LA County Is Collecting Its New Sales Tax Today. It Can't Spend Any of It Yet.
Los Angeles County's new sales tax is live as of today. Every taxable purchase in LA County is subject to the new 10.25% combined rate — up from 9.75% before October 1.
But there's a twist that makes this one of the most unusual sales tax situations in the country right now.
The county is collecting the tax. The county cannot spend a single dollar of it.
As NBC Los Angeles reported this morning, after the Libertarian Party of LA County filed a lawsuit challenging the law that authorized the tax, LA County will not be able to spend the funds generated by the sales tax increase while the legal challenge is pending. State law requires the revenue to remain in an escrow account until the case is resolved. The litigation could take two years or longer to resolve.
Consumers paying the higher rate starting today are funding an escrow account — not the healthcare services the measure was designed to support.
What the Lawsuit Actually Challenges
The Libertarian Party of LA County's lawsuit doesn't challenge Measure ER directly — it challenges the state law that made Measure ER possible.
As Parriva's analysis of the LA County sales tax situation confirmed, the Libertarian Party filed a lawsuit challenging the constitutionality of Assembly Bill 1768 — the state law that allowed the County to exceed the otherwise applicable local sales tax limit. Without AB 1768, LA County's combined rate couldn't have gone above a statutory ceiling. The lawsuit argues AB 1768 itself is unconstitutional — which would invalidate Measure ER entirely regardless of how voters voted in June.
LA County officials were direct in their response. In a statement published to the county's official website, the county called the legal challenge meritless and said it will strip the County's most vulnerable patients of life-saving care and do irreparable damage to the regional healthcare system. The county's position is that the lawsuit has no legal merit and will ultimately be resolved in the county's favor.
But the escrow requirement kicks in regardless of the county's confidence in its legal position. State law is clear: while the challenge is pending, the revenue sits.
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What This Means for Healthcare in LA County
The financial stakes of the escrow situation are significant — and immediate.
Measure ER was designed to generate approximately $1 billion annually to offset federal healthcare funding cuts. Under the spending plan, 45% would go directly to community health clinics, 22% to LA Health Services — the county's public health system — and the remainder to other health and human services.
LA Health Services alone is expected to lose over $700 million in federal and state revenues by 2028. The county's Director of Health Services, Dr. Christina Ghaly, was direct about what the lawsuit means in practice: the legal challenge will prohibit the distribution of sales tax revenue to hospitals, clinics, and County health departments who provide the County's most vulnerable residents with life-saving access to healthcare.
Healthcare providers that had already begun planning around Measure ER revenue now face uncertainty about when — or whether — those funds will arrive. Clinics serving more than 150,000 patients across Southern California have already seen the effects of federal healthcare cuts and were counting on Measure ER to fill the gap.
What Happens If the Lawsuit Succeeds
If the Libertarian Party prevails and AB 1768 is ruled unconstitutional, Measure ER is invalidated — and the escrow account gets refunded.
As the county confirmed, if the tax is ruled invalid based on the legal challenge, the state will administer refunds to consumers. Every dollar collected since October 1 at the new 0.5% rate would be returned.
That scenario — while still contingent on the lawsuit's outcome — creates a specific compliance consideration for businesses. A refund administered by the state to consumers is a different process from a rate change. Retailers wouldn't need to retroactively adjust their own filings if the refund goes directly to consumers — but businesses should monitor the case outcome closely for any guidance from the CDTFA on how to handle the accounting.
The Current Rate Picture for LA County
Regardless of the lawsuit outcome, the rate you collect today is 10.25% for the unincorporated county and most incorporated cities — with higher rates in cities that have their own additional local taxes.
As confirmed by the CDTFA's L-1037 October 2026 rate bulletin, the combined rate changes effective October 1 in LA County include the countywide base moving from 9.75% to 10.25% — and many cities going higher. Santa Monica is now at 11.25%. Several cities in the Azusa and Baldwin Park area are now at 11.25% as well. West Hollywood moved from 10.5% to 11%.
The rate is in effect. Businesses collect it. The county holds it. Courts decide what happens next.
The Broader Context — A Pattern Across California
LA County's Measure ER lawsuit is one of multiple active legal challenges to California local sales tax measures in 2026.
We covered earlier this year how Contra Costa County's Measure B failed outright at the ballot box. Fargo's infrastructure tax passed with 73% support. Charleston County's transportation measure faces a November vote. The political and legal landscape around local sales tax measures is more contested than it's been in years — driven by voter fatigue, high existing combined rates, and organized opposition from groups who see recurring local measures as an end-run around broader anti-tax sentiment.
The Libertarian Party's AB 1768 challenge is the most significant of the active California cases because it targets the enabling state legislation rather than the specific measure — meaning a successful challenge could affect not just Measure ER but any similar measure authorized under the same state law.
For businesses selling into LA County — collect at 10.25%. For consumers in LA County — you're paying the new rate. For the $1 billion in projected annual healthcare funding — it waits in escrow while the lawyers work.
We covered the full compliance picture for LA County's October 1 rate change in our LA County Measure ER compliance guide and our October 1 sales tax changes roundup.
Not sure how to handle LA County's current rate situation — or concerned about how a potential Measure ER refund would affect your compliance accounting? Book a free consultation with our team at sales.tax. We'll walk through your specific situation and keep you updated as the lawsuit develops.
This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified sales tax professional for guidance specific to your business.
What this means for your business
If your sales into California have grown with prices, you may have crossed the economic nexus threshold without changing anything about how you sell. We’ll tell you where you stand in 30 minutes — and if there’s nothing to fix, we’ll say so.