BILL ANALYSIS Ó
SB 533
Page 1
SENATE THIRD READING
SB
533 (Pan)
As Amended July 6, 2015
Majority vote
SENATE VOTE: 25-11
------------------------------------------------------------------
|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Local |9-0 |Maienschein, | |
|Government | |Gonzalez, Alejo, | |
| | |Chiu, Cooley, Gordon, | |
| | |Holden, Linder, | |
| | |Waldron | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |5-3 |Ting, Dababneh, |Brough, Patterson, |
|Taxation | |Gipson, Mullin, Quirk |Wagner |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |12-4 |Gomez, Bloom, Bonta, |Bigelow, Gallagher, |
| | |Calderon, Daly, |Jones, Wagner |
| | |Eggman, Eduardo | |
| | |Garcia, Holden, | |
| | |Quirk, Rendon, Weber, | |
| | |Wood | |
SB 533
Page 2
| | | | |
| | | | |
------------------------------------------------------------------
SUMMARY: Revises and recasts existing law which prohibits a
local agency from entering into an agreement that would result
in the payment, transfer, diversion, or rebate 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
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.
SB 533
Page 3
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
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.
SB 533
Page 4
6)Provides an additional exemption and specifies that this bill
does not apply to a mutual tax revenue sharing agreement
between local agencies to pay, transfer, or divert
Bradley-Burns tax revenues that would be received by a local
agency where the agreement would not result, directly or
indirectly, in the payment, transfer, diversion, or rebate of
tax revenues to a retailer.
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
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 Assembly Appropriations
Committee, no impact to state revenues; possible, though very
likely minor, reimbursable state mandate costs to local agencies
for providing required notifications.
SB 533
Page 5
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
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
SB 533
Page 6
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
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.
SB 533
Page 7
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 not result in
payment of tax revenues to a retailer.
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,
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
SB 533
Page 8
to book all sales from multiple sites with that local agency.
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."
6)Policy Consideration. The Legislature 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
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
SB 533
Page 9
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."
Analysis Prepared by:
Misa Lennox / L. GOV. / (916) 319-3958 FN:
0001392