UNFINISHED BUSINESS  

Bill No: SB 1349

Author: Glazer (D)

Amended: 8/24/20

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 3-2, 5/21/20

AYES: McGuire, Beall, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Hertzberg, Hurtado

SENATE GOVERNANCE & FIN. COMMITTEE: 4-2, 6/3/20

AYES: McGuire, Hertzberg, Hurtado, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Beall

SENATE FLOOR: 27-11, 6/11/20

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Wieckowski, Wiener

NOES: Bates, Borgeas, Chang, Dahle, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen, Wilk

NO VOTE RECORDED: Hurtado, Umberg

ASSEMBLY FLOOR: Not available

SUBJECT: Transactions and use taxes: County of Contra Costa

SOURCE: Author

DIGEST:

This bill permits Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local transactions and use taxes.

Assembly Amendments

remove sections of the bill that provided that the current 0.5% Contra Costa County Transportation Tax, and a potential future 0.5% Contra Costa County Transportation Tax, do not count against the 2% cap.

ANALYSIS:

Existing law:

1. Imposes the sales tax on every retailer engaged in business in this state that sells tangible personal property, and requires them to collect the appropriate tax from the purchase and remit the amount to the California Department of Tax and Fee Administration.
2. Applies whenever a retail sale is made, which is basically any sale other than one for resale in the regular course of business.
3. Provides that unless the person pays the sales tax to the retailer, he or she is liable for the use tax, which is imposed on any person consuming tangible personal property in the state. The use tax rate is the same rate as the sales tax rate, and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.
4. Levies the sales and use tax at a current rate of 7.25%.
5. States that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (California Constitution, Article XIII C).
6. Allows cities, counties, and specified special districts, including the San Francisco Bay Area Rapid Transit District, to increase the sales and use tax applied within their jurisdictions, also known as district or transactions and use taxes, for either specific or general purposes pursuant to the California Constitution’s voter approval requirements.
7. Caps the maximum district tax rate at 2% within a county; however, allows several exceptions from the cap for the Cities of El Cerrito and Santa Fe Springs, San Mateo County, Sonoma County (and any city in Sonoma County), the Transportation Agency for Monterey County, and the Los Angeles Metropolitan Transportation Authority, among others.
8. Authorizes the County of Alameda and the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% outside the 2% cap (AB 210, Wieckowski, Chapter 194, Statutes of 2013, and AB 1665, Bonilla, Chapter 45, Statutes of 2016).
9. Permits the City of El Cerrito in Contra Costa County to impose a 0.5% district tax within its boundaries exempt from the cap (AB 1324, Skinner, Chapter 795, Statutes of 2014).
10. Provides that neither the district tax imposed by the San Francisco Bay Area Rapid Transit (BART) nor the 0.5% authorized by AB 310 in Alameda County count toward the 2% cap in Alameda County (AB 723, Quirk, Chapter 747, Statutes of 2019).

This bill:

1. Provides that the current 0.5% district tax imposed by BART does not count against the 2% cap in Contra Costa County.
2. Clarifies that AB 210’s and AB 1665’s specific authority for the Contra Costa County Transportation Authority does not count against the cap in Contra Costa County.
3. Makes a legislative finding stating that a statute specific to Contra Costa County is necessary.

Background

Contra Costa County has two countywide district taxes, a 0.5% rate applicable to all counties within the BART District, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap; however, the County has not imposed a tax using this authority.

The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap, for a total rate of 9.75%. 16 other cities in the county also impose district taxes. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it imposed it only in the unincorporated area, which the Legislature authorized in 2014 (AB 2119, Stone, Chapter 148, Statutes of 2014).

Last year, the Legislature approved, but the Governor vetoed AB 618 (Stone), which permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a tax of up to 0.25% that exceeds the 2% cap. The veto message stated that it was unclear whether authorization was needed because both had room within the cap to impose the tax. In response, the Legislature enacted AB 723 (Quirk), which provided that neither the tax imposed by BART nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County. Instead of explicitly allowing tax above the cap, AB 723 created more room under it for Alameda County, and cities in Alameda and Santa Cruz counties to impose district taxes. SB 1349 is consistent with the approach in AB 723 to create room under the existing 2% cap by providing that its tax does not county toward the cap in Contra Costa County.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/30/20)

California Labor Federation

California Professional Firefighters

California Teamsters Public Affairs Council

City of Concord

City of Danville

City of Lafayette

City of Orinda

City of Pittsburg

City of San Ramon

Contra Costa County

Contra Costa Transportation Authority

International Federation of Professional and Technical Engineers, Local 21

Office and Professional Employees International Union, Local 29

SEIU California

OPPOSITION: (Verified 8/30/20)

Alliance of Contra Costa Taxpayers

Bay Area Transportation Working Group

California Taxpayers Association

Contra Costa County Taxpayers Association

Howard Jarvis Taxpayers Association

Transportation Solutions Defense and Education Fund

ARGUMENTS IN SUPPORT: According to the author, “SB 1349 would allow the county of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs.”

ARGUMENTS IN OPPOSITION: According to the Howard Jarvis Taxpayers Association, “In the years following, a number of municipalities have sought legislative authorization to increase their sales tax rates above this common-sense threshold. SB 1349 would allow Contra Costa County to authorize a maximum sales tax of up to 0.5%, thus exceeding the two percent threshold. Because the bill solely addresses transportation projects, the sales tax increase would require a two-thirds local vote of county residents to be approved. Sales taxes are especially regressive and tend to disproportionately increase expenses for low income residents. Also, California has the highest sales tax in the nation. Considering that 70 percent of the nation’s economic output hinges on the buying and selling of consumer goods, communities should be mindful of the economic impact of asking the Legislature to approve even more taxes. This is especially true in the midst of the COVID-19 pandemic where both state and local governments have experienced drastic declines in sales tax revenue. Finally, increasing taxes across multiple jurisdictions makes tax compliance more difficult for retailers and increases the likelihood of picking winners and losers in the private sector economy.”

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

8/31/20 0:54:12

**** END ****

SENATE THIRD READING

STR Bill Id:SB 1349

Author:(Glazer)

As Amended Ver:August 24, 2020

Majority vote

SUMMARY:

Authorizes additional flexibility for Contra Costa County, and the cities within Contra Costa County, to impose local transactions and use taxes (TUTs).

Major Provisions

This bill provides that the current 0.5% TUT imposed by the Bay Area Rapid Transit District (BART), does not count against the 2% cap. This bill also specifies that the ability of the Contra Costa County Transportation Authority to impose a .05% TUT does not count against the cap.

COMMENTS:

Transactions and Use Taxes. Existing law authorizes cities and counties to impose TUTs in 0.125% increments, in addition to the state's 7.25% sales tax, provided that the combined rate in the county does not exceed 2%. TUTs are taxes imposed on the total retail price of any tangible personal property and the use or storage of such property when sales tax is not paid. These types of taxes may be levied as general taxes (majority vote required), which are unrestricted, or special taxes (two-thirds vote required), which are restricted for a specified use.

Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or TUTs. As of April 1, 2020, 325 local agencies impose their own TUTs: 62 are imposed countywide, 261 citywide, two solely in unincorporated areas, and two across multiple counties. State law caps the total rate for any county at 2%, with exceptions for a number of cities and other local agencies.

Contra Costa County. Contra Costa County has two countywide taxes: a 0.5% rate applicable to all counties within the BART, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap [AB 210 (Wieckowski), Chapter 194, Statutes of 2013, and AB 1665 (Bonilla), Chapter 45, Statutes of 2016]; however, the County has not imposed a tax using this authority.

The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap [AB 1324 (Skinner), Chapter 795, Statutes of 2014], for a total rate of 9.75%. 16 other cities in the county also impose taxes at lower rates. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it is imposed only in the unincorporated area, which the Legislature authorized by AB 2119 (Stone), Chapter 148, Statutes of 2014.

According to the Author:

"SB 1349 would allow the County of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs."

Arguments in Support:

The California Professional Firefighters argues that, "Transaction and use taxes, as currently defined, are important funding sources for counties for a variety of purposes, including but not limited to infrastructure maintenance for roads, public transit, and other transit items. These taxes are limited so that the combined total of all transaction and use taxes in a single county may not exceed 2%, with stricter limitations placed on specific taxes within the county. However, for some counties with complex transit systems and needs for not only the county residents but those that commute into or through, overlapping tax measures to pay for those systems can limit the ability of the county to fund their own infrastructure needs.

"SB 1349 permits Contra Costa County, and cities within Contra Costa County, additional flexibility to impose local transactions and use taxes. This flexibility is achieved for Contra Costa County by removing the currently imposed BART tax and other county transportation taxes from the 2% countywide cap, similar to what was previously done for Alameda and Santa Cruz Counties…

"Our local affiliates depend upon local governments to invest in their communities. While maintenance of county streets, highways, and public transportation is critical for public safety, the County must have the flexibility to exercise its taxing authority in order to adequately fund its fire department. Firefighters dedicate their lives to serving the public and the resulting revenues, should the additional half cent tax be imposed, will provide critical support for fire and EMS services."

Arguments in Opposition:

The Howard Jarvis Taxpayers Association (HJTA) argues, "Despite the fact that SB 1349 abides by existing voter approval requirements set forth in the California Constitution, HJTA must oppose this bill as we have opposed other similar tax authorization bills over the last decade. Sales taxes are especially regressive and tend to disproportionately increase expenses for low income residents. Also, California has the highest sales tax in the nation. Considering that 70 percent of the nation's economic output hinges on the buying and selling of consumer goods, communities should be mindful of the economic impact of asking the Legislature to approve even more taxes. This is especially true in the midst of the COVID-19 pandemic where both state and local governments have experienced drastic declines in sales tax revenue.

"Finally, increasing taxes across multiple jurisdictions makes tax compliance more difficult for retailers and increases the likelihood of picking winners and losers in the private sector economy. The Bradley Burns two percent sales tax rate has remained unchanged since 1955 because it provides important economic consistency. There is no reason for the Legislature to continue to exempt municipalities from it."

FISCAL COMMENTS:

None.

VOTES:

SENATE FLOOR: 27-11-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Wieckowski, Wiener

NO: Bates, Borgeas, Chang, Dahle, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen, Wilk

ABS, ABST OR NV: Hurtado, Umberg

ASM LOCAL GOVERNMENT: 5-3-0

YES: Aguiar-Curry, Bloom, Ramos, Luz Rivas, Robert Rivas

NO: Lackey, Boerner Horvath, Voepel

UPDATED:

VERSION: August 24, 2020

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0003281

SENATE THIRD READING

STR Bill Id:SB 1349

Author:(Glazer)

As Amended Ver:April 8, 2020

Majority vote

SUMMARY:

Authorizes additional flexibility for Contra Costa County, and the cities within Contra Costa County, to impose local transactions and use taxes (TUTs).

Major Provisions

This bill provides that the current 0.5% TUT imposed by Bay Area Rapid Transit District (BART), the current 0.5% Contra Costa County Transportation Tax, and a potential future 0.5% Contra Costa County Transportation Tax, does not count against the 2% cap. The bill clarifies that a previous specific authority for the Contra Costa County Transportation Authority does not count against the cap either. The measure also authorizes Contra Costa County to impose a new countywide TUT of up to 0.5% that is also exempt from the cap, so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law.

COMMENTS:

Transactions and Use Taxes. Existing law authorizes cities and counties to impose TUTs in 0.125% increments, in addition to the state's 7.25% sales tax, provided that the combined rate in the county does not exceed 2%. TUTs are taxes imposed on the total retail price of any tangible personal property and the use or storage of such property when sales tax is not paid. These types of taxes may be levied as general taxes (majority vote required), which are unrestricted, or special taxes (two-thirds vote required), which are restricted for a specified use.

Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or TUTs. As of April 1, 2020, 325 local agencies impose their own TUTs: 62 are imposed countywide, 261 citywide, two solely in unincorporated areas, and two across multiple counties. State law caps the total rate for any county at 2%, with exceptions for a number of cities and other local agencies.

Contra Costa County. Contra Costa County has two countywide taxes: a 0.5% rate applicable to all counties within the BART, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap [AB 210 (Wieckowski), Chapter 210, Statutes of 2013, and AB 1665 (Bonilla), Chapter 45, Statutes of 2016]; however, the County has not imposed a tax using this authority.

The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap [AB 1324 (Skinner), Chapter 795, Statutes of 2014], for a total rate of 9.75%. 16 other cities in the county also impose taxes at lower rates. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it is imposed only in the unincorporated area, which the Legislature authorized by AB 2119 (Stone), Chapter 148, Statutes of 2014.

According to the Author:

"SB 1349 would allow the County of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs."

Arguments in Support:

The California Professional Firefighters argues that, "Transaction and use taxes, as currently defined, are important funding sources for counties for a variety of purposes, including but not limited to infrastructure maintenance for roads, public transit, and other transit items. These taxes are limited so that the combined total of all transaction and use taxes in a single county may not exceed 2%, with stricter limitations placed on specific taxes within the county. However, for some counties with complex transit systems and needs for not only the county residents but those that commute into or through, overlapping tax measures to pay for those systems can limit the ability of the county to fund their own infrastructure needs.

"SB 1349 permits Contra Costa County, and cities within Contra Costa County, additional flexibility to impose local transactions and use taxes. This flexibility is achieved for Contra Costa County by removing the currently imposed BART tax and other county transportation taxes from the 2% countywide cap, similar to what was previously done for Alameda and Santa Cruz Counties. The bill also provides Contra Costa County explicit authority to impose a new 0.5% tax that would not count towards the 2% cap so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law.

"Our local affiliates depend upon local governments to invest in their communities. While maintenance of county streets, highways, and public transportation is critical for public safety, the County must have the flexibility to exercise its taxing authority in order to adequately fund its fire department. Firefighters dedicate their lives to serving the public and the resulting revenues, should the additional half cent tax be imposed, will provide critical support for fire and EMS services."

Arguments in Opposition:

The Howard Jarvis Taxpayers Association (HJTA) argues, "Despite the fact that SB 1349 abides by existing voter approval requirements set forth in the California Constitution, HJTA must oppose this bill as we have opposed other similar tax authorization bills over the last decade. Sales taxes are especially regressive and tend to disproportionately increase expenses for low income residents. Also, California has the highest sales tax in the nation. Considering that 70 percent of the nation's economic output hinges on the buying and selling of consumer goods, communities should be mindful of the economic impact of asking the Legislature to approve even more taxes. This is especially true in the midst of the COVID-19 pandemic where both state and local governments have experienced drastic declines in sales tax revenue.

"Finally, increasing taxes across multiple jurisdictions makes tax compliance more difficult for retailers and increases the likelihood of picking winners and losers in the private sector economy. The Bradley Burns two percent sales tax rate has remained unchanged since 1955 because it provides important economic consistency. There is no reason for the Legislature to continue to exempt municipalities from it."

FISCAL COMMENTS:

None.

VOTES:

SENATE FLOOR: 27-11-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Wieckowski, Wiener

NO: Bates, Borgeas, Chang, Dahle, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen, Wilk

ABS, ABST OR NV: Hurtado, Umberg

ASM LOCAL GOVERNMENT: 5-3-0

YES: Aguiar-Curry, Bloom, Ramos, Luz Rivas, Robert Rivas

NO: Lackey, Boerner Horvath, Voepel

UPDATED:

VERSION: April 8, 2020

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0003188

Date of Hearing: August 11, 2020

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

SBPCA Bill Id:SB 1349

Author:(Glazer) – As Amended Ver:April 8, 2020

SENATE VOTE: 27-11

SUBJECT: Transactions and use taxes: County of Contra Costa.

SUMMARY: Authorizes additional flexibility for Contra Costa County, and the cities within Contra Costa County, to impose local transactions and use taxes (TUTs). Specifically, this bill:

1. Provides that the existing TUT imposed in Contra Costa County by the Bay Area Rapid Transit District (BART) shall not be considered for purposes of the 2% cap.
2. Specifies that the current, and any potential future, Contra Costa County Transportation Tax shall not be considered for purposes of the 2% cap.
3. Clarifies that an additional authority previously granted to the Contra Costa Transportation Authority to impose a TUT at a rate of no more than 0.5% shall not be considered for the purposes of the 2% cap.
4. Authorizes Contra Costa County to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than 0.5% that would, in combination with all of the taxes imposed, exceed the 2% cap, if all of the following requirements are met:
   1. The County adopts an ordinance proposing the TUT by any applicable voting requirement;
   2. The ordinance proposing the TUT is submitted to the electorate and is approved by the voters voting on the ordinance in accordance with Article XIII C of the California Constitution; and,
   3. The TUT conforms with TUT law.
5. Clarifies that a TUT imposed pursuant to 4), above, shall not be considered for the purposes of the 2% cap.
6. Finds and declares that a special statute is necessary and that a general statute cannot be made because of the unique pressures being experienced in Contra Costa County.

FISCAL EFFECT: None

COMMENTS:

1. Bill Summary. This bill provides that the current 0.5% TUT imposed by BART, the current 0.5% Contra Costa County Transportation Tax, and a potential future 0.5% Contra Costa County Transportation Tax, does not count against the 2% cap. The bill clarifies that a previous specific authority for the Contra Costa County Transportation Authority does not count against the cap either. The measure also authorizes Contra Costa County to impose a new countywide TUT of up to 0.5% that is also exempt from the cap, so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law. This bill is sponsored by the author.
2. Author’s Statement. According to the author, “SB 1349 would allow the County of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs.”
   
3. Transactions and Use Taxes. Existing law authorizes cities and counties to impose TUTs in 0.125% increments, in addition to the state's 7.25% sales tax, provided that the combined rate in the county does not exceed 2%. TUTs are taxes imposed on the total retail price of any tangible personal property and the use or storage of such property when sales tax is not paid. These types of taxes may be levied as general taxes (majority vote required), which are unrestricted, or special taxes (two-thirds vote required), which are restricted for a specified use.

Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or TUTs. As of April 1, 2020,
325 local agencies impose their own TUTs: 62 are imposed countywide, 261 citywide, two solely in unincorporated areas, and two across multiple counties. State law caps the total rate for any county at 2%, with exceptions for a number of cities and other local agencies.

1. Contra Costa County. Contra Costa County has two countywide taxes: a 0.5% rate applicable to all counties within the BART, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature
   has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap [AB 210 (Wieckowski), Chapter 210, Statutes of 2013, and AB 1665 (Bonilla), Chapter 45, Statutes
   of 2016]; however, the County has not imposed a tax using this authority.

The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap [AB 1324 (Skinner), Chapter 795, Statutes of 2014], for a total rate of 9.75%. 16 other cities in the county also impose taxes at lower rates. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it is imposed only in the unincorporated area, which the Legislature authorized by AB 2119 (Stone), Chapter 148, Statutes of 2014.

1. Policy Considerations. The Committee may wish to consider the following:
   1. New Standard? The Legislature has often authorized individual local agencies to increase their TUT above the 2% cap on a case-by-case basis that gives the Legislature oversight. One of the most recent attempts, AB 618 (Stone) from last year, would have allowed the cities of Scotts Valley and Emeryville to adopt an ordinance proposing the imposition of a TUT that exceeds the 2% statutory limitation. While consistent with past measures that were routinely signed into law, AB 618 was vetoed by the Governor.

Last year, by exempting certain existing TUTs imposed by BART, Santa Cruz County Metropolitan Transit District, and specific TUTs in Alameda County from the 2% cap, AB 723 (Quirk), Chapter 747, Statutes of 2019, presented an alternate approach that allows any local agency that has the ability to levy or increase a TUT to do so until the 2% cap is once again reached in affected counties. This bill continues this approach, and future jurisdictions will likely seek the same treatment for their county’s transportation taxes. The Committee may wish to consider whether the unintended consequences of such a policy might create competition among local agencies in tax measures absent the Legislature’s oversight.

• 1. No Guarantees. By exempting specific existing countywide TUTs from the 2% cap, room under the cap will be increased. However, this bill does not designate specific local agencies that can increase a TUT, essentially creating a renewed free-for-all, race to the ballot to fill that newly created space. This means that each city within a county, or the county itself, can place TUT measures on the ballot until the 2% countywide cap is reached. One benefit of identifying specific local agencies is assurance that a local agency will have a decent opportunity to submit a tax increase to the voters and for the voters to approve it. For example, if the City of Antioch submits a TUT increase to its voters and the measure fails, SB 1349 does not preclude a competing countywide tax measure in Contra Costa County from being passed, potentially preventing Antioch or other cities within Contra Costa County from any future TUT increases. The Committee may wish to consider how the approach in this bill will dictate winners and losers as local agencies compete to raise local revenue.

1. Arguments in Support. The California Professional Firefighters argues that, “Transaction and use taxes, as currently defined, are important funding sources for counties for a variety of purposes, including but not limited to infrastructure maintenance for roads, public transit, and other transit items. These taxes are limited so that the combined total of all transaction and use taxes in a single county may not exceed 2%, with stricter limitations placed on specific taxes within the county. However, for some counties with complex transit systems and needs for not only the county residents but those that commute into or through, overlapping tax measures to pay for those systems can limit the ability of the county to fund their own infrastructure needs.

“SB 1349 permits Contra Costa County, and cities within Contra Costa County, additional flexibility to impose local transactions and use taxes. This flexibility is achieved for Contra Costa County by removing the currently imposed BART tax and other county transportation taxes from the 2% countywide cap, similar to what was previously done for Alameda and Santa Cruz Counties. The bill also provides Contra Costa County explicit authority to impose a new 0.5% tax that would not count towards the 2% cap so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law.

“Our local affiliates depend upon local governments to invest in their communities. While maintenance of county streets, highways, and public transportation is critical for public safety, the County must have the flexibility to exercise its taxing authority in order to adequately fund its fire department. Firefighters dedicate their lives to serving the public and the resulting revenues, should the additional half cent tax be imposed, will provide critical support for fire and EMS services.”

1. Arguments in Opposition. The Howard Jarvis Taxpayers Association (HJTA) argues,
   “The Bradley Burns Sales and Use Tax Act, established in 1956, set a uniform sales tax rate for local governments of no more than two percent. In the years following, a number of municipalities have sought legislative authorization to increase their sales tax rates above this common-sense threshold. SB 1349 would allow Contra Costa County to authorize a maximum sales tax of up to 0.5 percent, thus exceeding the two percent threshold. Because the bill solely addresses transportation projects, the sales tax increase would require a two-thirds local vote of county residents to be approved.

“Despite the fact that SB 1349 abides by existing voter approval requirements set forth in the California Constitution, HJTA must oppose this bill as we have opposed other similar tax authorization bills over the last decade. Sales taxes are especially regressive and tend to disproportionately increase expenses for low income residents. Also, California has the highest sales tax in the nation. Considering that 70 percent of the nation’s economic output hinges on the buying and selling of consumer goods, communities should be mindful of the economic impact of asking the Legislature to approve even more taxes. This is especially true in the midst of the COVID-19 pandemic where both state and local governments have experienced drastic declines in sales tax revenue.

“Finally, increasing taxes across multiple jurisdictions makes tax compliance more difficult for retailers and increases the likelihood of picking winners and losers in the private sector economy. The Bradley Burns two percent sales tax rate has remained unchanged since 1955 because it provides important economic consistency. There is no reason for the Legislature to continue to exempt municipalities from it.”

REGISTERED SUPPORT / OPPOSITION:

Support

California Labor Federation, AFL-CIO

California Professional Firefighters

California Teamsters Public Affairs Council

Cities of Concord, Lafayette, Orinda, and Pittsburg

Contra Costa County

Contra Costa Transportation Authority

International Federation of Professional and Technical Employees, Local 21

Office & Professional Employees International Union, Local 29, AFL-CIO

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Service Employees International Union (SEIU), California
Town of Danville

Opposition

Alameda County Taxpayers Association

California Taxpayers Association

Contra Costa Taxpayers Association

Howard Jarvis Taxpayers Association

Transportation Solutions Defense and Education Fund

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958

 THIRD READING  

Bill No: SB 1349

Author: Glazer (D)

Amended: 4/8/20

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 3-2, 5/21/20 (FAIL)

AYES: McGuire, Beall, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Hertzberg, Hurtado

SENATE GOVERNANCE & FIN. COMMITTEE: 4-2, 6/3/20

AYES: McGuire, Hertzberg, Hurtado, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Beall

SUBJECT: Transactions and use taxes: County of Contra Costa

SOURCE: Author

DIGEST:

This bill permits Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local transactions and use taxes.

ANALYSIS:

Existing law:

1. Imposes the sales tax on every retailer engaged in business in this state that sells tangible personal property, and requires them to collect the appropriate tax from the purchase and remit the amount to the California Department of Tax and Fee Administration.
2. Applies whenever a retail sale is made, which is basically any sale other than one for resale in the regular course of business.
3. Provides that unless the person pays the sales tax to the retailer, he or she is liable for the use tax, which is imposed on any person consuming tangible personal property in the state. The use tax rate is the same rate as the sales tax rate, and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.
4. Levies the sales and use tax at a current rate of 7.25%.
5. States that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (California Constitution, Article XIII C).
6. Allows cities, counties, and specified special districts, including the San Francisco Bay Area Rapid Transit District and the Contra Costa County Transportation Authority, to increase the sales and use tax applied within their jurisdictions, also known as district or transactions and use taxes, for either specific or general purposes pursuant to the California Constitution’s voter approval requirements.
7. Caps the maximum district tax rate at 2% within a county; however, allows several exceptions from the cap for the Cities of El Cerrito and Santa Fe Springs, San Mateo County, Sonoma County (and any city in Sonoma County), the Transportation Agency for Monterey County, and the Los Angeles Metropolitan Transportation Authority, among others.
8. Authorizes the County of Alameda and the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% outside the 2% cap (AB 210, Wieckowski, Chapter 194, Statutes of 2013, and AB 1665, Bonilla, Chapter 45, Statutes of 2016).
9. Permits the City of El Cerrito in Contra Costa County to impose a 0.5% district tax within its boundaries exempt from the cap (AB 1324, Skinner, Chapter 795, Statutes of 2014).
10. Provides that neither the district tax imposed by the San Francisco Bay Area Rapid Transit (BART) nor the 0.5% authorized by AB 310 in Alameda County count toward the 2% cap in Alameda County (AB 723, Quirk, Chapter 747, Statutes of 2019).

This bill:

1. Provides that the current 0.5% district tax imposed by BART, the current 0.5% Contra Costa County Transportation Tax, and a potential future 0.5% Contra Costa County Transportation Tax, do not count against the 2% cap in Contra Costa County.
2. Clarifies that AB 210’s and AB 1665’s specific authority for the Contra Costa County Transportation Authority do not count against the cap in Contra Costa County.
3. Authorizes Contra Costa County to impose a new countywide district tax up to 0.5% exempt from the cap, so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law.
4. Makes a legislative finding stating that a statute specific to Contra Costa County is necessary.

Background

Contra Costa County has two countywide district taxes, a 0.5% rate applicable to all counties within the BART District, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap; however, the County has not imposed a tax using this authority.

The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap, for a total rate of 9.75%. 16 other cities in the county also impose district taxes. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it imposed it only in the unincorporated area, which the Legislature authorized in 2014 (AB 2119, Stone, Chapter 148, Statutes of 2014).

Last year, the Legislature approved, but the Governor vetoed AB 618 (Stone), which permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a tax of up to 0.25% that exceeds the 2% cap. The veto message stated that it was unclear whether authorization was needed because both had room within the cap to impose the tax. In response, the Legislature enacted AB 723 (Quirk), which provided that neither the tax imposed by BART nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County. Instead of explicitly allowing tax above the cap, AB 723 created more room under it for Alameda County, and cities in Alameda and Santa Cruz counties to impose district taxes.

SB 1349 builds on AB 723’s approach to state that existing transportation taxes in Contra Costa County do not count toward the 2% cap, which clears 1% of total room under the countywide cap. However, this method comes with risks that do not apply when taxes are explicitly exempted from the cap. For example, the County of Contra Costa as well as any city in Contra Costa County could use SB 1349 to impose a tax of up to 1%; however, the County imposing a tax at 1% would preclude any city in Contra Costa County from also doing so. The reverse would also be true – any city in Contra Costa County that imposed a tax of 1% would again crowd out the County, unless the county used the other authority in the bill to impose a tax explicitly exempted from the cap.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/4/20)

California Labor Federation

California Professional Firefighters

California Teamsters Public Affairs Council

City of Concord

City of Danville

City of Lafayette

City of Pittsburg

City of San Ramon

Contra Costa County

Contra Costa Transportation Authority

International Federation of Professional and Technical Engineers, Local 21

Office and Professional Employees International Union, Local 29

SEIU California

OPPOSITION: (Verified 6/4/20)

Alliance of Contra Costa Taxpayers

California Taxpayers Association

Contra Costa County Taxpayers Association

Howard Jarvis Taxpayers Association

Transportation Solutions Defense and Education Fund

ARGUMENTS IN SUPPORT: According to the author, “SB 1349 would allow the county of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs.”

ARGUMENTS IN OPPOSITION: According to the Howard Jarvis Taxpayers Association, “In the years following, a number of municipalities have sought legislative authorization to increase their sales tax rates above this common-sense threshold. SB 1349 would allow Contra Costa County to authorize a maximum sales tax of up to 0.5%, thus exceeding the two percent threshold. Because the bill solely addresses transportation projects, the sales tax increase would require a two-thirds local vote of county residents to be approved. Sales taxes are especially regressive and tend to disproportionately increase expenses for low income residents. Also, California has the highest sales tax in the nation. Considering that 70 percent of the nation’s economic output hinges on the buying and selling of consumer goods, communities should be mindful of the economic impact of asking the Legislature to approve even more taxes. This is especially true in the midst of the COVID-19 pandemic where both state and local governments have experienced drastic declines in sales tax revenue. Finally, increasing taxes across multiple jurisdictions makes tax compliance more difficult for retailers and increases the likelihood of picking winners and losers in the private sector economy.”

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

6/5/20 11:56:16

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Transactions and use taxes: County of Contra Costa

Permits Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local transactions and use taxes.

Background

Sales and Use Taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect the appropriate tax at purchase and remit the amount to CDFTA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and also like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

District Taxes. The California Constitution states that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (Article XIII C). Proposition 13 (1978) required a 2/3 vote of each house of the Legislature for state tax increases, and 2/3 vote for local special taxes. Proposition 62 (1986) prohibited local agencies from imposing general taxes without majority approval of local voters, and a 2/3 vote for special taxes. Proposition 218 (1996) extended those vote thresholds to charter cities, and limited local agencies’ powers to levy new assessments, fees, and taxes. Local agencies generally propose to increase taxes by adopting an ordinance or a resolution at a public hearing.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or transactions and use taxes. County transportation authorities also have general authority to impose a district tax up to 1% for county streets and highway projects or public transit projects, so long as the transportation commission approves an ordinance, which voters subsequently approve. Additionally, the Bay Area Rapid Transit District (BART) has its own legal authority to impose a transactions and use tax of 0.5%. This 0.5% tax currently applies in Alameda, Contra Costa, and San Francisco Counties. As of April 1, 2020, 325 local agencies impose their own district taxes: 62 are imposed countywide, 261 citywide, two solely in unincorporated areas, and two across multiple counties.

State law caps the total rate for any county, including transportation taxes at 2%. However, the Legislature has allowed several cities, counties, county transportation authorities, and transit districts to impose taxes above the 2% cap, including the Cities of Alameda, Berkeley, Emeryville and Santa Fe Springs; Alameda and Santa Clara Counties, among others; the Peninsula Corridor Joint Powers Board; the transportation agency for Monterey County; the San Mateo County Transit District; and the Los Angeles Metropolitan Transportation Authority (MTA). In 2018, the Legislature also allowed the County of Sonoma, any city in the County, and the Sonoma County Transportation Authority to impose a district tax in increments of 0.25% up to 1% exempt from the 2% cap (SB 152, McGuire).

County of Contra Costa. Contra Costa County has two countywide district taxes, a 0.5% rate applicable to all counties within the San Francisco Bay Area Rapid Transit (BART) District, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap (AB 210, Wieckowski, 2013, and AB 1665, Bonilla, 2016); however, the County has not imposed a tax using this authority.

Contra Costa County Cities. The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap (AB 1324, Skinner, 2014), for a total rate of 9.75%. 16 other cities in the county also impose district taxes at lower rates. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it imposed it only in the unincorporated area, which the Legislature authorized in 2014 (AB 2119, Stone).

AB 618 and AB 723. Last year, the Legislature approved, but the Governor vetoed AB 618 (Stone), which permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a tax of up to 0.25% that exceeds the 2% cap. The veto message stated that it was unclear whether authorization was needed because both had room within the cap to impose the tax. In response, the Legislature enacted AB 723 (Quirk), which provided that neither the tax imposed by BART nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County. Instead of explicitly allowing tax above the cap, AB 723 created more room under it for Alameda County, and cities in Alameda and Santa Cruz counties to impose district taxes.

Seeking additional revenue-raising options, the author wants the currently imposed BART tax, as well as its county transportation taxes, not to count against the 2% cap, similar to the treatment AB 723 afforded for Alameda and Santa Cruz Counties. Additionally, the County wants explicit authorization to also impose a new 0.5% tax above the 2% cap.

Proposed Law

Senate Bill 1349 provides that the current 0.5% district tax imposed by BART, the current 0.5% Contra Costa County Transportation Tax, and a potential future 0.5% Contra Costa County Transportation Tax, do not count against the 2% cap. The bill clarifies that a previous specific authority for the Contra Costa County Transportation Authority does not count against the cap either. The measure also authorizes Contra Costa County to impose a new countywide district tax up to 0.5% that is also exempt from the cap, so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law. SB 1349 also makes a legislative finding stating that a statute specific to Contra Costa County is necessary.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “SB 1349 would allow the county of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs.”

2. Too high? While the state sales and use tax rate decreased from 7.5% to 7.25% on January 1, 2017, California’s rate is high compared to other states, especially when incorporating locally imposed district taxes. Tax experts argue that sales and use taxes are regressive, meaning that the tax incidence falls more on low-income individuals than high-income individuals because those of lesser means generally spend a greater percentage of their income on taxable sales, instead of intangible products or services which are not taxed. By removing the current Contra Costa County Transportation and BART taxes as counting against the cap, SB 1349 allows an additional 1% of room for Alameda County and each of its cities to each impose another district of up to 1%. If voters approve the 1% allowed under this measure when it states that existing taxes do not count against the cap, the combined rate could increase to 9.25%, plus any current city rates. The bill also grants Contra Costa County an additional authorization for a 0.5% tax, thereby boosting the maximum countywide rate to 9.75%, plus any current city rates. Additionally, the Contra Costa County Transportation Commission has current authority to impose an additional tax of up to 1%, which if both approved by voters could boost the countywide rate to 10.75%, plus any city rates. While unlikely, SB 1349 could result in a rate as high as 12.25% in the City of El Cerrito, where an additional 1.5% rate currently applies for a current rate of 9.75%. The 12.25% rate is possible if its voters first approved a further 1% before the county does, followed by county voters approving taxes under all possible authorities. While local voters know best, the Committee may wish to consider whether SB 1349 allows for rates that are too high.

3. Go no further. The countywide cap gives rise to circumstances where individual cities can crowd out counties from asking voters to impose taxes, which happened in Contra Costa County when the City of El Cerrito increased the rate of its general transactions and use tax rate from 0.5% to 1% in 2015, bringing the countywide rate to 2% in the City. Before 2019, the Legislature created several explicit exceptions to allow local agencies to impose district taxes above the 2% cap, either for specific jurisdictions, or for several agencies within the same county. However, Governor Newsom’s veto of AB 618 indicates that this form of exception is not currently possible. While SB 1349 adopts the innovative approach of AB 723, it also contains explicit authority for the County to also impose an additional tax above the cap similar to the measure the Governor vetoed.

4. Crowding out. As mentioned above, SB 1349 builds on AB 723’s approach to state that existing transportation taxes in Contra Costa County do not count toward the 2% cap, which clears 1% of total room under the countywide cap. However, this method comes with risks that do not apply when taxes are explicitly exempted from the cap. For example, the County of Contra Costa as well as any city in Contra Costa County could use SB 1349 to impose a tax of up to 1%; however, the County imposing a tax at 1% would preclude any city in Contra Costa County from also doing so. The reverse would also be true – any city in Contra Costa County that imposed a tax of 1% would again crowd out the County, unless the county used the other authority in the bill to impose a tax explicitly exempted from the cap.

5. Existing cap. SB 566 (Scott, 2003) imposed the uniform 2% cap for both cities and counties, in response to a multitude of jurisdiction-specific bills seeking to authorize TUTs. In 2015, AB 464 (Mullin) attempted to raise the cap to 3%, however, Governor Brown vetoed the bill, stating:

“This bill would raise, on a blanket basis, the limit on local transactions and use tax for all counties and cities from two percent to three percent. Although I have approved raising the limit for individual counties, I am reluctant to approve this measure in view of all the taxes being discussed and proposed for the 2016 ballot.”

6. Trouble ahead? According to California municipal finance expert Michael Coleman, the passage rate for non-school general and special district tax proposals declined markedly at the March 2020 election. Historically, voters approved general local transactions and use taxes at a 76% rate since 2001. However, they approved only 26 of 43 (60%) in March. The passage rate also fell for 2/3 vote special taxes from a historical 49% to 11 of 46 (22%) in March. Combined with the first failed statewide school bond (Proposition 13), these trends indicate that any tax imposed under SB 1349’s authority may come before an electorate more reluctant to increased taxes.

7. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Article IV, §16). SB 1349 contains findings and declarations explaining the need for legislation that applies only in the Counties of Contra Costa.

Support and Opposition

(5/18/20)

Support: California Labor Federation; California Teamsters Public Affairs Council; Contra Costa County; Contra Costa Transportation Authority; Cities of Concord, Danville, Lafayette, Pittsburg, San Ramon; International Federation of Professional and Technical Engineers Local 21.

Opposition: Howard Jarvis Taxpayers Association.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Transactions and use taxes: County of Contra Costa

Permits Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local transactions and use taxes.

Background

Sales and Use Taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect the appropriate tax at purchase and remit the amount to CDFTA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and also like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

District Taxes. The California Constitution states that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (Article XIII C). Proposition 13 (1978) required a 2/3 vote of each house of the Legislature for state tax increases, and 2/3 vote for local special taxes. Proposition 62 (1986) prohibited local agencies from imposing general taxes without majority approval of local voters, and a 2/3 vote for special taxes. Proposition 218 (1996) extended those vote thresholds to charter cities, and limited local agencies’ powers to levy new assessments, fees, and taxes. Local agencies generally propose to increase taxes by adopting an ordinance or a resolution at a public hearing.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or transactions and use taxes. County transportation authorities also have general authority to impose a district tax up to 1% for county streets and highway projects or public transit projects, so long as the transportation commission approves an ordinance, which voters subsequently approve. Additionally, the Bay Area Rapid Transit District (BART) has its own legal authority to impose a transactions and use tax of 0.5%. This 0.5% tax currently applies in Alameda, Contra Costa, and San Francisco Counties. As of April 1, 2020, 325 local agencies impose their own district taxes: 62 are imposed countywide, 261 citywide, two solely in unincorporated areas, and two across multiple counties.

State law caps the total rate for any county, including transportation taxes at 2%. However, the Legislature has allowed several cities, counties, county transportation authorities, and transit districts to impose taxes above the 2% cap, including the Cities of Alameda, Berkeley, Emeryville and Santa Fe Springs; Alameda and Santa Clara Counties, among others; the Peninsula Corridor Joint Powers Board; the transportation agency for Monterey County; the San Mateo County Transit District; and the Los Angeles Metropolitan Transportation Authority (MTA). In 2018, the Legislature also allowed the County of Sonoma, any city in the County, and the Sonoma County Transportation Authority to impose a district tax in increments of 0.25% up to 1% exempt from the 2% cap (SB 152, McGuire).

County of Contra Costa. Contra Costa County has two countywide district taxes, a 0.5% rate applicable to all counties within the San Francisco Bay Area Rapid Transit (BART) District, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap (AB 210, Wieckowski, 2013, and AB 1665, Bonilla, 2016); however, the County has not imposed a tax using this authority.

Contra Costa County Cities. The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap (AB 1324, Skinner, 2014), for a total rate of 9.75%. 16 other cities in the county also impose district taxes at lower rates. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it imposed it only in the unincorporated area, which the Legislature authorized in 2014 (AB 2119, Stone).

AB 618 and AB 723. Last year, the Legislature approved, but the Governor vetoed AB 618 (Stone), which permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a tax of up to 0.25% that exceeds the 2% cap. The veto message stated that it was unclear whether authorization was needed because both had room within the cap to impose the tax. In response, the Legislature enacted AB 723 (Quirk), which provided that neither the tax imposed by BART nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County. Instead of explicitly allowing tax above the cap, AB 723 created more room under it for Alameda County, and cities in Alameda and Santa Cruz counties to impose district taxes.

Seeking additional revenue-raising options, the author wants the currently imposed BART tax, as well as its county transportation taxes, not to count against the 2% cap, similar to the treatment AB 723 afforded for Alameda and Santa Cruz Counties. Additionally, the County wants explicit authorization to also impose a new 0.5% tax above the 2% cap.

Proposed Law

Senate Bill 1349 provides that the current 0.5% district tax imposed by BART, the current 0.5% Contra Costa County Transportation Tax, and a potential future 0.5% Contra Costa County Transportation Tax, do not count against the 2% cap. The bill clarifies that a previous specific authority for the Contra Costa County Transportation Authority does not count against the cap either. The measure also authorizes Contra Costa County to impose a new countywide district tax up to 0.5% that is also exempt from the cap, so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law. SB 1349 also makes a legislative finding stating that a statute specific to Contra Costa County is necessary.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “SB 1349 would allow the county of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs.”

2. Too high? While the state sales and use tax rate decreased from 7.5% to 7.25% on January 1, 2017, California’s rate is high compared to other states, especially when incorporating locally imposed district taxes. Tax experts argue that sales and use taxes are regressive, meaning that the tax incidence falls more on low-income individuals than high-income individuals because those of lesser means generally spend a greater percentage of their income on taxable sales, instead of intangible products or services which are not taxed. By removing the current Contra Costa County Transportation and BART taxes as counting against the cap, SB 1349 allows an additional 1% of room for Alameda County and each of its cities to each impose another district of up to 1%. If voters approve the 1% allowed under this measure when it states that existing taxes do not count against the cap, the combined rate could increase to 9.25%, plus any current city rates. The bill also grants Contra Costa County an additional authorization for a 0.5% tax, thereby boosting the maximum countywide rate to 9.75%, plus any current city rates. Additionally, the Contra Costa County Transportation Commission has current authority to impose an additional tax of up to 1%, which if both approved by voters could boost the countywide rate to 10.75%, plus any city rates. While unlikely, SB 1349 could result in a rate as high as 12.25% in the City of El Cerrito, where an additional 1.5% rate currently applies for a current rate of 9.75%. The 12.25% rate is possible if its voters first approved a further 1% before the county does, followed by county voters approving taxes under all possible authorities. While local voters know best, the Committee may wish to consider whether SB 1349 allows for rates that are too high.

3. Go no further. The countywide cap gives rise to circumstances where individual cities can crowd out counties from asking voters to impose taxes, which happened in Contra Costa County when the City of El Cerrito increased the rate of its general transactions and use tax rate from 0.5% to 1% in 2015, bringing the countywide rate to 2% in the City. Before 2019, the Legislature created several explicit exceptions to allow local agencies to impose district taxes above the 2% cap, either for specific jurisdictions, or for several agencies within the same county. However, Governor Newsom’s veto of AB 618 indicates that this form of exception is not currently possible. While SB 1349 adopts the innovative approach of AB 723, it also contains explicit authority for the County to also impose an additional tax above the cap similar to the measure the Governor vetoed.

4. Crowding out. As mentioned above, SB 1349 builds on AB 723’s approach to state that existing transportation taxes in Contra Costa County do not count toward the 2% cap, which clears 1% of total room under the countywide cap. However, this method comes with risks that do not apply when taxes are explicitly exempted from the cap. For example, the County of Contra Costa as well as any city in Contra Costa County could use SB 1349 to impose a tax of up to 1%; however, the County imposing a tax at 1% would preclude any city in Contra Costa County from also doing so. The reverse would also be true – any city in Contra Costa County that imposed a tax of 1% would again crowd out the County, unless the county used the other authority in the bill to impose a tax explicitly exempted from the cap.

5. Existing cap. SB 566 (Scott, 2003) imposed the uniform 2% cap for both cities and counties, in response to a multitude of jurisdiction-specific bills seeking to authorize TUTs. In 2015, AB 464 (Mullin) attempted to raise the cap to 3%, however, Governor Brown vetoed the bill, stating:

“This bill would raise, on a blanket basis, the limit on local transactions and use tax for all counties and cities from two percent to three percent. Although I have approved raising the limit for individual counties, I am reluctant to approve this measure in view of all the taxes being discussed and proposed for the 2016 ballot.”

6. Trouble ahead? According to California municipal finance expert Michael Coleman, the passage rate for non-school general and special district tax proposals declined markedly at the March 2020 election. Historically, voters approved general local transactions and use taxes at a 76% rate since 2001. However, they approved only 26 of 43 (60%) in March. The passage rate also fell for 2/3 vote special taxes from a historical 49% to 11 of 46 (22%) in March. Combined with the first failed statewide school bond (Proposition 13), these trends indicate that any tax imposed under SB 1349’s authority may come before an electorate more reluctant to increased taxes.

7. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Article IV, §16). SB 1349 contains findings and declarations explaining the need for legislation that applies only in the Counties of Contra Costa.

Support and Opposition

(5/18/20)

Support: California Labor Federation; California Teamsters Public Affairs Council; Contra Costa County; Contra Costa Transportation Authority; Cities of Concord, Danville, Lafayette, Pittsburg, San Ramon; International Federation of Professional and Technical Engineers Local 21.

Opposition: Howard Jarvis Taxpayers Association.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Transactions and use taxes: County of Contra Costa

Permits Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local transactions and use taxes.

Background

Sales and Use Taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect the appropriate tax at purchase and remit the amount to CDFTA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and also like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

District Taxes. The California Constitution states that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (Article XIII C). Proposition 13 (1978) required a 2/3 vote of each house of the Legislature for state tax increases, and 2/3 vote for local special taxes. Proposition 62 (1986) prohibited local agencies from imposing general taxes without majority approval of local voters, and a 2/3 vote for special taxes. Proposition 218 (1996) extended those vote thresholds to charter cities, and limited local agencies’ powers to levy new assessments, fees, and taxes. Local agencies generally propose to increase taxes by adopting an ordinance or a resolution at a public hearing.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or transactions and use taxes. County transportation authorities also have general authority to impose a district tax up to 1% for county streets and highway projects or public transit projects, so long as the transportation commission approves an ordinance, which voters subsequently approve. Additionally, the Bay Area Rapid Transit District (BART) has its own legal authority to impose a transactions and use tax of 0.5%. This 0.5% tax currently applies in Alameda, Contra Costa, and San Francisco Counties. As of April 1, 2020, 325 local agencies impose their own district taxes: 62 are imposed countywide, 261 citywide, two solely in unincorporated areas, and two across multiple counties.

State law caps the total rate for any county, including transportation taxes at 2%. However, the Legislature has allowed several cities, counties, county transportation authorities, and transit districts to impose taxes above the 2% cap, including the Cities of Alameda, Berkeley, Emeryville and Santa Fe Springs; Alameda and Santa Clara Counties, among others; the Peninsula Corridor Joint Powers Board; the transportation agency for Monterey County; the San Mateo County Transit District; and the Los Angeles Metropolitan Transportation Authority (MTA). In 2018, the Legislature also allowed the County of Sonoma, any city in the County, and the Sonoma County Transportation Authority to impose a district tax in increments of 0.25% up to 1% exempt from the 2% cap (SB 152, McGuire).

County of Contra Costa. Contra Costa County has two countywide district taxes, a 0.5% rate applicable to all counties within the San Francisco Bay Area Rapid Transit (BART) District, as well as a 0.5% rate imposed by the Contra Costa County Transportation Authority, for a countywide rate of 8.25%. The Legislature has additionally authorized the Contra Costa County Transportation Authority to impose a district tax of up to 0.5% for transportation purposes outside the 2% cap (AB 210, Wieckowski, 2013, and AB 1665, Bonilla, 2016); however, the County has not imposed a tax using this authority.

Contra Costa County Cities. The City of El Cerrito imposes a 1.5% rate within its boundaries, 0.5% of which is exempt from the cap (AB 1324, Skinner, 2014), for a total rate of 9.75%. 16 other cities in the county also impose district taxes at lower rates. As a result, Contra Costa County cannot impose an additional tax because the 2% cap applies countywide, unless it imposed it only in the unincorporated area, which the Legislature authorized in 2014 (AB 2119, Stone).

AB 618 and AB 723. Last year, the Legislature approved, but the Governor vetoed AB 618 (Stone), which permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a tax of up to 0.25% that exceeds the 2% cap. The veto message stated that it was unclear whether authorization was needed because both had room within the cap to impose the tax. In response, the Legislature enacted AB 723 (Quirk), which provided that neither the tax imposed by BART nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County. Instead of explicitly allowing tax above the cap, AB 723 created more room under it for Alameda County, and cities in Alameda and Santa Cruz counties to impose district taxes.

Seeking additional revenue-raising options, the author wants the currently imposed BART tax, as well as its county transportation taxes, not to count against the 2% cap, similar to the treatment AB 723 afforded for Alameda and Santa Cruz Counties. Additionally, the County wants explicit authorization to also impose a new 0.5% tax above the 2% cap.

Proposed Law

Senate Bill 1349 provides that the current 0.5% district tax imposed by BART, the current 0.5% Contra Costa County Transportation Tax, and a potential future 0.5% Contra Costa County Transportation Tax, do not count against the 2% cap. The bill clarifies that a previous specific authority for the Contra Costa County Transportation Authority does not count against the cap either. The measure also authorizes Contra Costa County to impose a new countywide district tax up to 0.5% that is also exempt from the cap, so long as the county board of supervisors enacts an ordinance, voters approve the tax by the applicable Constitutional voter threshold, and the tax otherwise complies with state law. SB 1349 also makes a legislative finding stating that a statute specific to Contra Costa County is necessary.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “SB 1349 would allow the county of Contra Costa, or a city within the county, to increase sales and use taxes to support programs and services with voter approval. Cities and counties across the state are responsible with providing their constituents with a number of supportive services to address local needs. This includes police and fire services, homeless services and public health services. The County of Costa County has been heavily impacted by the recent COVID-19 pandemic. The County estimates losses of nearly $100 million in revenue, while cities estimate losses of up to $8 million. This bill will provide Contra Costa County with the tools it needs to generate funding to mitigate the negative impact COVID-19 will undoubtedly have on critical services. The state Legislature has recently approved several similar bills, and this bill is consistent with the provisions of previous legislation. The need for public services is likely to increase in the aftermath of this pandemic. This bill is a reasonable effort to address ongoing funding needs.”

2. Too high? While the state sales and use tax rate decreased from 7.5% to 7.25% on January 1, 2017, California’s rate is high compared to other states, especially when incorporating locally imposed district taxes. Tax experts argue that sales and use taxes are regressive, meaning that the tax incidence falls more on low-income individuals than high-income individuals because those of lesser means generally spend a greater percentage of their income on taxable sales, instead of intangible products or services which are not taxed. By removing the current Contra Costa County Transportation and BART taxes as counting against the cap, SB 1349 allows an additional 1% of room for Alameda County and each of its cities to each impose another district of up to 1%. If voters approve the 1% allowed under this measure when it states that existing taxes do not count against the cap, the combined rate could increase to 9.25%, plus any current city rates. The bill also grants Contra Costa County an additional authorization for a 0.5% tax, thereby boosting the maximum countywide rate to 9.75%, plus any current city rates. Additionally, the Contra Costa County Transportation Commission has current authority to impose an additional tax of up to 1%, which if both approved by voters could boost the countywide rate to 10.75%, plus any city rates. While unlikely, SB 1349 could result in a rate as high as 12.25% in the City of El Cerrito, where an additional 1.5% rate currently applies for a current rate of 9.75%. The 12.25% rate is possible if its voters first approved a further 1% before the county does, followed by county voters approving taxes under all possible authorities. While local voters know best, the Committee may wish to consider whether SB 1349 allows for rates that are too high.

3. Go no further. The countywide cap gives rise to circumstances where individual cities can crowd out counties from asking voters to impose taxes, which happened in Contra Costa County when the City of El Cerrito increased the rate of its general transactions and use tax rate from 0.5% to 1% in 2015, bringing the countywide rate to 2% in the City. Before 2019, the Legislature created several explicit exceptions to allow local agencies to impose district taxes above the 2% cap, either for specific jurisdictions, or for several agencies within the same county. However, Governor Newsom’s veto of AB 618 indicates that this form of exception is not currently possible. While SB 1349 adopts the innovative approach of AB 723, it also contains explicit authority for the County to also impose an additional tax above the cap similar to the measure the Governor vetoed.

4. Crowding out. As mentioned above, SB 1349 builds on AB 723’s approach to state that existing transportation taxes in Contra Costa County do not count toward the 2% cap, which clears 1% of total room under the countywide cap. However, this method comes with risks that do not apply when taxes are explicitly exempted from the cap. For example, the County of Contra Costa as well as any city in Contra Costa County could use SB 1349 to impose a tax of up to 1%; however, the County imposing a tax at 1% would preclude any city in Contra Costa County from also doing so. The reverse would also be true – any city in Contra Costa County that imposed a tax of 1% would again crowd out the County, unless the county used the other authority in the bill to impose a tax explicitly exempted from the cap.

5. Existing cap. SB 566 (Scott, 2003) imposed the uniform 2% cap for both cities and counties, in response to a multitude of jurisdiction-specific bills seeking to authorize TUTs. In 2015, AB 464 (Mullin) attempted to raise the cap to 3%, however, Governor Brown vetoed the bill, stating:

“This bill would raise, on a blanket basis, the limit on local transactions and use tax for all counties and cities from two percent to three percent. Although I have approved raising the limit for individual counties, I am reluctant to approve this measure in view of all the taxes being discussed and proposed for the 2016 ballot.”

6. Trouble ahead? According to California municipal finance expert Michael Coleman, the passage rate for non-school general and special district tax proposals declined markedly at the March 2020 election. Historically, voters approved general local transactions and use taxes at a 76% rate since 2001. However, they approved only 26 of 43 (60%) in March. The passage rate also fell for 2/3 vote special taxes from a historical 49% to 11 of 46 (22%) in March. Combined with the first failed statewide school bond (Proposition 13), these trends indicate that any tax imposed under SB 1349’s authority may come before an electorate more reluctant to increased taxes.

7. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Article IV, §16). SB 1349 contains findings and declarations explaining the need for legislation that applies only in the Counties of Contra Costa.

Support and Opposition

(5/18/20)

Support: California Labor Federation; California Teamsters Public Affairs Council; Contra Costa County; Contra Costa Transportation Authority; Cities of Concord, Danville, Lafayette, Pittsburg, San Ramon; International Federation of Professional and Technical Engineers Local 21.

Opposition: Howard Jarvis Taxpayers Association.

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