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[whitespace] Wolfgang Dykow
Photograph by Jeff Kearns

Cents and Sensibility: Wolfgang Dykow holds the Wendy's receipt that launched his one man crusade to ferret out merchants still charging the defunct tax.

Taxing Situation

There's a billion dollars out there, somewhere, in a quarter cent sales tax that's still being collected, even though it was supposed to end in January

By Justin Berton

IN JUNE, San Jose resident Wolfgang Dykow wanted to give his 11-year-old son Christian a quick lesson in checking a waiter's math. Dykow and son had gone through the drive-through at the Wendy's on Saratoga Avenue near Williams and had ordered a simple dinner: two medium drinks and two orders of chicken nuggets. Each item cost 99 cents, so the total, before tax, came to $3.96. Dykow correctly allowed for the 8 percent sales tax and predicted a total of $4.28. "I was just trying to teach him to pay attention, make sure you don't get cheated."

When Dykow picked up the food at the window--it was all there--he noticed the receipt read $4.29, a penny more than he'd estimated. He did his math once more and, again, came up with $4.28. Now the lesson turned into how to artfully point out a mistake, so Dykow pulled the car around to the front and went inside to ask about the overcharge. "But nobody inside knew what was going on," he says.

What was going on, Dykow learned, was that Wendy's was one of the countless retailers in California that still had their cash registers fixed to charge 8.25 percent sales tax--despite a reduction of the state sales tax by .25 percent, down to 8 percent, that had gone into effect back on Jan. 1.

Since no one at the restaurant was aware of the tax reduction, and hadn't realized their mistake, Dykow went home and phoned the California State Board of Equalization, the state's tax auditors.

"I'm sure they're not the only ones who forgot," Dykow says of Wendy's. "There's bound to be a bunch of other companies just like them who haven't adjusted their cash registers. And I'm sure they figured, 'It's just a penny here, just a penny there, most people won't notice.' But heck, those pennies add up after awhile."

Fun With Numbers

Indeed, after awhile, .25 percent tax adds up fast. Last year, for instance, there were 970,000 retailers in the state of California charging 8.25 percent sales tax. All told, they were responsible for creating $21.3 billion in taxes--equal to one-fifth of the entire state budget. If all of them reduced their tax rates by just a quarter of 1 percent, as they were ordered to do, that tiny adjustment accounted for about $1.1 billion.

But whether the retailers across the state have done so is "impossible" to police, says Vic Anderson, the Board of Equalization's Supervisor for Special Projects. "We don't have any way to track who's overcharging and who isn't. We only have reason to know who's charging extra if somebody called in and complained, and then we would have to go back to the retailer and check to see if there's a problem."

In that case, Anderson says, the state will order the company to pay the state for lost taxes or ask the company to dole out massive customer rebates. "We let the retailer know they can't keep it. They can pay it back to us or they can give it back to the customer--which is what we prefer--but they definitely can't keep it."

All the confusion is understandable. The rate decrease is due to a little-known provision in the state law which calls for a reduction when the budget surplus "exceeds four percent of the general fund for two consecutive years." The Jan. 1 reduction was the first time it happened since 1991, and only the third time since 1962--and the 1991 reduction came after a two-year, 25 percent emergency hike that was approved in the wake of the Loma Prieta earthquake. In other words, California retailers have only had practice in increasing their tax dial.

Anderson says he's not sure how many California residents like Dykow have called to complain about getting overcharged, and he's not aware of any retailers being forced to hand over the spoils. Again, Anderson insists there's no way to track who, how many or how much. But, he says, "We have received a number of calls and we are busy checking them out."

Still, if a company purposely wants to keep the .25 percent change, there's little in the way to stop them. "Is there a way to pocket that quarter percent sales and use tax?" Anderson asks. "Absolutely. But do we have an auditing program to monitor those actions [after the fact]? Yes. And we're using it."

Last year the Board of Equalization audited about 3,000 of the 970,000 retailers in all of California.

Slurping the Surplus

The new state budget, recently approved but still awaiting Gov. Gray Davis' signature, will actually make it easier for .25 percent reductions to occur in the future. Instead of requiring two consecutive years of budget surplus, just one year will be required, and instead of a 4 percent surplus, 3 percent will qualify.

But, this fiscal year, since the state suffered through an economic train wreck due to the energy crisis, the .25 percent reduction as we know it will be rescinded come Jan. 1, 2002. Fare thee well, friend. We hardly knew ye.

Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, believes legislators in Sacramento are purposely keeping silent in their support of returning the state tax to 8.25 percent, and the estimated $1.2 billion it represents. Vosburgh's group sent a letter to the legislators asking them to let the reduction stand and called a vote against it "particularly egregious considering that working families are already having to cut expenses as a result of energy rate increases they are forced to bear."

Says Vosburgh, "This is a prime example of government making an issue so complex that if the average person didn't look for it, they would never know about it."

After citizen Dykow called the BOE, he heard nothing from Wendy's. He continued to keep an eye out for bogus taxing and continued to find it, including during a trip to Paramount's Great America.

Dykow bought a cotton candy for an advertised $3 and expected to pay $3.24. Again, he was overcharged based on the old 8.25 percent tax and paid $3.25. Dykow wrote a letter to Great America executives and received a short explanation--they acknowledged the rate change, yet insisted they just raised their prices--along with a check for four cents.

More recently, Dykow and son Christian have since returned to the same Wendy's, where they ordered up dinner and did the quick math. This time, they were charged the correct amount and went away pleased.

"Wendy's has been doing that to every customer for six months--that's a lot of pennies," he says. "But it was good to see that they had fixed the problem. I just wanted to show him [Christian] that one person can make a difference."

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From the August 9-15, 2001 issue of Metro, Silicon Valley's Weekly Newspaper.

Copyright © 2001 Metro Publishing Inc. Metroactive is affiliated with the Boulevards Network.

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