Ask around Los Angeles and you’ll find people who drive to Orange County for an expensive purchase. A Hermès bag. Jewelry. A watch.
The explanation they give is simple: tax.
The gap just got wider
From July through September 2026, the sales tax in Los Angeles and Beverly Hills was 9.75%. On October 1, 2026, it rises to 10.25%, after Los Angeles County voters approved Measure ER, a half-cent countywide tax for health services. In Newport Beach, Costa Mesa and Irvine, the rate stays at 7.75%.
Two and a half percentage points sounds small. Now apply it to a luxury purchase:
| Purchase | Tax in LA (10.25%) | Tax in Irvine (7.75%) | Difference |
|---|---|---|---|
| $10,000 | $1,025 | $775 | $250 |
| $25,000 | $2,563 | $1,938 | $625 |
| $50,000 | $5,125 | $3,875 | $1,250 |
Now the drive looks different. Run your own numbers in the calculator.
What the research says about shoppers
Economists have repeatedly found that consumers change shopping behavior in response to sales-tax differences. A study of more than 150,000 households (Baker, Johnson and Kueng, 2021) found people stock up on storable goods before tax increases and shift toward online and cross-border shopping afterward. The authors are careful to add that, in aggregate, the long-run effect is quantitatively small. Most spending doesn’t move.
Big purchases are different. When states began requiring Amazon to collect sales tax, households cut their Amazon purchases by about 9.4% overall — and by about 29% for large purchases. Most people won’t drive 45 minutes to save $2 on toothpaste. A $30,000 watch is another matter.
The California twist
Here’s what the drive-to-Irvine story leaves out. Buying in Orange County does not legally make the Los Angeles tax difference disappear.
California pairs each district sales tax with a matching district use tax. Under state regulations, when you buy something at a lower district rate for use at home in a higher-rate district, you owe the difference, with credit for the district tax you already paid. If the store didn’t collect it, the buyer is responsible for reporting it. For an LA resident, a $25,000 handbag bought in Costa Mesa and carried home carries a $625 use-tax liability.
The loopholes people imagine are mostly closed:
- Cars, boats and aircraft are taxed at the rate where they’re registered, collected by the dealer.
- Shipping doesn’t help: any retailer with more than $500,000 in California sales collects your home district’s rate on deliveries.
- Reporting: the income-tax return’s estimated use-tax table only covers individual purchases under $1,000. A handbag above that is reported at its actual price.
This is not a “here’s how to avoid tax” story. It’s a story about incentives.
Where the sale lands
Even when tax law eventually reconciles the difference, the consumer still decides where to shop. And that decision matters.
A customer eating lunch in Costa Mesa while buying a handbag there is not shopping on Rodeo Drive. The Orange County store records the transaction. Its staff earns the commission. Nearby restaurants get the lunch.
And the city gets paid. Of the 7.25% statewide base rate, 1% goes to the city or county where the sale is made. That local share stays in Orange County even if the shopper later pays Los Angeles its district use tax.
California’s Legislative Analyst has described how this gives cities significant fiscal incentives to compete for retail. In 2023-24, cities and counties paid about $140 million in sales-tax rebates to businesses, mostly to distribution centers and fuel suppliers. (For balance: the same office found little evidence for the stronger claim that this competition makes cities build less housing.)
How much can you tax an activity before it moves?
This produces a useful policy paradox. A county raises its sales tax because it wants more revenue. For purchases that can’t easily move — groceries are exempt, gasoline is bought where you drive, services happen where you live — that works.
But the more expensive and portable the purchase, and the closer the shopper is to a lower-tax jurisdiction, the easier substitution becomes. People buying expensive, portable items have the most to gain. At some point the higher rate doesn’t just collect more from the same behavior. It changes the behavior.
The answer isn’t zero. Counties need revenue, and public services cost money. The evidence says sales taxes remain a relatively efficient way to raise it.
But taxes should never be analyzed only by multiplying today’s transactions by tomorrow’s tax rate.
People aren’t cells in a spreadsheet. They respond.
The Zesht box
Follow the incentive
- What behavior does this reward?
- Buying expensive, portable items in lower-rate cities or online, and buying before a rate increase takes effect. For cities, attracting retail sales.
- What does it discourage?
- Big-ticket shopping in the highest-rate cities (Santa Monica and Culver City reach 11.25% on October 1, 2026) — and voluntary reporting of use tax, since compliance cancels the saving.
- What becomes more expensive?
- Everything bought and used inside Los Angeles County, which rises 0.5 points on October 1, 2026.
- What becomes scarcer?
- Retail sales, and the 1% local tax share that comes with them, in the highest-rate jurisdictions — to the extent buyers move.
- Who receives the benefit?
- The lower-rate city where the sale is made, its retailers and nearby businesses; and the district of use, if the buyer reports the use tax.
- Who ultimately pays?
- Shoppers who can't easily move their purchases, and compliant buyers who report use tax. Residents of high-rate cities, if their retail base erodes.
- What happens when people have another option?
- People take it at the margin: across borders, online, or by buying early. Where the law gives no option, as with vehicle registration, the rate follows the buyer home.
Goal → mechanism → result
The scorecard
- 1The goal
- Raise local revenue for voter-chosen services — transit, homelessness, health care — by adding district taxes on top of the 7.25% statewide base.
- 2The mechanism
- A sales tax at the place of sale, backed by a matching district use tax at the place of use so buyers can't avoid a district's tax by shopping elsewhere. Separately, 1% of every sale goes to the city where it happens.
- 3The incentive
- Buyers have a reason to shop in lower-rate places, especially for expensive, portable items. Cities have a reason to attract retail because they keep the local share of every sale.
- 4The observed result
- Research finds real but modest shifts: more cross-border and online shopping after increases, and much larger responses for big purchases (a 29% drop in large Amazon purchases once Amazon collected tax).
- 5The unintended consequences
- Compliance depends on buyers self-reporting use tax; cities compete for where sales are booked (about $140 million in sales-tax rebates in 2023-24) rather than creating new activity.
- 6What supporters say
- District taxes fund priorities voters chose; most purchases aren't worth a trip, groceries are exempt, and the use-tax rule closes the loophole on paper.
- 7What critics say
- Each increase widens the gap with neighbors and pushes big-ticket and online purchases elsewhere; self-reported use tax is weakly enforced; stacked sales taxes fall hardest on lower-income households.
- 8What the evidence actually shows
- Consumers respond to sales-tax differences in timing, online and cross-border shopping, and large purchases, but the long-run aggregate effect is small enough that economists still consider sales taxes relatively efficient.
- 9What remains uncertain
- How many LA residents actually shop in Orange County to avoid tax, how many report use tax afterward, and how the wider 2.5-point gap will affect where luxury retailers locate.
Questions people ask
What is the sales tax rate in Los Angeles in October 2026?
Starting October 1, 2026, the rate in the City of Los Angeles, Beverly Hills and unincorporated Los Angeles County is 10.25%, up from 9.75%, because voters approved Measure ER, a 0.5% countywide tax. Cities with their own add-ons are higher: Santa Monica and Culver City reach 11.25%.
Is it cheaper to buy in Orange County?
At the register, yes: Newport Beach, Costa Mesa and Irvine charge 7.75%, which is 2.5 points less than Los Angeles from October 1, 2026 ($250 on a $10,000 purchase). But if you buy the item to use at home in a higher-rate district, California law says you owe the difference as district use tax, less the district tax you already paid.
Who has to pay district use tax, and how?
If the retailer didn't collect it, the purchaser does. It can be reported on the California income tax return or on a CDTFA one-time use-tax return. The estimated use-tax table only covers individual non-business purchases under $1,000, so larger items must be reported at their actual price.
Can I buy a car in Orange County to save on sales tax?
Generally no. For vehicles, vessels and aircraft, the dealer must collect the district tax for the address where the item is registered, so a car registered in Los Angeles is taxed at the Los Angeles rate.
Sources
- California City & County Sales & Use Tax Rates
- Tax Rates Effective October 1, 2026 (spreadsheet)
- Special Notice L-1037: New Sales and Use Tax Rates Effective October 1, 2026
- Publication 44: Sales Across District Lines
- Publication 44: District Taxes
- Publication 44: Reporting and Paying California Use Tax
- Regulation 1823: Application of Transactions (Sales) Tax and Use Tax
- Shopping for Lower Sales Tax Rates
- Can Taxes Shape an Industry? Evidence from the Implementation of the "Amazon Tax"
- Sales Taxes and Internet Commerce
- Understanding California's Sales Tax
- Local Sales Tax Rebates in 2023-24
- Common Claims About Proposition 13
- Measure ER: What you need to know about the sales tax hike in LA County
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