BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 27|
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THIRD READING
Bill No: SB 27
Author: Hancock (D)
Amended: 2/23/09
Vote: 27 - Urgency
SENATE LOCAL GOVERNMENT COMMITTEE : 5-0, 3/4/09
AYES: Wiggins, Cox, Aanestad, Kehoe, Wolk
SUBJECT : Local agencies: sales and use tax:
reallocation
SOURCE : Author
DIGEST : This bill prohibits a city, county, or city and
county, on or after the bills effective date, from entering
into any form of agreement or taking any action that
results, 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 (1) 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
(2) the retailer continues to maintain a physical presence
and location within that other local agency.
ANALYSIS : The Bradley-Burns Local Sales and Use Tax Law
authorizes counties to impose a one percent 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. Cities can impose a 0.75 percent sales and use tax
CONTINUED
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which is credited against the county's tax. The remainder
of the county rate (0.25 percent) is earmarked for county
transportation purposes.
Except for sales of jet fuel, Bradley-Burns sales taxes
must be allocated, on a "situs" basis, to the place of
business of the retailer. Generally, this is the place
where the transaction occurs. However, if a seller has
more than one place of business and the sales and delivery
of a product occur at separate locations, Board of
Equalization regulations require that the sales be
allocated to the site of the principal sales negotiations.
This is usually the company's sales office.
The situs-based system for allocating sales tax revenues
leads to competition among cities and counties to attract
land uses that generate local revenues and shun land uses
that need expensive public services. This "fiscalization
of land use" distorts local land use decisions by
emphasizing tax revenues, but discounting traffic, air
quality, open space, and affordable housing.
This bill prohibits a city, county, or city and county, on
or after the bill's effective date, from entering into any
form of agreement or taking any action that results,
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:
1. 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.
2. The retailer continues to maintain a physical presence
and location within that other local agency.
This bill also specifies that its provisions do not apply
to:
1. A reduction in use tax proceeds that are distributed to
a local agency through one or more countywide pools.
2. A retailer that expands its operations into another
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jurisdiction with the result that the retailer is
conducting a comparable operation in both local
agencies.
3. 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.
4. Any agreement to pay or rebate Bradley-Burns local tax
revenue relating to a "buying company," as defined in
specified statutes and regulations.
5. Any agreement to pay or rebate Bradley-Burns local use
tax revenue relating to a use tax direct payment permit.
Comments
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.
Local agencies cannot give financial assistance to a big
box retailer or vehicle dealership that relocates from
another local agency within the same market area [SB 114
(Torlakson), Chapter 781, Statutes of 2003]. However,
local officials continue to engage in other forms of
competition involving sales taxes. For example, a county
or city can offer a sales tax rebate to a business to
consolidate all of its California sales offices into that
county or city. The Cities of Livermore, Industry, and San
Diego are losing millions of dollars in Bradley-Burns sales
tax revenues because a major retailer in those cities
consolidated its sales activities into the City of
Fillmore. Under an agreement between the City of Fillmore
and a private consulting firm, the firm receives 85 percent
of the Bradley-Burns revenues that are attributable to a
retailer that works with the firm to relocate sales offices
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into Fillmore. In turn, the majority of the 85 percent
gets rebated to the relocated retailer.
Livermore and Industry city officials want 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.
This bill imposes a narrowly-tailored prohibition on the
use of Bradley-Burns tax rebates. This bill allows
Bradley-Burns rebates in the case of a legitimate business
expansion into a new community, and to help pay for the
costs of beneficial infrastructure, while preventing the
kind of relocation scheme that victimized the Cities of
Livermore, Industry, and San Diego.
Sales office consolidation schemes are a manifestation of
the aggressive competition for sales tax dollars that local
officials engage in as a result of the situs-based sales
tax allocation system. The Legislative Analyst's Office
(LAO) recently suggested replacing situs-based allocation
with a population based allocation system to reduce
incentives for local governments to use their economic
development powers to promote retail developments. The LAO
also suggested that replacing local government sales tax
revenues with a different tax base could achieve similar
results.
Prior legislation . This bill is nearly identical to AB 697
(Hancock, 2008), which Governor Schwarzenegger vetoed,
saying that the bill was not a high priority.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 3/5/09)
American Federation of State, County, and Municipal
Employees
California Narcotics Officers Association
California Peace Officers Association
California Police Chiefs Association
California Professional Firefighters
California State Association of Counties
City of Industry
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City of Livermore
League of California Cities
Livermore Police Officers Association.
Livermore-Pleasanton Firefighters Local 1974
MuniServices
AGB:mw 3/5/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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