BILL ANALYSIS Ó
SB 533
Page 1
Date of Hearing: July 1, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
SB
533 (Pan) - As Amended June 10, 2015
SENATE VOTE: 25-11
SUBJECT: Cities and counties: sales and use tax agreements.
SUMMARY: Revises and recasts existing law which prohibits a
local agency from entering into an agreement with a retailer
that would result in the payment of Bradley-Burns local tax
proceeds to a retailer if the agreement results in a reduction
of revenue that is received by another local agency.
Specifically, this bill:
1)Revises and recasts existing law which prohibits a local
agency from entering into any form of agreement with a
retailer that would involve the payment, transfer, or rebate
of any amount of Bradley-Burns local tax proceeds if the
agreement results in a reduction in the amount of revenue that
is received by another local agency from the same retailer if
it is located within that other local agency, and continues to
maintain a physical presence and location there.
2)Requires a local agency entering into an agreement that
results in a reduction of Bradley-Burns revenue that would be
SB 533
Page 2
received by another local agency in the absence of the
agreement to do the following:
a) Post the proposed agreement on its Internet Web site for
at least 30 days prior to ratification or approval of the
agreement by its governing body; and,
b) Notify the other local agency by certified mail
addressed to the attention of the chief executive officer
of that other local agency at least 60 days prior to
ratification or approval of the agreement by its governing
body.
3)Requires a local agency to post any agreement it has entered
into on its Internet Web site that results in a reduction of
Bradley-Burns revenue to another local agency, in the absence
of the agreement, including any agreements entered into prior
to January 1, 2016, that are still in effect.
4)Removes the following agreements exempted under existing law,
which therefore prohibits the following agreements:
a) A reduction in the use tax proceeds that are distributed
to a local agency through one or more countywide pools;
b) A retailer that expands its operations into another
jurisdiction with the result that the retailer is
conducting a comparable operation in both local agencies;
and,
c) Bradley-Burns local tax proceeds provided by a local
agency to a retailer if those proceeds are used to
SB 533
Page 3
reimburse the retailer for the construction of public works
improvements that serve all or a portion of the territorial
jurisdiction of the local agency; and,
d) Any agreement to pay or rebate any tax revenue resulting
from the imposition of a sales and use tax relating to a
buying company.
5)Maintains the exemption in current law for any agreement to
pay or rebate Bradley-Burns local use tax revenue relating to
a use tax direct payment permit.
6)Provides an additional exemption and specifies that this bill
does not apply to a local agency that has a mutual tax revenue
sharing agreement with each local agency that would be
affected by the form of the agreement prohibited under 1),
above.
7)Defines local agency to mean a chartered or general law city,
a chartered or general law county, or a city and county, of
this state.
8)Defines "person" pursuant to existing law to mean "any
individual, firm, partnership, joint venture, limited
liability company, association, social club, fraternal
organization, corporations, estate, trust, business trust,
receiver, assignee for the benefit of creditors, trustee,
trustee in bankruptcy, syndicate, the United States, this
state, any county, city and county, municipality, district, or
other political subdivision of the state, or any other group
or combination acting as a unit."
9)Provides that, if the Commission on State Mandates determines
SB 533
Page 4
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made, pursuant to current law governing state
mandated local costs.
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS:
1)Bradley-Burns Local Sales and Use Tax Law. The Bradley-Burns
Local Sales and Use Tax Law authorizes counties to impose a 1%
tax on the sales price of tangible personal property sold at
retail in the county, or purchased outside the county for use
in the county.
A city may impose a 0.75% sales and use tax which is credited
against the county's tax. The remainder of the county rate
(0.25%) is designated under current law for county
transportation purposes.
Bradley-Burns sales taxes are allocated on a "situs-based"
system meaning that the revenue is allocated to the city or
county that served as the place of sale in a transaction.
Generally, the place of sale is the retailer's sales location,
the place where the transaction occurred. The Bradley-Burns
tax revenues from sales within a city's limits are allocated
to that city and revenues from transactions occurring in a
county's unincorporated area are allocated to the county.
2)Fiscalization of Land Use. The distribution of Bradley-Burns
revenue based on the retailer's sales location gives local
governments the fiscal incentive to make land use decisions
that favor revenue-generating uses for land, as opposed to
land uses that may require extensive public services. Given
SB 533
Page 5
the greater importance of sales tax revenue as opposed to
other priorities, like affordable housing or open space and
agricultural lands, the fiscalization of land use has led
cities and counties to provide tax rebates in some cases in
order to attract new retail development. Evaluating Options
for Sales Tax Reform by Michael Coleman, author of the online
California Local Government Finance Almanac
(CaliforniaCityFinance.com), states "Current sales tax
incentive agreements in California rebate amounts ranging from
50% to 85% of sales tax revenues back to the corporations.
Today, experts familiar with the industry believe that between
15% to 20% of local Bradley-Burns sales taxes paid by
California consumers is diverted from local general funds back
to corporations; over $1 billion per year."
3)Prior Legislation. There have been several attempts in the
Legislature to address the issue of rebating sales tax and to
address retailers taking advantage of the ficalization of land
use. AB 178 (Torlakson), Chapter 462, Statutes of 1999,
required a community that uses financial incentives to lure a
big-box retailer or auto dealer from a neighboring community
to offer the other community a contract apportioning the sales
taxes generated by the business between the two jurisdictions.
The provisions of AB 178 were replaced by tougher
restrictions, with the enactment of SB 114 (Torlakson),
Chapter 781, Statutes of 2003. SB 114 prohibited a community
from providing any form of financial assistance to a vehicle
dealer or big-box retailer relocating from a neighboring
community within the same county.
4)Existing Law and Bill Summary. SB 27 (Hancock), Chapter 4,
Statues of 2009, sought to prohibit cities or counties from
using Bradley-Burns sales tax rebates as an incentive to draw
sales tax-generating activities away from other communities.
SB 27 prohibits a local agency from entering into any form of
agreement or taking any actions that would result in the
payment, transfer, diversion, or rebate of any amount of
SB 533
Page 6
Bradley-Burns local tax proceeds to any person or for any
purpose if the agreement results in a substantial reduction in
the amount of tax proceeds received by another local agency
from a retailer within that other local agency and when the
retailer continues to maintain a physical presence and
location within that other agency. This bill revises and
recasts the prohibition on a local agency from entering into
those agreements, beginning on January 1, 2016; however, it
also removes several exemptions put in place by SB 27.
This bill removes the exemptions for the following agreements
in current law: a) A reduction in the use tax proceeds that
are distributed to a local agency through one or more county
pools; b) 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; c) Bradley-Burns local tax proceeds provided by a
local agency to a retailer if the 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 the local agency; and,
d) An agreement to pay or rebate any tax revenue relating to a
buying company.
This bill maintains an exemption for any agreement by a local
agency to pay or rebate any use tax revenue relating to a use
tax direct payment permit. Additionally, this bill does not
apply to a local agency that has a mutual tax revenue sharing
agreement with each local agency that would be affected by the
form of agreement prohibited by this bill.
Under this bill, a local agency must post online any
agreements it has entered into that results in a reduction of
the amount of revenue under Bradley-Burns that, in the absence
of the agreement, would be received by another local agency,
including any agreements entered into prior to January 1,
SB 533
Page 7
2016. Additionally, with any new agreement the local agency
must comply with posting requirements and notification
requirements.
This bill is sponsored by the City of West Sacramento.
5)Author's Statement. 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 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 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."
6)Policy Consideration. The Committee may wish to consider the
following:
SB 533
Page 8
a) Mutual Tax Revenue Sharing Agreement. A retail
establishment may straddle a border with sales being made
in more than one jurisdiction in which case the neighboring
jurisdictions may agree to divide the sales tax proceeds by
entering into a mutual agreement. This bill provides an
exemption for a local agency that has a mutual tax revenue
sharing agreement with each local agency that would be
affected by the form of the agreement prohibited by this
bill. The Committee may wish to consider, given the
practical need for a tax revenue sharing agreement, if this
exemption needs to be clarified to specify that this mutual
tax sharing agreement does not include a retailer. This
clarification would ensure that this exemption will not
provide another loophole and allow the types of practices
the author and proponents are trying to prevent.
b) Systemic Issue. The Committee may wish to consider that
this bill maintains the situs-based sales tax allocation
system for local governments, and therefore, does not
adequately address the underlying problems with the
fiscalization of land use.
7)Arguments in Support. The City of West Sacramento argues that
current law "attempts to limit abusive sales tax agreements.
However, fiscally predatory jurisdictions and a growing
cottage industry of consultants dedicated to helping them
still seek loopholes. SB 533 would remove the current
exclusion for businesses that have 'expanded their operations
into another jurisdiction with the result that the retailer is
conducting a comparable operation within the jurisdiction of
both agencies' an essentially meaningless qualifier that
mostly serves to facilitate the very types of agreements the
law is intended to preclude."
8)Arguments in Opposition. San Bernardino County argues, "If SB
SB 533
Page 9
533 were to pass, business owners who are prohibited from
receiving economic incentives to expand operations outside of
the original jurisdiction to other areas of the state, may
choose to completely close down operations and move their
business to a new location which may or may not exist within
the boundaries of California. The bill prohibits normal
incentives, designed to encourage local businesses to expand
and upgrade, so they can generate additional tax revenue and
jobs for the local community. The bill has the potential to
bring lawsuits against cities and counties, from other
jurisdictions claiming revenue losses. SB 533 would cause
tremendous complications and uncertainty for legitimate
economic development."
9)Double-Referral. This bill is double-referred to the Revenue
and Taxation Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
City of West Sacramento [SPONSOR]
City of Cerritos
City of San Diego
League of California Cities
SB 533
Page 10
Opposition
San Bernardino County
Analysis Prepared by:Misa Lennox / L. GOV. / (916)
319-3958