California Department of Resources Recycling and Recovery (CalRecycle) 

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Taxable Sales Deflator Index Frequently Asked Questions

What is the Taxable Sales Deflator Index (TSDI)?

California Board of Equalization’s (BOE) Taxable Sales Deflator (TSD) is a measure of change in prices of goods and services subject to California Sales and Use Tax. TSD may be used to adjust taxable sales for inflation, and is reported as the percent change in prices for consecutive years, such as 2003 to 2004. The California Department of Resources Recycling and Recovery (CalRecycle) converts TSD to an index (TSDI) that may be used to measure change in prices for non-consecutive years, such as 2000 to 2004. In September 2005, CalRecycle directed staff to accept TSDI as an alternative to California Consumer Price Index (CPI).

What is the difference between TSDI and CPI?

There are several differences between the two indexes. Two major differences are:

  • CPI measures inflation in prices of goods and services purchased only by consumers, excluding government and business purchases. TSDI includes government and business purchases.
  • TSDI covers only those goods and services subject to California Sales and Use Tax, but CPI covers all goods and services, including non-taxable transactions such as housing, medical care, education, and communication services.

In recent years, prices of many non-taxable items such as housing have dramatically increased compared to prices of many taxable items in California.[1] Figure 1 shows the growth in CPI and TSDI since 1985.

Figure 1. California Consumer Price Index (CPI) vs. Taxable Sales Deflator Index (TSDI), 1985-2004 (1985=100)

California Consumer Price Index (CPI) vs Taxable Sales Deflator Index Chart

How does TSDI impact diversion rate estimates?

CPI or TSDI may be used in the CalRecycle-approved Adjustment Method to adjust taxable sales for inflation.

As shown in Table 1, a higher rate of inflation results in a lower percentage change in taxable sales, and, therefore, a lower diversion rate estimate.

Since TSDI measures a significantly lower rate of inflation than CPI, using TSDI instead of CPI increases most jurisdiction diversion rate estimates. In a very few instances, there is no impact on the diversion rate estimate; no jurisdictions are negatively impacted by use of TSDI.

Table 1. Sample TSDI impact on a jurisdiction diversion rate estimate:

Inflation
Factor
1990-2004 Inflation Rate
(% Change in Inflation
Factor)
1990-2004 Taxable Sales
Growth, Adjusted for
Inflation

2004 Diversion
Rate Estimate
CPI 45% 21% 54%
TSDI 9% 61% 60%

For a more detailed explanation of the CalRecycle-approved Adjustment Method, including how inflation is used in the formula, go to Adjustment Method Factors.

[1] Economic Perspective: Summary of Recent Economic Developments, pp. 2-4, “California Taxable Sales Deflator Shows Low Inflation,” February 2004, State Board of Equalization.

TSDI Home

Last updated: January 17, 2007
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