Source: Bloomberg
California cities that give retailers millions of dollars in sales tax revenue in exchange for the companies assigning online sales to them, boosting their share of local tax money, would be required to disclose how much they’re giving away under a newly introduced bill.
Assembly Revenue and Taxation Committee chair Jacqui Irwin (D) introduced A.B. 2854 targeting the tax-sharing agreements late Monday, the second bill on the topic that lawmakers will consider this year after one introduced last month in the state Senate. The bills would apply to a few dozen cities that have agreements with some of the world’s largest retailers, including Apple Inc., Best Buy Co., and Walmart.com.
Both bills stem from a state law that sends a 1 percentage point increment of the statewide 7.25% sales tax to the local government where a transaction takes place, not where the customer is located. Some cities have leveraged their tax revenue to cut deals with retailers to assign in-state online sales to those cities based on the presence of a warehouse or sales office. In return, the cities give a share—typically half—of the resulting sales tax revenue back to the companies. Sometimes the cities also give a portion of the annual proceeds to consultants and lawyers who broker the deals.
Irwin wants increased transparency into these agreements because it is unclear how many cities have them or how much money they give to the companies each year. But the deals’ existence concentrates sales tax revenue in a handful of cities at the expense of hundreds of others that don’t have such arrangements, creating tension between the haves and have-nots.
“The informational hearing I organized last fall on this topic underscored the need for additional information at both the state and local levels so that policymakers can make thoughtful decisions that are based on comprehensive data, not just anecdotes,” Irwin said in a written statement.
Bloomberg Tax investigations into some of the agreements found that Apple has received $107.7 million from its hometown Cupertino, eBay Inc. has received more than $97 million from its home base of San Jose, Walmart.com has received more than $15 million from San Bruno tied to an e-commerce office, Best Buy Co. Inc. has received $49.3 million from Dinuba tied to a warehouse, and Williams-Sonoma Inc. has received $58.7 million from Shafter tied to a call center.
Irwin’s bill would apply to city agreements with retailers, as well as with other types of businesses like cement manufacturers, car dealerships, and commercial vehicle fueling stations. The cities would be required to tell the California Department of Tax and Fee Administration how much money they give to the companies annually, as well as how much they give to consultants who broker the deals. They would tell the state the terms of their agreements, such as the percentage of total sales tax revenue they give to the companies and for how many years.
If the cities fail to provide the information, they would be fined 20% of the amount the companies get.
The other measure, introduced by Sen. Steve Glazer(D) in February (S.B. 1494), would ban the agreements starting retroactively on Jan. 1, 2024 and require existing agreements to end by 2030. The existing deals typically last for decades, and some don’t expire until the 2050s.
The proposals come as the tax department has increased scrutiny of the deals, leading to disputes with several cities that could require them to give back millions of dollars they have received and drastically reduce the amount of revenue they receive going forward. The disputes hinge on whether the retailers can show they actually participated at the local facilities in the transactions they assigned to the jurisdictions—a condition the department says is necessary.
The League of California Cities has endorsed a plan to limit the deals, but the group isn’t close to agreeing on changing the underlying rules that give rise to the deals in the first place, and broad changes would require approval from lawmakers or voters. Irwin and Glazer are moving ahead with legislation in the absence of a legislative proposal this year from the league.
To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloombergindustry.com
To contact the editor responsible for this story: Benjamin Freed at bfreed@bloombergindustry.com
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