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Schwarzenegger Declares Fiscal Emergency, Potential Sales Tax Increase Worries Retailers

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Clearly, things are not going so well in California with the whole $28-billion budget gap. Shwarzenegger declared fiscal emergency earlier this week, noting, per the LAT that "California is on track to run out of cash by February or March." Further, "He said that if lawmakers fail to act within 45 days as required under his declaration of a fiscal emergency, they will have to find an additional $1.5 billion to $2 billion in savings or new revenue above what is needed right now."

Per WWD, included in the proposed tax hikes is "a 1.5 percent increase in the sales levy to 8.75 percent for three years." The fashion trade reports that though Shwarzenegger is backed by the California Retailers Association (the "lobbying arm of the state’s retail industry") and even retailers/designers such as Max Azria, it makes others very nervous in an already ailing economy. Some reactions from the report after the jump:

Mark Werts, Owner of American Rag Cie: 'With higher sales taxes, 'Californians will suddenly shop in Nevada or another tax-free or lower-tax state.'"

Lisa Kline, Owner of Lisa Kline: “'You can just sense the fear in L.A., and the last couple of months have been worse than ever,'...noting a sales tax hike could further damage independent retailers already hurt by the recession."

Peter Kim, President/CEO of Hudson Jeans: "...uncertain about the impact of a higher sales tax...he vehemently increase in the business tax...'As we’re looking at our business, we have to cut and be as efficient and tight as possible...We’re doing that. The government should be doing that.'”

· Schwarzenegger declares fiscal emergency [LAT]
· Industry Forecast Grim as California Crisis Worsens [WWD, subscription req]