BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 533|
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UNFINISHED BUSINESS
Bill No: SB 533
Author: Pan (D)
Amended: 7/6/15
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
SENATE FLOOR: 25-11, 5/18/15
AYES: Allen, Beall, Block, Cannella, De León, Galgiani,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara,
Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,
Moorlach, Pan, Roth, Wieckowski, Wolk
NOES: Anderson, Bates, Fuller, Gaines, Huff, Morrell, Nguyen,
Nielsen, Runner, Stone, Vidak
NO VOTE RECORDED: Berryhill, Hall, Pavley
ASSEMBLY FLOOR: 55-22, 8/31/15 - See last page for vote
SUBJECT: Cities and counties: sales and use tax agreements
SOURCE: Author
DIGEST: This bill revises 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.
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Assembly Amendments provide an 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.
ANALYSIS:
Existing law:
1)Authorizes counties, under the Bradley-Burns law, to impose a
local sales and use tax of up to one percent on tangible
personal property sold at retail in the county, or purchased
outside the county for use in the county.
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
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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.
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
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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
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
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agreement by its governing body.
3)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.
4)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.
5)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."
6)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.
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
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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
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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Assembly Appropriations Committee, no impact to
state revenues; possible, though very likely minor, reimbursable
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state mandate costs to local agencies for providing required
notifications.
SUPPORT: (Verified8/31/15)
City of Emeryville
City of Oakland
City of San Diego
City of Cerritos
City of West Sacramento
League of California Cities
OPPOSITION: (Verified8/31/15)
County of San Bernardino
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."
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
choose to completely close down operations and move their
business to a new location which may or may not exist within the
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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."
ASSEMBLY FLOOR: 55-22, 8/31/15
AYES: Achadjian, Alejo, Baker, Bloom, Bonta, Burke, Calderon,
Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd,
Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández,
Holden, Irwin, Jones-Sawyer, Lackey, Levine, Linder, Lopez,
Low, Maienschein, McCarty, Medina, Mullin, Nazarian,
O'Donnell, Perea, Quirk, Rendon, Ridley-Thomas, Salas,
Santiago, Mark Stone, Thurmond, Ting, Waldron, Weber,
Williams, Wood, Atkins
NOES: Travis Allen, Bigelow, Brough, Brown, Chang, Chávez,
Dahle, Beth Gaines, Gallagher, Grove, Hadley, Harper, Jones,
Kim, Mathis, Mayes, Melendez, Obernolte, Olsen, Steinorth,
Wagner, Wilk
NO VOTE RECORDED: Bonilla, Patterson, Rodriguez
Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
8/31/15 19:58:19
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