New California Levies Nail Lumberyard

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Business owners in California often get hit with new taxes and fees. But few have been socked like Rolando Robles, a West L.A. lumberyard operator.

Robles, president of Anawalt Lumber Co., just finished meeting an Oct. 19 deadline to implement a complex state-mandated assessment on paint products. Now, another state law is forcing him to spend thousands of dollars to implement a lumber products tax that goes into effect Jan. 1.

Of course, along with all other state businesses, he’ll have to charge customers an extra quarter-cent in sales tax starting Jan. 1. And he faces the prospect of charging customers at his L.A. stores an extra half-cent starting in July, pending voter approval.

“All this has me wondering, what’s next on the tax list?” Robles said.

Robles regards the across-the-board sales tax hikes as a nuisance. But the lumber products tax is proving to be a mad scramble. The tax is 1 percent of the sales price, and it is designed to relieve state timber producers of the burden of paying for state regulators to track their harvest activities. But the law is vague on exactly what timber products should be taxed; state regulators only put out their list late last month. And the requirement that the lumber tax be shown as a line item on all customer receipts is bedeviling lumberyard software systems.

“It’s a major, major headache, especially with Jan. 1 right around the corner,” said Robles, who only found out about the tax in September.

Robles, whose company owns four stores in Los Angeles County – two in Los Angeles, one in West Hollywood and another in Malibu – is one of the lucky lumberyard operators; at least his computer system can handle the changes. Scores of other lumberyard owners up and down the state have had to scrap their old software systems and spend tens of thousands of dollars on newer software programs, according to Ken Dunham, executive director of the West Coast Lumber & Building Material Association, which represents about 300 companies, mostly in California.

Paint fee

That’s small consolation to Robles, who hasn’t recovered from the last state-imposed assessment: a variable fee on certain paint products. The fee – which ranges from 35 cents for a half-gallon container to $1.60 for a five-gallon container – is designed to fund the recycling and disposal of paint products. The law took effect Oct. 19 and Anawalt Lumber managers spent hours making sure their stores were ready.

Certain paint products – such as water- and oil-based paints, primers and lacquers – are subject to this assessment. But automotive and industrial paints are exempt, as are paint solvents and paint spray cans.

Managers spent nearly two days entering the code numbers for each of the products subject to the fee into Anawalt’s computer system.

Implementing the lumber products tax is proving to be much more costly.

Opponents call it a tax, but lawmakers termed it an “assessment.” That’s because the estimated $30 million generated each year will pay for state regulation of timber management programs and will not go to the state’s general fund. Assessments are not subject to the Proposition 13 tax requirements of either two-thirds approval in the state Legislature or submission as a ballot measure to voters.

But a typical assessment is levied on the companies being regulated, which in this case would be the timber producers, such as Redding’s Sierra Pacific Industries, the state’s largest timber company. Yet this assessment is aimed at builders and other people who buy lumber products because they must pay 1 percent at the time of purchase. That’s why opponents say it’s really a sales tax and not a fee levied on an industry to pay for the cost of regulating that industry.

When he signed the bill, AB 1492, in September, Gov. Jerry Brown said the burden of regulatory costs had to be reduced for California timber producers so that they could survive against out-of-state producers that don’t face the same strict regulations.

That does not sit well with Robles, who feels caught in the middle. He might not be the ultimate party paying the tax, but he’s spending money and time preparing to collect it.

“I’m not happy about subsidizing the raw timber industry,” he said.

The state Department of Forestry and Fire Control last month put out a list of lumber products subject to the tax and another list of exempted products. The law says building wood products are included, while wood products that have been manufactured, assembled or processed are not included.

But the lines are not always clear: For example, siding used on building exteriors is on the list of products taxed, while molding is exempted. Deck panels are on the list, but panels used on interior walls are not, even if they are the exact same size, shape and wood type as deck panels.

“Just figuring out what products qualify for this new lumber tax and what don’t is going to take us days,” Robles said.

Extensive reprogramming

But the trickiest part is the mandate that the assessment must be displayed as a line item on customer receipts, just as tire shops must do for a tire recycling fee.

Robles said this requires extensive reprogramming of Anawalt’s computer software.

“That’s the part that’s taking the most time,” he said. “We’re equipped to change the sales tax rate, not add a whole new line.”

He said he expects this transition will cost several thousand dollars.

Under the law, Anawalt is supposed to be reimbursed for its time and expenses. But therein lies another fight. The state Board of Equalization last month issued an emergency regulation allocating a one-time $250 reimbursement for each store location selling lumber products.

The board said that figure was based on a formula derived in part from a 2006 national study on the cost of complying with a sales tax change.

But lumber retailers said the $250 amount is woefully inadequate.

“We’ve calculated the average actual cost – the amount actually being spent – is about $4,500 per store location,” said Dunham of the lumber products association. “That doesn’t even consider the companies that have already spent $40,000 or more installing new software systems so they can display the tax as a separate line item.”

Dunham said his association is requesting a first-year reimbursement of $4,500 for each store selling lumber products and $1,500 for subsequent years.

“We already know there will be constant changes to the list of included products, so this is going to be an ongoing expense for our members,” he said.

The board will be issuing final regulations early next year.


Sales tax hikes

In the meantime, Robles has at least one other tax to grapple with: the quarter-cent increase in the state sales tax that kicks in Jan. 1. California voters approved this hike this month when they passed Proposition 30, the tax hike measure backed by Brown.

Robles is also casting a wary eye on L.A. city officials, who last week placed a half-cent sales tax increase measure on the March ballot. That measure would raise an estimated $200 million a year to close an annual budget deficit, which is also around $200 million. Anawalt has two stores in Los Angeles and two outside the city, so if this tax were to pass in March and take effect July 1, the company would have to adjust its registers, but only at its two L.A. stores.

“That would be just another nuisance on top of everything else,” he said.

Robles added that if the L.A. tax passed, there might be a limited number of customers who would go to competitors outside the city.

“We don’t sell that many huge orders,” he said, “so I’m not expecting a flood of customers leaving our Los Angeles stores. At least I hope not.”

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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