BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 533|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 533
Author: Pan (D)
Introduced:2/26/15
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 6-1, 4/22/15
AYES: Hertzberg, Beall, Hernandez, Lara, Moorlach, Pavley
NOES: Nguyen
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Cities and counties: sales and use tax agreements
SOURCE: Author
DIGEST: This bill prohibits a local agency from entering into
an agreement that would result in the payment of Bradley-Burns
tax proceeds to a retailer if the agreement results in a
reduction in revenue that is received by another local agency.
ANALYSIS:
Existing law:
1)Authorizes counties, under the Bradley-Burns law, to impose a
local sales and use tax of up to 1 percent on tangible
personal property sold at retail in the county, or purchased
outside the county for use in the county.
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Page 2
2)Specifies the "place of sale" for purposes of the local sales
tax. In general, all retail sales in California are
consummated at the place of business of the retailer. If a
retailer has only one place of business in California, the
local sales tax derived from sales consummated at that place
of business is transmitted to the city, county, or city and
county in which the retailer's place of business is located.
If a retailer has more than one place of business in the
State, the Board of Equalization regulation specifies that the
sale occurs at the place of business where the principal
negotiations are carried on.
3)Specifies that out of state retailers that negotiate sales
outside of California, allocate the local tax in one of two
ways. If the out of state retailer is engaged in business in
this state, the local tax is allocated to the location of the
retailer's in-state location. If the out of state retailer is
not engaged in business in this state, the local tax is
allocated to the location of the headquarters of the
California based business the retailer has contracted with.
4)Prohibits a local agency from entering into an agreement that
results in the payment, transfer, diversion, or rebate of any
Bradley-Burns local tax proceeds, when the agreement results
in a reduction of Bradley-Burns tax proceeds received by
another local agency from a retailer, and that retailer
continues to maintain a physical presence within the
jurisdiction of the originating local agency. The prohibition
does not apply to certain agreements related to:
A retailer that expands its operations into another
jurisdiction with the result that the retailer is
conducting a comparable operation within the jurisdiction
of both local agencies.
A reduction in the use tax proceeds that are distributed
to the originating local agency through one or more
countywide pools.
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Any agreement to pay or rebate Bradley-Burns local tax
revenue related to a buying company, which is defined as a
legal entity that is separate from another legal entity
that owns, controls, or is otherwise related to, the buying
company and which has been created for the purpose of
performing administrative functions, including acquiring
goods and services for the other entity, as defined in
specified Revenue and Taxation Code (RTC) statutes and
regulations.
Any agreement to pay or rebate any local use tax revenue
related to a use tax direct payment permit issued under RTC
7051.3.
Bradley-Burns tax proceeds provided by a local agency to
a retailer if those proceeds are used to reimburse the
retailer for the construction of public works improvements
that serve all or a portion of the territorial jurisdiction
of that local agency.
This bill:
1)Prohibits a local agency, on or after the bill's effective
date, from entering into any form of agreement or taking any
action that would result, directly or indirectly, in the
payment, transfer, diversion or rebate of any amount of
Bradley-Burns local tax proceeds to any person, for any
purpose, when:
The agreement results in a substantial reduction in the
amount of Bradley-Burns tax proceeds received by another
local agency from a retailer within that other local
agency; and,
The retailer continues to maintain a physical presence
and location within that other local agency.
1)Does not apply to taxpayers with a "use tax direct payment
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Page 4
permit" and to local agencies entering into agreements with
other local agencies.
2)Requires local governments to post online any agreements it
has entered into that results in a reduction of the amount of
revenue under the Bradley-Burns Uniform Local Sales and Use
Tax Law that, in the absence of the agreement, would be
received by another local agency, including any agreements
entered into prior to the effective date of this section that
are still in effect: A local government entering into a new
agreement must post the agreement online as well as notify the
other local agency by certified mail addressed to the
attention of the chief executive of that other local agency at
least 60 days prior to ratification or approval of that
agreement by its governing body.
Background
Allocating Bradley-Burns sales taxes at the place of sale leads
to competition among cities and counties to attract land uses
that generate local revenues. This "fiscalization of land use"
distorts local land use decisions by emphasizing tax revenues,
but discounts traffic, air quality, open space, and affordable
housing.
Some large retailers take advantage of the fiscalization of land
use to play one community against others. They ask local
officials to give them subsidies so they can relocate, moving
their sales tax revenues from a "sending" community to a
"receiving" community. The receiving community gets new
revenue, but spends some of it on the retailer; the subsidy to
the retailer lowers its costs; and the sending community suffers
the revenue loss.
SB 27 (Hancock, Chapter 4, Statutes of 2009) sought to remedy
the fiscalization of land use by prohibiting a local agency from
entering into an agreement that results in the payment,
transfer, diversion, or rebate of any Bradley-Burns local tax
proceeds, when the agreement results in a reduction of
Bradley-Burns tax proceeds received by another local agency from
a retailer, and that retailer continues to maintain a physical
presence within the jurisdiction of the originating local
agency. However, exceptions to the above prohibition have
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Page 5
allowed the practice to continue.
Despite the passage of SB 27 in 2009, local officials continue
to engage in competition involving sales taxes. For example, a
county or city can offer a sales tax rebate to a business that
consolidates all of its California sales into that county or
city by opening a buying company in that jurisdiction. Cities
like West Sacramento no longer receive tax dollars they had once
relied upon. Much like the problem a sales office created that
lead to SB 27 (Hancock, 2009), buying companies are
consolidating statewide sales all in one location.
The City of West Sacramento wants the Legislature to prohibit
counties or cities from entering into similar Bradley-Burns
sales tax rebate agreements that draw sales tax revenues away
from other communities.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified5/5/15)
City of West Sacramento
OPPOSITION: (Verified5/5/15)
None received
ARGUMENTS IN SUPPORT: According to the author, "It is
becoming increasingly common practice for companies to pressure
local agencies to provide a sales tax revenue rebate on the
promise to book all sales from multiple sites with that local
agency. There is a growing cottage industry of consultants who
appear to specialize in helping companies pursue this strategy.
This practice is fundamentally unfair. When the sales tax
revenue from commercial activity in one jurisdiction is booked
in another, the local agency that is losing the sales tax
revenue must continue to provide police and fire protection
services to the company since it maintains a physical presence
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within the territory of the local agency, and the local agency
streets and other services are used and must be maintained.
Making this practice even more nefarious, this is often done
without the knowledge of the citizens, businesses and employees
within the jurisdiction of the local agency agreeing to the
'deal' and without any notice to the local agency that is losing
sales tax revenue as a result of the agreement. It is
significant to note that many of these sales tax rebate deals
result in sales tax revenue leaving the State of California and
going to corporations in other states. Yet, California local
agencies are still responsible for providing the police and fire
protections services and maintaining the roads and other
infrastructure needs for these companies."
Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
5/6/15 16:16:25
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