustin – both areas sharing the 92705 zip.  

Ecommerce websites for online retail are collecting taxes based on any number of available third-party vendor platforms that attempt to keep up with the vortex of changing tax rates throughout the country. 

Some platforms permit the plus-four zip code, greatly increasing your likelihood of being charged the correct sales tax, while others use your exact street address to verify your precise taxable region.

A tangled tax web
However, not all businesses use platforms that utilize the plus-four. And businesses, like people, have budgets. The quality and accuracy of the platform depends on how much the business is willing to pay for it, and to keep it updated. Collecting sales tax is a pass-through compliance cost from the customer to the taxing authority, and costs have to be managed. There are expensive gold standards in sales tax platforms, as well as many lesser platforms. Some businesses rely on manually-updated Excel sheets to calculate sales tax, which are only as accurate as the person who maintains the file, and only as often as the updates are made.

Consumers can bring the discrepancy to the attention of a business, and rightfully and legally expect a refund. However, that does not mean the website will calculate any differently the next day, if the cost to correct the error exceeds the benefit to the business. 

According to the California Dept. of Tax and Fee Administration, if a business discovers that it has been overtaxing customers, it must return the money to the customer, or to the state. But the cost of reviewing every sale to every address in 92705 and remitting a torrent of refunds is an expensive proposition for a business, particularly for low-dollar transactions. It is likely the business would correct the problem, remit the improperly collected taxes to the state, and move on. Larger overages, such as from car dealerships, are more likely to refund the buyer, or at least the buyer that brings it to their attention.

The burden we bear
Santa Ana has no incentive to stem the flow of these unexpected secular tithings to its treasure chest. It simply receives a bulk payment for taxes regardless of origin. The city would have to spend significant resources to confirm taxes were not collected from North Tustin residents, the success of which would only incur additional costs in order to provide the refunds. 
The state, for its part, won’t look a gift horse in the mouth. There is no incentive to protect the residents of North Tustin from being overtaxed.

The only real control is the awareness of North Tustin residents that this problem exists, that there is no single solution to remediate it (continued calls for our own zip code notwithstanding), and that there are several ways to minimize your exposure.

Be wary of any website that doesn’t calculate tax based on the plus-four. When buying from smaller online retailers that sell products purchased infrequently, it would be wise to confirm the sales tax calculated by the website.

Very large dollar purchases like cars, furniture and electronics should also be scrutinized, as the materiality of an incorrect tax could be significant.
Not a solution for cars and online shopping, but one sure-fire way to avoid paying taxes to Santa Ana is to stop shopping in Santa Ana, the gold standard in sales tax.