California Assembly Advances Bill Allowing LA County Sales Tax Hike to Exceed State Cap

The California State Assembly on Thursday passed a bill that would allow Los Angeles County to place a sales tax increase on the ballot that exceeds the state’s legal cap, a critical legislative step for the controversial Measure ER. The bill, AB 1768, passed by a vote of 54-12 and was immediately sent to the state Senate for consideration. The measure is a direct response to the L.A. County Board of Supervisors' 4-1 vote in February to put the proposed tax hike before voters in the June primary election. Known as the Essential Services Restoration Act, Measure ER proposes a temporary half-percent sales tax increase over five years. If approved by voters, it would raise the county's sales tax rate from 9.75% to 10.25% in many areas, generating an estimated $1 billion annually to fund county health services. While proponents frame this as a necessary measure to fund essential healthcare, the reality for businesses is another layer of complexity and cost in an already challenging environment. For small and mid-sized companies, particularly in retail and hospitality, a sales tax increase directly impacts consumer purchasing power and adds to the administrative burden of compliance. Our experience shows that even marginal tax hikes can alter customer behavior and squeeze already thin profit margins. The designation of Measure ER as a “general tax” rather than a “special tax” is also a significant point of concern, as it means the nearly $1 billion in annual revenue flows into the county’s general fund with no legal requirement that it be spent on healthcare. This lack of specific earmarking creates uncertainty for business owners trying to plan for the future. C&S Finance Group LLC helps clients navigate these evolving local regulations through our tax preparation and compliance services, ensuring they remain compliant while understanding the financial impact. Business owners can learn more at csfinancegroup.com. Proponents, led by L.A. County Supervisor Holly Mitchell, argue the tax is urgently needed to address what they describe as significant cuts in federal funding for Medi-Cal, the state's Medicaid program. They contend these cuts will affect approximately 700,000 county residents who are losing full health insurance coverage. The revenue, they say, would backfill hospital and clinic budgets, preventing closures and ensuring continuity of care. The Community Clinic Association of Los Angeles County has called the measure an “urgent and necessary step,” and the L.A. County Department of Public Health has already cited funding losses for the recent closure of seven clinics. However, opponents dispute the characterization of the federal funding changes as “cuts.” Critics, including the Howard Jarvis Taxpayers Association, point out that the changes are primarily enforcement actions by the Centers for Medicare & Medicaid Services (CMS) to align with U.S. law, which restricts the use of federal Medicaid funds for non-emergency care for undocumented immigrants. They argue the state and county are seeking to raise local taxes to cover costs the federal government was never legally obligated to fund. Supervisor Kathryn Barger, the sole dissenting vote on the board, has voiced strong opposition, stating that L.A. County residents are already “stretched thin” by the highest sales tax rate of any major metropolitan region in the nation. This sentiment is shared by the L.A. County Taxpayers Association, which also raised concerns about the measure’s structure as a general tax, giving the Board of Supervisors broad discretion over how the funds are spent. California state law typically caps the total local sales tax rate at 2% above the statewide 7.25% rate. Because the proposed half-percent increase would push many areas in L.A. County over this limit, the county required a legislative workaround. Assemblyman Isaac Bryan introduced AB 1768 to provide a special statutory exemption. “The people of Los Angeles County are asking for the right to decide for themselves if they want to take care of their neighbors, and I think we should give them that right,” Bryan said on the Assembly floor before the vote. The proposed tax would be in effect from October 2026 through October 2031 and would not apply to essential purchases like groceries and prescription drugs. The campaign in support of Measure ER has received significant financial backing, with St. John’s Community Health contributing at least $4 million as of early April. With AB 1768 now before the state Senate, its passage remains the final legislative hurdle before voters decide the fate of Measure ER. The outcome will have significant financial implications for businesses and consumers across Los Angeles County for the next five years.