BILL ANALYSIS Ó SB 533 Page 1 Date of Hearing: August 19, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair SB 533 (Pan) - As Amended July 6, 2015 ----------------------------------------------------------------- |Policy |Local Government |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | |Revenue and Taxation | |5 - 3 | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: Yes SUMMARY: This bill repeals and replaces the statutory prohibition on local agencies entering into agreements that result in the payment, transfer, diversion, or rebate of sales and use tax revenues under the Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns), prohibiting agreements that reduce the Bradley-Burns revenues that another local agency would receive absent the agreement when a retailer continues to maintain a SB 533 Page 2 physical presence within that other local agency. The bill specifies the prohibition does not apply to mutual tax revenue sharing agreements among local agencies where the agreement does not result in payment of revenues to a retailer, and certain other narrow exceptions. The bill further requires a local agency entering into an agreement that would reduce the Bradley-Burns revenues received by another local agency to notify the affected local agency 60 days prior to ratification and post the proposed agreement to its website 30 days prior to ratification, as well as post to its website any other agreements that reduce the Bradley-Burns revenues another local agency would receive absent the agreement, including agreements entered into before January 1, 2016 that remain in effect. FISCAL EFFECT: No impact to state revenues; possible, though very likely minor, reimbursable state mandate costs to local agencies for providing required notifications. COMMENTS: 1)Purpose. According to the author and sponsor, this bill eliminates the current exception for retailers that have expanded operations into another jurisdiction and conduct comparable operations there. The author and sponsor contend this exception allows local agencies to agree with retailers to rebate the retailers' sales tax if the retailers agree to book sales tax in the new local agencies' jurisdiction, thereby depriving the retailers' original local agency of sales tax revenue. SB 533 Page 3 The sponsor, the City of West Sacramento, recently experienced a significant decrease in sales tax revenue from a local business as a result of such an agreement. Supporters argue this change is necessary to maintain the sales tax revenue that funds the infrastructure and services needed to support those retail operations, and to provide transparency to local agencies and taxpayers with respect to future agreements . 2)Diverting the Tax Stream. Bradley-Burns sales taxes are allocated among local agencies based on the place of sale of taxable transactions. The Revenue and Tax Code specifies the "place of sale" for purposes of local sales tax is the place of business of the retailer. Regulations adopted by the Board of Equalization specify that for retailers with more than one place of business in the state, the place of sale for any given transaction is the location where the "principal negotiations are conducted." The distribution of Bradley-Burns revenue based on the place of sale gives local agencies an incentive to make land use decisions that favor revenue-generating uses for land. With the increasing importance of sales tax revenue relative to property tax revenue following the enactment of Proposition 13, local agencies may seek strategic solutions to boost sales tax revenues, and sales tax rebate agreements to attract retail have become popular. Michael Coleman, a local government finance commentator, estimates those incentive agreements rebate 50-85% of sales tax revenue to corporations. Statewide, an estimated average of 15-20% of aggregate Bradley-Burns sales tax revenues are rebated to corporations. 3)Opposition. San Bernardino County argues SB 533 unnecessarily prohibits legitimate economic incentives that can be used to encourage local businesses to expand and upgrade, generating net tax revenue and jobs for local communities. The county SB 533 Page 4 believes the bill has the potential to encourage lawsuits against local agencies from other agencies claiming revenue losses, leading to complications and uncertainty over future economic development. Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081