Budgets Section 1
[rev2022]
CA Department of Tax and Fee Administration
Preparatory Cost and Administrative Cost
For Local Sales and Transactions & Use Tax
Preparatory Cost (one-time):
The preparatory cost is not influenced by the imposed tax rate. To implement a new Special Taxing Jurisdiction (STJ) the California Department of Tax and Fee Administration (CDTFA), the Department of Motor Vehicles and the Department of Housing and Community Development must incorporate the new STJ into their internal systems/processes. Costs include staff time, operating expenses, data processing time, printing and postage costs associated with the notification of taxpayers in the geographical area of the new STJ. This notification is sent to all taxpayers within the city, county, accountants, enrolled agents and sometimes to adjacent counties as well.
By law, the maximum preparatory cost for a new STJ is $175,000. However, the actual amount charged is typically less than $175,000 particularly in smaller cities and counties where fewer notification mailings are required. The preparatory fee is also influenced by how many new STJs are implemented concurrently. When several new STJs are implemented at the same time, the fee is lower because of the efficiencies achieved through group implementation. Therefore, it is difficult to estimate the preparatory cost until all the above mention variables are known.
The following figures are provided for information purposes only and do not represent the actual preparatory costs you will be charged. The preparatory costs for STJs effective the past five years have been as low as $3,900 (City of Angels Camp) to as high as $18,500 (City of Sacramento) when there were 47 new STJs incorporated at the same time and as high as $124,500 (Los Angeles County) when they were the only one that incorporated an STJ at the time. Keep in mind that the size of the county and/or adjacent counties, the number of other STJs being implemented at the same time, and the number of taxpayer notifications sent influence the total preparatory costs.
The preparatory cost is billed directly to the new STJ while the on-going administrative charges will be deducted from the revenue received.
Administrative Cost (ongoing and charged quarterly):
Tax Rate Administrative Fee
FY 2025-26
2.000% 0.21% of revenue
1.750% 0.23% of revenue
1.500% 0.28% of revenue
1.250% 0.33% of revenue
1.000% 0.41% of revenue
0.875% 0.47% of revenue
0.750% 0.55% of revenue
0.500% 0.82% of revenue
0.375% 1.10% of revenue
0.250% 1.65% of revenue
Budgets Section 2
[rev2022]
0.125% 3.29% of revenue
0.100% 4.11% of revenue
The California Department of Tax and Fee Administration (CDTFA), former Board of Equalization (BOE) administers the Sales and Use Tax (SUT) program. The purpose of this program is to collect Sales Tax revenue for the state, cities and counties, and special tax jurisdictions (STJ)s. The cost to administer the Sales and Use Tax program is based on a legislatively approved costing model in administering the local entity’s tax ordinance (Rev. & Tax Code 7204.3 and 7273). To comply with the Revenue & Taxation Codes, the cost to administer the SUT program are recovered from a legislative approved costing model beginning with the 2006-07 fiscal year.
Since the model allocates most of the costs based on revenue, the state bears most of the administrative costs because of its higher tax rate. For 2019-20 the state accepts 62.27% of the administrative costs, cities and counties 18.25%, and STJs 19.48%.
Cities and Counties administrative cost allocation for the 1% statewide tax rate:
The administrative costs are allocated to cities and counties based on its proportionate share of revenue. For 2019-20, the Sales and Use Tax program estimates to receive $7.3 billion for the 1% statewide tax. To administer this tax, CDTFA estimates a cost of $84.5 million. As a percentage of cost to revenue, the cities and counties are charged 1.16% to administer this tax.
The CDTFA charges approximately 1.16 cents for every dollar collected. If rounding to the nearest cent, the CDTFA charges a penny for every dollar collected. Due to reasons such as fixed infrastructure costs and the benefits resulting from economies of scale, this keeps the CDTFA’s administrative cost low.
In addition to the current year's assessment, the administrative cost also includes a “true-up” adjustment for the fiscal year two years prior. The true-up compares the amount billed in a previous fiscal year with the actual cost for that year. Any difference between the billed and actual (plus or minus) is an adjustment to current year estimated charges.
To minimize “true-up” adjustments, the CDTFA monitors the current year assessment and may adjust if there is a significant change in estimated costs and/or revenues. The on-going administrative charges are deducted from revenue received.
If you need further information or explanation regarding the one-time preparatory costs or on-going administrative costs, please contact our Budget Section at (916) 309-1262.