New California tax irks lumberyards, retailers

Lumberyards and retailers say they're getting stiffed by the state of California and its new tax on lumber.

Here's the background. Since Jan. 1, California retailers have been required to collect a 1% assessment on sales of certain lumber products. However, so-called "secondary" wood products, in which additional labor has added significant value — such as furniture, windows and doors — are exempt.

To collect the tax, which was signed into law last fall, stores have worked quickly to reprogram their registers to calculate the higher rate on these sales. Adding to retailers' angst, the law requires that this 1% assessment be shown separately on the invoice, separate from state or local sales taxes.

California's Board of Equalization is allowing lumber-product retailers to keep $250 in sales tax per location to reimburse them for startup costs, but some say that is not enough. The West Coast Lumber and Building Material Association (WCLBMA), which represents independent retailers, has asked the board to provide up to $4,500 per location in reimbursement the first year and $1,500 annually thereafter to handle updates and product changes.

Ken Dunham, executive director of the WCLBMA, said the assessment is disproportionately unfair to his trade. "Most hardware stores, unless they have a full line of wood products, are in reality a minor player in this," he said. "Some of the hardware stores will carry a few types of things like 2x4s and some plywood, but not a lot else. They can handle that additional assessment pretty easily. The full lumberyard is another story."

The Home Depot, which had yet to upgrade all of its California stores by late January, argued in a letter to the Tax Policy Division of California that the law "fails to appreciate" that retailers will face ongoing costs to maintain their collection systems.

"Because items sold in the store are changing weekly, retailers would have to reprogram their collection systems continually to capture new products," the Home Depot letter stated. "It makes no sense to reimburse retailers for initial programming costs and then require them to shoulder those same costs to capture new lumber products."

The 1% assessment is expected to generate $30 million to $35 million annually to help California enforce its timber-harvesting regulations.

Dunham believes there has to be a better way. "Simply giving the state more money from the general public and making the lumber retailers collect it is not the answer," he said.

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