The Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law. Existing law, on or after January 1, 2016, prohibits a local agency from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to any person, as defined, for any purpose, if the agreement results in a reduction in the amount of Bradley-Burns local tax revenues that, in the absence of the agreement, would be received by another local agency and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions.

This bill would require a local agency, as defined, to annually provide specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to the California Department of Tax and Fee Administration. The bill would additionally require the local agency to publish that information on its internet website, as prescribed. The bill would impose monetary penalties on any local agency that fails to provide information to the department or fails to publish information to its internet website, as prescribed. By expanding the duties of local agencies, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

The Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law. Existing law, on or after January 1, 2016, prohibits a local agency from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to any person, as defined, for any purpose, if the agreement results in a reduction in the amount of Bradley-Burns local tax revenues that, in the absence of the agreement, would be received by another local agency and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions.

This bill would require a local agency, as defined, to annually provide specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to the California Department of Tax and Fee Administration. The bill would additionally require the local agency to publish that information on its internet website, as prescribed. The bill would impose monetary penalties on any local agency that fails to provide information to the department or fails to publish information to its internet website, as prescribed. By expanding the duties of local agencies, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

The Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law. Existing law, on or after January 1, 2016, prohibits a local agency from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to any person, as defined, for any purpose, if the agreement results in a reduction in the amount of Bradley-Burns local tax revenues that, in the absence of the agreement, would be received by another local agency and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions.

This bill would require a local agency, as defined, to annually provide specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to the California Department of Tax and Fee Administration. The bill would additionally require the local agency to publish that information on its internet website. website, as prescribed. The bill would impose monetary penalties on any local agency that fails to provide information to the department or fails to publish information to its internet website, as prescribed. By expanding the duties of local agencies, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

The Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law. Existing law, on or after January 1, 2016, prohibits a local agency from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to any person, as defined, for any purpose, if the agreement results in a reduction in the amount of Bradley-Burns local tax revenues that, in the absence of the agreement, would be received by another local agency and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions.

This bill would require a local agency, as defined, to annually provide specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to the California Department of Tax and Fee Administration. The bill would additionally require the local agency to publish that information on its internet website. The bill would impose monetary penalties on any local agency that fails to provide information to the department or fails to publish information to its internet website, as prescribed. By expanding the duties of local agencies, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

The Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law. Existing law, on or after January 1, 2016, prohibits a local agency from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to any person, as defined, for any purpose, if the agreement results in a reduction in the amount of Bradley-Burns local tax revenues that, in the absence of the agreement, would be received by another local agency and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions.

This bill would require a local agency, as defined, to annually provide specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to the California Department of Tax and Fee Administration. The bill would additionally require the local agency to publish that information on its internet website. The bill would impose monetary penalties on any local agency that fails to provide information to the department or fails to publish information to its internet website. website, as prescribed. By expanding the duties of local agencies, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

The Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law. Existing law, on or after January 1, 2016, prohibits a local agency from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to any person, as defined, for any purpose, if the agreement results in a reduction in the amount of Bradley-Burns local tax revenues that, in the absence of the agreement, would be received by another local agency and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions.

This bill would make nonsubstantive changes to those provisions. require a local agency, as defined, to annually provide specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to the California Department of Tax and Fee Administration. The bill would additionally require the local agency to publish that information on its internet website. The bill would impose monetary penalties on any local agency that fails to provide information to the department or fails to publish information to its internet website. By expanding the duties of local agencies, this bill would impose a state-mandated local program.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law.

This bill would make nonsubstantive changes to those provisions.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2854

Author:(Irwin)

As Amended Ver:August 15, 2024

Majority vote

SUMMARY

Requires cities and counties to annually provide specified information to the California Department of Tax and Fee Administration (CDTFA) and on their website relating to each agreement that results in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns sales and use tax (SUT) revenues, as specified.

Senate Amendments

1. Make clarifying changes to website publishing requirements;
2. Require notices of noncompliance to be sent by certified mail to a local agency and provide that a local agency has 45 days from the mailing of the notice to provide or publish the required information;
3. Specify that a local agency may be granted an extension by demonstrating that the failure was due to reasonable cause and circumstances beyond the local agency's control;
4. Modify the penalty provisions by removing the percentage-based calculation and instead impose a per-day penalty, as follows:
   1. For days one to 180, inclusive, $1,000 per day.
   2. For days 181 to 365, inclusive, $4,000 per day.
5. Provide that all amounts required to be paid, less refunds and costs of administration, are deposited into the General Fund; and,
6. Authorize the CDTFA to prescribe, adopt, and enforce regulations, including emergency regulations as necessary to implement, administer, and enforce the duties created by this bill.

COMMENTS

Place of sale: Bradley-Burns tax allocation varies depending on whether the transaction is subject to sales tax or use tax. The transaction is subject to sales tax if the retailer's place of business in California participates in the transaction and the sale takes place (i.e., title to the goods passes to the customer) in California. Unless both of these conditions are met, the use tax applies. If a retailer has only one place of business in California, all California retail sales in which that place of business participates occur at that place of business. If a retailer has more than one place of business in this state participating in the sale, the place of sale is where the principal negotiations occur.

Let's make a deal: The complicated sourcing rules described above have given many retailers a powerful negotiating tool vis-à-vis local governments. For example, imagine a concrete manufacturer with production and sales offices located throughout the state. This manufacturer could decide to restructure by consolidating all statewide sales into one California office. This sales office, as the place of principal negotiation, could then serve as the retailer's "place of sale" for Bradley-Burns purposes on all of its California sales. Before deciding where to locate its one sales office, the concrete manufacturer could negotiate with an array of cities to see which is willing to rebate the largest percentage of any new Bradley-Burns revenues back to the retailer.

Many cities have reportedly offered large companies over one-half of their new revenues in such negotiations in the hopes of bringing jobs and economic development to their regions. Retailers are the obvious beneficiaries of such arrangements. It is less clear, however, whether cities similarly benefit given the nature of the jobs created and the revenues siphoned from essential public services. Critics contend that the biggest losers are the many local agencies throughout California that previously received Bradley-Burns taxes from the retailer's sales.

Redirected revenues: In 2007, the Legislative Analyst's Office (LAO) published a report on the allocation of local sales tax, which focused on agreements between cities and private businesses involving diversions of local sales taxes to lure businesses to remain or move into a particular jurisdiction. The report concluded that the use of such financial incentives does not result in a net benefit to a broader economic region within the state, but rather simply shifts existing sales tax from one jurisdiction to another at the cost of government resources that could be used for other purposes.

Transparency for local economic development: Existing law requires local agencies that provide subsidies, including forgone tax revenues to private businesses in pursuit of economic development, to comply with numerous transparency measures. These measures include posting specified information about the amount of the subsidies; which entities will be receiving the subsidies; the net tax revenue accruing to the local agency as a result of the subsidy; and an estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions. Additionally, local agencies are required to provide a public notice and hearing with an opportunity to hear from members of the community prior to approving any subsidy, as well as hold a subsequent public hearing within either 5 or 10 years of granting the subsidy.

According to the Author

AB 2854 provides much needed transparency for local sales tax revenues by requiring cities and counties to annually submit information to the CDTFA regarding so-called "rebate agreements." Numerous cities and retailers have entered into such sales tax rebate agreements, resulting in a significant – but currently unknown – loss of tax revenues for local agencies across the state. This bill is a direct result of the informational hearing held on November 15^th, 2023 on this topic, where we heard directly from city leaders that greater transparency is needed. Collecting and displaying this information in a centralized location will provide important transparency so leaders at all levels can make better informed decisions relating to local tax policy.

Arguments in Support

This bill is supported by several cities, including the City of Placentia, which notes, in part:

AB 2854 increases transparency and accountability by requiring local agencies to report agreements involving local tax revenues. This can lead to increased trust within a community. When local agencies show transparency in their decision-making processes, they demonstrate a commitment to integrity and ethical governance. Community members are thus more likely to trust government institutions that operate openly and honestly, leading to increased confidence in the system as a whole.

Arguments in Opposition

This bill is opposed by the California Taxpayers Association, which notes, in part:

Sales tax sharing agreements are viewed favorably by both local governments and businesses due to the significant benefits they generate. Local governments receive substantial tax revenue from business activities, residents see increased employment opportunities in their community, and local businesses reinvest in the area…. While it is important for residents to have transparency regarding rebates from sales tax sharing agreements, it is equally important that the benefits of these agreements are also publicly disclosed.

FISCAL COMMENTS

According to the Senate Committee on Appropriations:

1. CDTFA would incur absorbable costs to administer the bill
2. The bill could result in increased General Fund penalty revenue of an unknown amount. However, information regarding a local agency's tax sharing agreement is generally available and a local agency will have the opportunity to cure a violation. Consequently, any increase in penalty revenue would likely be minor.
3. By requiring local agencies to submit specified information to CDTFA and post it online, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, local agencies could claim reimbursement of those costs. The magnitude is unknown, but potentially in excess of $50,000 annually (General Fund).

VOTES:

ASM REVENUE AND TAXATION: 6-0-1

YES: Irwin, Bains, Gipson, Grayson, Jim Patterson, Luz Rivas

ABS, ABST OR NV: Ta

ASM APPROPRIATIONS: 12-1-2

YES: Wicks, Arambula, Bryan, Calderon, Wendy Carrillo, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Villapudua

NO: Sanchez

ABS, ABST OR NV: Dixon, Ta

ASSEMBLY FLOOR: 61-3-16

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Mike Fong, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Waldron, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO: Vince Fong, Joe Patterson, Sanchez

ABS, ABST OR NV: Calderon, Cervantes, Megan Dahle, Dixon, Essayli, Flora, Friedman, Gallagher, Holden, Hoover, Lackey, Mathis, Jim Patterson, Luz Rivas, Ta, Wallis

SENATE FLOOR: 35-4-1

YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

NO: Alvarado-Gil, Niello, Ochoa Bogh, Seyarto

ABS, ABST OR NV: Nguyen

UPDATED

VERSION: August 15, 2024

CONSULTANT: Wesley Whitaker / REV. & TAX. / (916) 319-2098 FN: 0004800

 THIRD READING  

Bill No: AB 2854

Author: Irwin (D)

Amended: 8/15/24 in Senate

Vote: 21

SENATE REVENUE AND TAXATION COMMITTEE: 7-0, 6/26/24

AYES: Glazer, Dahle, Ashby, Bradford, Dodd, Padilla, Skinner

SENATE APPROPRIATIONS COMMITTEE: 6-1, 8/15/24

AYES: Caballero, Jones, Ashby, Becker, Bradford, Wahab

NOES: Seyarto

ASSEMBLY FLOOR: 61-3, 5/22/24 - See last page for vote

SUBJECT: Bradley-Burns Uniform Local Sales and Use Tax Law

SOURCE: Author

DIGEST:

This bill requires local agencies to publish on their websites and provide to the California Department of Tax and Fee Administration specified information regarding its agreements to rebate Bradley-Burns Sales Taxes.

ANALYSIS:

1. 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 remit taxes collected from purchasers to CDTFA. 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 statewide rate is 7.25%.
2. Allows cities, counties, and specified special districts to increase the sales and use tax, also known as district or transactions and use taxes, up to a 2% countywide cap, with some exceptions
3. Directs CDTFA to collect sales taxes from retailers, deposit the state share in the General Fund, and then allocate the local share of the Bradley-Burns sales tax and any district tax to the appropriate jurisdiction. The Bradley-Burns Uniform Sales Tax Act allows all local agencies to apply its own sales and use tax on the same base of tangible personal property. This tax rate currently is fixed at 1.25% of the sales price of tangible personal property sold at retail in the local jurisdiction, or purchased outside the jurisdiction for use within the jurisdiction. Cities and counties use this 1% tax to support general operations, while the remaining 0.25% is used for county transportation purposes. In California, all cities and counties impose Bradley-Burns local taxes.
4. Specifies the "place of sale" for purposes of the local sales tax. Bradley-Burns sales taxes are allocated to the place of business of the retailer, unless the property sold is delivered by the retailer or his or her agent to an out-of-state destination or to a common carrier for delivery to an out-of-state destination, in which case no tax is collected. CDTFA must consider specific characteristics of the retailer to correctly determine the “place of sale,” and therefore correctly allocate the local share of Bradley-Burns sales tax.
5. Bans cities and counties from subsidizing the relocation of big box retailers and auto malls within the same market area (SB 114, Torlakson, Chapter 781, Statutes of 2003).
6. Prohibits a local agency from entering into an agreement that would result in the payment, transfer, diversion, or rebate of Bradley-Burns local tax proceeds to a retailer if the agreement results in a reduction of revenue that is received by another local agency when the retailer continues to maintain a physical presence and location within that other local agency (SB 533, Pan, Chapter 717, Statutes of 2015).

This bill:

1. Requires a local agency to report to CDTFA, the following information on each agreement that results in rebated sales and use tax revenues:
   1. The name or names of any parties to the agreement;
   2. The total dollar amount of rebated sales and use tax revenues received by each party to the agreement on or after the date of the execution of the agreement through and including June 30 of the fiscal year immediately preceding the date of the report;
   3. The total dollar amount of rebated sales and use tax revenues received by each party to the agreement during the fiscal year immediately preceding the date of the report;
   4. The date on which the agreement was originally executed, and the date on which the agreement terminated, or will terminate, absent any renewal;
   5. The percentage of a retailer’s sales and use taxes, if any, used to calculate or otherwise determine the rebated sales and use tax revenues received by each party to the agreement; and
   6. The percentage of a retailer’s sales and use taxes, if any, used to calculate or otherwise determine the rebated sales and use tax revenues received by any other person that is not a party to the agreement.
2. Directs local agencies to also publish the above information on their internet websites, on or before April 30 of each year. A hyperlink to the above information must be present and visible on the home page of the local agency’s internet website at all times. However, a local agency can include the information on a website it maintains containing information about its economic development subsidies
3. States that any local agency that has not directly or indirectly paid, transferred, diverted, or rebated any sales and use tax revenues under an agreement in the immediately preceding fiscal year is exempt from the publishing and reporting requirement, but must report this fact to CDTFA.
4. Provides that if a local agency fails to timely report that it does not have an agreement, or provide the required information to CDTFA, or fails to publish information to its internet website, CDTFA must notify the local agency by certified mail.
5. Requires the notification to state that the local agency has 45 days from the local agency’s receipt of the notice to provide or publish the required information or submit a written statement to the department explaining why it is unable to provide or publish the required information.
6. Directs the local agency to respond within 45 days of the local agency’s receipt of the notice.
7. Allows CDTFA to grant a 30-day extension of the 45 day period, if the local agency demonstrated the failure was due to reasonable cause, as defined. CDTFA cannot extend the period due to the local agency’s claim that information is confidential.
8. Provides that if CDTFA grants an extension, they must notify the local agency that they have 30 days to provide or publish the required information, commencing on the next business day following the expiration of the 45-day period.
9. States that if CDTFA does not grant an extension, the local agency must provide or publish the information within 10 days of the date CDTFA notifies the local agency of its denial of an extension.
10. Directs CDTFA to address the notice to the person authorized to receive confidential information in its records, and deems the notice complete at the time of the deposit in the mail.
11. Provides that if a local agency fails to provide or publish the information within the applicable period set by the bill, CDTFA may impose a penalty for each day after the expiration of the applicable period, up to 365 days, equal to
    1. $1,000 per day for days one to 180.
    2. $4,000 per day for days 181 to 365.
12. Directs CDTFA to collect the penalties through a process set forth in the Fee Procedures Collections Law that allows it to collect any deficiency by bringing an action, either by itself or by asking the Attorney General to do so.
13. Deposits fine revenues in the General Fund.
14. Requires CDTFA to publish information submitted to it by local agencies on its internet website on or before June 1, 2025, and annually thereafter.
15. Allows CDTFA to prescribe regulations to implement and administer the bill, including emergency regulations.
16. Directs the Office of Administrative Law to consider the regulations necessary for purposes of adopting emergency regulations until January 1, 2026.
17. Defines various terms.
18. Provides its provisions apply notwithstanding taxpayer confidentiality laws.

Background:

Counties and cities engage in a wide variety of economic development activities to build their tax bases. Local officials use various tactics to influence where, when, and how the private sector invests capital and improves real property. Local officials sometimes use their economic development powers to induce businesses to relocate to their communities. Economic development incentives local agencies offer range in terms of (1) the level of rebate; (2) how long the retailer receives the benefit; (3) the types of jobs or services the retailer must provide in return; and (4) how long the retailer must promise to stay in the jurisdiction. Agreements typically offer between 30% to 60% of the Bradley-Burns revenue generated by the facility, for periods of time ranging up to 40 years.

Bradley-Burns tax sharing agreements have come under renewed scrutiny. According to an article published in Bloomberg Tax:

“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.”^[1]

Bloomberg Tax also noted some local agencies made information about agreements difficult to find. The City of San Bruno didn’t include payments to Walmart.com on its public check registers, which are approved by city councils during regular meetings.^[2] San Bruno initially denied a request from Bloomberg Tax to provide information about payments to Walmart.com, citing taxpayer confidentiality rules, but released it following a request under the California Public Records Act .^[3]

In February 2024, the Assembly Revenue and Taxation Committee held a hearing called Following the Money: How Local Sales Tax Revenues are Allocated Among California Cities. At this hearing, the Committee heard from both cities that benefit from the existing allocation framework and use these tax sharing agreements, as well as cities that feel disadvantaged by the current tax allocation system.

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

According to the Senate Appropriations Committee:

• CDTFA would incur absorbable costs to administer the bill.
• The bill could result in increased General Fund penalty revenue of an unknown amount. However, information regarding a local agency’s tax sharing agreement is generally available and a local agency will have the opportunity to cure a violation. Consequently, any increase in penalty revenue would likely be minor.
• By requiring local agencies to submit specified information to CDTFA and post it online, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, local agencies could claim reimbursement of those costs. The magnitude is unknown, but potentially in excess of $50,000 annually (General Fund).

SUPPORT: (Verified 8/16/24)

American Federation of State, County and Municipal Employees, Afl-cio
California Professional Firefighters
California Tax Reform Association
City of Placentia
City of Simi Valley
City of Thousand Oaks

OPPOSITION: (Verified 8/16/24)

California Taxpayers Association

ARGUMENTS IN SUPPORT: According to the author, “AB 2854 provides much needed transparency for local sales tax revenues by requiring cities and counties to annually submit information to the CDTFA regarding so-called "rebate agreements." Numerous cities and retailers have entered into such sales tax rebate agreements, resulting in a significant – but currently unknown – loss of tax revenues for local agencies across the state. This bill is a direct result from the informational hearing held in November on this topic, where we heard directly from city leaders that greater transparency is needed. Collecting and displaying this information in a centralized location will provide important transparency so leaders at all levels can make better informed decisions relating to local tax policy.

ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association, “The California Taxpayers Association must respectfully oppose AB 2854 unless amended to include information relating to job growth, wage data, and employment of residents from underrepresented communities because of sales tax sharing agreements entered into between a local agency and a business. Sales tax sharing agreements are viewed favorably by both local governments and businesses due to the significant benefits they generate. Local governments receive substantial tax revenue from business activities, residents see increased employment opportunities in their community, and local businesses reinvest in the area. While it is important for residents to have transparency regarding rebates from sales tax sharing agreements, it is equally important that the benefits of these agreements are also publicly disclosed.”

ASSEMBLY FLOOR: 61-3, 5/22/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Mike Fong, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Waldron, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NOES: Vince Fong, Joe Patterson, Sanchez

NO VOTE RECORDED: Calderon, Cervantes, Megan Dahle, Dixon, Essayli, Flora, Friedman, Gallagher, Holden, Hoover, Lackey, Mathis, Jim Patterson, Luz Rivas, Ta, Wallis

Prepared by: Colin Grinnell / REV. & TAX. / (916) 651-4117

8/19/24 12:36:00

**** END ****

1. Laura Mahoney, “California Cities Agree to Rein in Apple-Like Tax Windfalls.” Bloomberg Tax Report, August 17, 2023. ↑

2. Laura Mahoney, “Walmart’s California Sales Tax Deal is Successful but Vulnerable” Bloomberg Tax Report, October 11, 2023. ↑

3. Ibid. ↑

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 2854 (Irwin) - Bradley-Burns Uniform Local Sales and Use Tax Law

Bill Summary:

AB 2854 would require local agencies to publish on their websites and provide to the California Department of Tax and Fee Administration (CDTFA) specified information regarding its agreements to rebate Bradley-Burns Sales Taxes.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 15, 2024

Fiscal Impact:

• CDTFA would incur absorbable costs to administer the bill.
• The bill could result in increased General Fund penalty revenue of an unknown amount. However, information regarding a local agency’s tax sharing agreement is generally available and a local agency will have the opportunity to cure a violation. Consequently, any increase in penalty revenue would likely be minor.
• By requiring local agencies to submit specified information to CDTFA and post it online, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, local agencies could claim reimbursement of those costs. The magnitude is unknown, but potentially in excess of $50,000 annually (General Fund).

Author Amendments:

Make clarifying changes to website publishing requirements and modify the penalty provisions, as follows:

• For days one to 180, inclusive, $1,000 per day.
• For days 181 to 365, inclusive, $4,000 per day.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 2854 (Irwin) - Bradley-Burns Uniform Local Sales and Use Tax Law

Bill Summary:

AB 2854 would require local agencies to publish on their websites and provide to the California Department of Tax and Fee Administration (CDTFA) specified information regarding its agreements to rebate Bradley-Burns Sales Taxes.

Fiscal Impact:

• CDTFA would incur absorbable costs to administer the bill.
• The bill could result in increased General Fund penalty revenue of an unknown amount. However, information regarding a local agency’s tax sharing agreement is generally available and a local agency will have the opportunity to cure a violation. Consequently, any increase in penalty revenue would likely be minor.
• By requiring local agencies to submit specified information to CDTFA and post it online, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, local agencies could claim reimbursement of those costs. The magnitude is unknown, but potentially in excess of $50,000 annually (General Fund).

Background:

Except where a specific exemption or exclusion is provided, current law imposes sales and use tax (SUT) on all retailers for the privilege of selling tangible personal property (TPP) at retail in California, or on the storage, use, or other consumption in this state of TPP purchased from a retailer. Unless purchasers pay the sales tax to the retailer, they are 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.

After CDTFA collects SUT revenue ($78 billion in 2021-22), it allocates the money to various state and local funds. Roughly half—collected from an approximately 3.9 percent rate—goes to the General Fund and can be spent on any state program, such as education, health care, and criminal justice. Another 1.25 percent, known as the Bradley-Burns (BB) rate, goes to cities and counties for general purposes. Three sales tax funds have uniform state rates and support specified programs—a 1.0625 percent rate for 2011 realignment (county-administered criminal justice, mental health, and social service programs); a 0.5 percent rate for 1991 realignment (county-administered health and social services programs); and a 0.5 percent rate for city and county public safety programs pursuant to Proposition 172 (1993). Additionally, some local governments levy optional local rates—known as Transactions and Use Taxes (TUTs)—and a small portion of these funds are used for general purposes. As of December 31, 2023, the average statewide SUT rate was 8.70 percent.

Bradley-Burns sales taxes are allocated to the “place of sale,” which is typically the place of business of the retailer. CDTFA Regulation 1802 sets forth specific characteristics of the retailer to correctly determine the “place of sale,” and correctly allocate sales tax revenue. If a retailer has only one place of business in California, all retail sales in which the retailer participates are deemed to occur at that place of business. If a retailer has more than one place of business in California participating in a sale, the place of sale is deemed to be where the principal negotiations occur. These complicated sourcing rules give retailers a powerful negotiating tool against local governments when deciding where to open a place of business. For example, a manufacturer with production and sales offices throughout the state could consolidate all sales operations into one California office, which would serve as the place of principal negotiation for sales tax purposes. Before deciding where to locate the office, the manufacturer could negotiate with an array of cities or counties to determine which local agency is willing to rebate the largest percentage of any new BB SUT revenues back to the company in exchange for locating within the local agency’s jurisdiction.

Some cities have reportedly offered companies a portion of their new SUT revenues in an effort to bring jobs and economic development to their boundaries. A 2007 report by the Legislative Analyst’s Office that focused on sales tax agreements between cities and businesses concluded that the use of such financial incentives does not result in a net benefit to a broader economic region within the state, but instead shifts existing sales tax from one jurisdiction to another at the cost of government resources that could be used for other purposes.

Proposed Law:

This bill would, among other things, do the following:

• Require a local agency to report to CDTFA, the following information on any agreement that results in rebated sales and use tax revenues: (1) the name or names of any parties to the agreement, (2) the total dollar amount of rebated sales and use tax revenues received by each party to the agreement on or after the date of the execution of the agreement through and including June 30 of the fiscal year immediately preceding the date of the report, (3) the total dollar amount of rebated sales and use tax revenues received by each party to the agreement during the fiscal year immediately preceding the date of the report, (4) the date on which the agreement was originally executed, and the date on which the agreement terminated, or will terminate, absent any renewal, (5) the percentage of a retailer’s sales and use taxes, if any, used to calculate or otherwise determine the rebated sales and use tax revenues received by each party to the agreement, and (6) the percentage of a retailer’s sales and use taxes, if any, used to calculate or otherwise determine the rebated sales and use tax revenues received by any other person that is not a party to the agreement.
• Require local agencies to publish the above information on their internet websites, on or before April 30 of each year, as specified.
• Allow, after a specified notice period, CDTFA to impose a penalty in an amount equal to the greater of the following: (1) twenty percent of any rebated SUT revenues during the applicable fiscal year, or (2) $1,000 for each day past the above deadline that the local agency fails to provide or publish the required information.
• Require CDTFA to publish the submitted information on its internet website on or before June 1, 2025, and annually thereafter.

Related Legislation:

• SB 1494 (Glazer) would prohibit a local agency from entering into, renewing, or extending a Bradley Burns SUT rebate agreement with a retailer in exchange for locating within the local agency’s jurisdiction and voids such existing agreements on January 1, 2030. The bill failed passage on the Senate Floor.
• SB 531 (Glazer, 2019) was similar to SB 1494, except it would not have voided existing agreements. The bill was vetoed by the Governor.

Staff Comments:

Both the LAO and the State Auditor have suggested replacing situs-based allocation of SUT with a population based approach to reduce the incentive for local governments to use their economic development authority to promote retail developments.

-- END --

SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Steven Glazer, Chair

2023 - 2024 Regular

Bradley-Burns Uniform Local Sales and Use Tax Law

Requires local agencies to publish on its website and provide to the California Department of Tax and Fee Administration specified information regarding its agreements to rebate Bradley-Burns Sales Taxes.

Background

Sales and use tax. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, requires them to register with the California Department of Fee & Tax Administration (CDTFA), and remit taxes collected from purchasers to CDTFA. 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.

Additionally, cities, counties, and specified special districts may increase the sales and use tax, also known as district or transactions and use taxes, with voter approval according to the California Constitution.

Unless the purchaser pays the sales tax to the retailer, they are 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. CDTFA collects sales taxes from retailers, deposits the state share in the General Fund, and then allocates the local share of the Bradley-Burns or district tax to the appropriate jurisdiction.

Online sales. In recent years, commerce has shifted from brick and mortar establishments to online. According the United States Department of Commerce, e-commerce sales in 2023 accounted for 15.4% of total sales, up from 14.7% percent of total sales in 2022, and up from just 6% in 2014. As a result, when a purchaser buys an item online from a retailer or marketplace facilitator, it can often be difficult to determine whether sales or use tax applies.

Determining where a sale took place matters significantly for the allocation of local taxes, which has become more difficult as Californians buy more items online from different retailers and marketplace facilitators that can use vastly different retail business models. A sale is subject to the state sales tax if the retailer’s place of business in California participates in the sale, and the sale occurs in California, meaning the title to the goods passes to the customer in California. A retailer’s place of business can be an office, show room, warehouse, or storage space. If only one or neither condition is met, the use tax applies.

CDTFA Regulation 1620 states the sales tax applies when the California purchaser sends their retail order to any local branch, office, outlet, or other place of business in this state. Sales tax also applies when an order is sent out of state but the order is filled from in-state stocks.

However, the regulation also provides use tax, not sales tax, applies when the order is sent by the California purchaser directly to the retailer at a point outside this state, and the property is shipped to the purchaser from outside this state directly to the purchaser in California. For example, purchasing a new fishing pole online from a store in Vermont shipped via normal post. Use tax also applies when the retailer ships the property to their agent in this state for delivery to the purchaser in this state, provided there is no participation by the retailer in the transaction, such as when a retailer with no presence in the state uses a local delivery company on contract to deliver an online order.

Bradley-Burns. The Bradley-Burns Uniform Sales Tax Act allows all local agencies to apply their own sales and use tax on the same base of tangible personal property. This tax rate currently is fixed at 1.25% of the sales price of tangible personal property sold at retail in the local jurisdiction, or purchased outside the jurisdiction for use within the jurisdiction. Cities and counties use the 1% tax to support general operations, while the remaining 0.25% is used for county transportation purposes. In California, all cities and counties impose Bradley-Burns local taxes.

Bradley-Burns sales taxes are allocated to the “place of sale,” which is typically the place of business of the retailer. CDTFA Regulation 1802 sets forth specific characteristics of the retailer to correctly determine the “place of sale,” and correctly allocate sales tax revenue:

• For a retailer that has one location in the state, that location is generally determined to be the place of sale for all of its sales in which that location participates. CDTFA does so even if title to the property passes from seller to buyer outside of the jurisdiction where the retailer is located, or if the property never enters the jurisdiction of the retailer. For example, CDTFA would determine that all local sales taxes from a furniture store with only one office in the City of Sacramento would allocate all local sales taxes to that city, regardless of where the store delivered furniture buyers, or where it shipped from.
• For a retailer that has more than one location in the state, CDTFA generally determines the location based on the location where principal negotiations occurred. In the furniture store example above, if the place where principal negotiations occurred is the place where the order was taken, CDTFA considers the place of sale the location where the retailer takes the order, regardless of whether they subsequently forward it to another location for delivery. For example, if a resident of the City of Davis called a furniture store in Sacramento to order a lamp, which the store shipped to Davis from its location in Vacaville, CDTFA would consider Sacramento the place of sale for purposes of allocating the local tax.
• For a retailer that has no location in the state, but has a stock of property in the state from which it fills orders, CDTFA considers the place of sale as the location from which the property is shipped. If a resident of the City of Davis ordered a lamp from an internet retailer that did not have a retail location in the state, but filled the order from its warehouse in Vacaville, CDTFA would consider Vacaville the place of sale.

CDTFA generally allocates Bradley-Burns use taxes to countywide pools in the county of the shipping address of the purchaser, where revenues are divided based on the jurisdiction’s share of directly allocated sales. However, while CDTFA distributes Bradley-Burns sales and use taxes according to the above, it sends revenue from voter-approved district sales and use taxes based solely on the location of the purchaser.

Information confidentiality. Current law makes it unlawful for any person having an administrative duty under the Sales and Use Tax Law, or any person who obtains access to information contained in, or derived from tax records of CDTFA to make known in any manner whatever the business affairs, operations, or any other information pertaining to any retailer or any other person. It is also unlawful for any person who obtains access to information from CDTFA tax records to retain that information.

Economic development incentives. Allocating Bradley-Burns sales taxes at the place of sale leads to competition among cities and counties to attract land uses that involve sales because they generate local revenues. Cities and counties engage in a wide variety of economic development activities to build their tax bases. Local officials use various tactics to influence where, when, and how the private sector invests capital and improves real property, such as:

• Regulatory tools, including general plans, zoning, and subdivision standards;
• Direct spending, including building public works projects like dams, water systems, sewers, levees, and roads, as well as grants and loans, and site preparation; and
• Tax policies, including lower rates on local taxes (such as sales taxes or property taxes) for selected taxpayers and tax abatements where officials return the revenues to the business.

Local officials sometimes use their economic development powers to induce businesses to relocate to their communities. However, state law bans cities and counties from subsidizing the relocation of big box retailers and auto malls within the same market area (SB 114, Torlakson, 2003). State law also prohibits a local agency from entering into an agreement that would result in the payment, transfer, diversion, or rebate of Bradley-Burns local tax proceeds to a retailer if the agreement results in a reduction of revenue that is received by another local agency when the retailer continues to maintain a physical presence and location within that other local agency (SB 533, Pan, 2015).

Even with these restrictions on economic development incentives, local agencies can still offer the following types of tax sharing agreements:

• A reduction in the use tax proceeds that are distributed to the originating local agency through one or more countywide pools.
• Any mutual tax revenue sharing agreement between local agencies to pay, transfer, or divert tax revenues that would be received by one local agency to another local agency, and where the agreement would not result in a rebate of those tax revenues to a retailer.
• An agreement where a retailer expands its operations into another jurisdiction, but the originating local agency receives no less revenue than if the expansion did not occur.

These agreements range in terms of (1) the level of rebate, (2) how long the retailer receives the benefit, (3) the types of jobs or services the retailer must provide in return, and (4) how long the retailer must promise to stay in the jurisdiction. Agreements typically offer between 30% to 60% of the Bradley-Burns revenue generated by the facility, for periods ranging up to 40 years. The City of Fresno recently entered into long-term agreements with Amazon, Nordstrom, and the Gap. Additionally, the City of Dinuba’s agreement with Best Buy has been the subject of recent public reporting. The City of Dinuba’s yearly sales tax revenue in the first nine months of 2020 totaled $20.4 million—55% higher than all of 2019 – despite the effects of the COVID-19 pandemic because it is the place of sale for all of Best Buy’s sales in the entire state.^[1] Under the agreement, the City gives Best Buy 50% of total sales tax proceeds then gives another 10% to the lawyer who created the agreement. The city keeps 40%. Overall sales tax revenue is 444% higher than it was in 2015, the year before the tax sharing agreement took effect.

State Auditor and Legislative Analyst Reports. Both the California State Auditor and the Legislative Analyst’s Office (LAO) have issued reports questioning the statewide benefit of economic development incentives local agencies offer to retailers for locating in their jurisdiction. The November 2017 report from the California State Auditor entitled, “The Bradley-Burns Tax and Local Transportation Funds: Changing the Allocation Structure for the Bradley-Burns Tax Would Result in a More Equitable Distribution of Local Transportation Funding,” states:

“Some counties may benefit disproportionately from the Bradley‑Burns tax because of the way state law currently directs the allocation of the funds. Retailers generally allocate Bradley‑Burns tax revenue based on the place of sale, which they identify according to their business structure. However, retailers that make sales over the Internet may allocate sales to various locations, including their warehouses, distribution center, or sales offices. This approach tends to concentrate Bradley‑Burns tax revenue into the warehouses’ or sales offices’ respective jurisdictions. Consequently, counties with a relatively large amount of industrial space may receive disproportionately larger amounts of Bradley‑Burns tax, and therefore Local Transportation Fund, revenue. The State could make its distribution of Bradley‑Burns tax revenue derived from online sales more equitable if it based allocations of the tax on the destinations to which goods are shipped rather than on place of sale.”

Similarly, a 2007 LAO report entitled, “Allocating Local Sales Taxes,” states:

“The use of financial incentives does not result in net benefits to a broader economic region within the state. It simply shifts existing sales taxes from one jurisdiction to another—at the cost of government resources that could be used for other purposes. The counterproductive aspects of the current system could be addressed through major reforms involving either the local sales tax allocation methodology or changes in local government’s system of taxes. Both of these options would involve significant public policy trade-offs and would require changes to the state’s Constitution.”

In February 2024, the Assembly Revenue and Taxation Committee held a hearing called Following the Money: How Local Sales Tax Revenues are Allocated Among California Cities. At this hearing, the Committee heard from both cities that benefit from the existing allocation framework and use these tax sharing agreements, as well as cities that feel disadvantaged by the current tax allocation system.

Recent developments with tax sharing agreements. Bradley-Burns tax sharing agreements have come under renewed scrutiny. According to an article published in Bloomberg Tax:

“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.”^[2]

Bloomberg Tax also noted some local agencies made information about agreements difficult to find. The City of San Bruno didn’t include payments to Walmart.com on its public check registers, which are approved by city councils during regular meetings.^[3] San Bruno initially denied a request from Bloomberg Tax to provide information about payments to Walmart.com, citing taxpayer confidentiality rules, but released it following a request under the California Public Records Act.^[4]

Seeking to generate additional public information about agreements between local agencies and retailers to refund Bradley-Burns sales taxes, the author wants to require local agencies to publish specified information, and provide it to CDTFA.

Proposed Law

Assembly Bill 2854 requires a local agency to report to CDTFA, the following information on any agreement that results in rebated sales and use tax revenues:

• The name or names of any parties to the agreement;
• The total dollar amount of rebated sales and use tax revenues received by each party to the agreement on or after the date of the execution of the agreement through and including June 30 of the fiscal year immediately preceding the date of the report;
• The total dollar amount of rebated sales and use tax revenues received by each party to the agreement during the fiscal year immediately preceding the date of the report;
• The date on which the agreement was originally executed, and the date on which the agreement terminated, or will terminate, absent any renewal;
• The percentage of a retailer’s sales and use taxes, if any, used to calculate or otherwise determine the rebated sales and use tax revenues received by each party to the agreement; and
• The percentage of a retailer’s sales and use taxes, if any, used to calculate or otherwise determine the rebated sales and use tax revenues received by any other person that is not a party to the agreement.

Local agencies must also publish the above information on their internet websites, on or before April 30 of each year. A hyperlink to the above information must be present and visible on the home page of the local agency’s internet website at all times. However, a local agency can include the information on a website it maintains containing information about its economic development subsidies. Any local agency that has not directly or indirectly paid, transferred, diverted, or rebated any sales and use tax revenues under an agreement in the immediately preceding fiscal year is exempt from the publishing and reporting requirement, but must report this fact to CDTFA.

If a local agency fails to timely report that it does not have an agreement, or provide the required information to CDTFA, or fails to publish information to its internet website, CDTFA must notify the local agency by certified mail. The notification must state that the local agency has 45 days from the local agency’s receipt of the notice to provide or publish the required information or submit a written statement to the department explaining why it is unable to provide or publish the required information.

The local agency must respond within 45 days of the local agency’s receipt of the notice. CDTFA can grant a 30-day extension of the deadline or require the local agency to provide or publish the required information if the local agency demonstrated the failure was due to reasonable cause, as defined. CDTFA cannot extend the deadline if the local agency claims the information is confidential.

If granted an extension, CDTFA can require the local agency to publish or provide the information within 30 days of the date the local agency receives CDTFA’s notice. If CDTFA does not grant the extension, the local agency has 10 days from CDTFA’s notification of its decision to publish or provide the information. CDTFA must send the notice to the person authorized to receive confidential information in its records, and the notice is deemed complete at the time of the deposit in the mail.

If a local agency fails to provide or publish the information by the deadline, CDTFA may impose a penalty in an amount equal to the greater of the following:

• Twenty percent of any rebated sales and use tax revenues during the applicable fiscal year; or
• One thousand dollars ($1,000) for each day past the above deadline that the local agency fails to provide or publish the required information.

CDTFA must collect the penalties through a process set forth in the Fee Procedures Collections Law that allows it to collect any deficiency by bringing an action, either by itself or by asking the Attorney General to do so. CDTFA must deposit fine revenues in the General Fund.

One or before June 1, 2025, and annually thereafter, CDTFA must publish on its internet website the information submitted under the bill. AB 2854 allows CDTFA to prescribe regulations to implement and administer the bill, including emergency regulations. The measure directs the Office of Administrative Law to consider the regulations necessary for purposes of adopting emergency regulations until January 1, 2026. The bill defines terms, and provides its provisions apply notwithstanding taxpayer confidentiality laws.

State Revenue Impact

According to CDTFA, “CDTFA cannot determine the direct revenue impact. Authorizing a penalty when a local agency fails to disclose information to CDTFA or fails to publish information on its website may result in increased revenues of an unknown amount.”

Comments

1. Purpose of the bill. According to the author, “AB 2854 provides much needed transparency for local sales tax revenues by requiring cities and counties to annually submit information to the CDTFA regarding so-called "rebate agreements." Numerous cities and retailers have entered into such sales tax rebate agreements, resulting in a significant – but currently unknown – loss of tax revenues for local agencies across the state. This bill is a direct result from the informational hearing held in November on this topic, where we heard directly from city leaders that greater transparency is needed. Collecting and displaying this information in a centralized location will provide important transparency so leaders at all levels can make better informed decisions relating to local tax policy.

2. Treating the symptom, not the disease. Critics have called for the reform of situs-based allocation, or location-based allocation, of Bradley-Burns sales taxes well before the rise of online commerce, arguing it causes cities and counties to systematically favor new retail development on vacant lands over other land uses, such as housing. Both the Auditor and the LAO have suggested replacing situs-based allocation with a population-based allocation system to reduce incentives for local governments to use their economic development powers to promote retail developments. Reforms have been proposed, but have not been successful: in 2003, the Senate Local Government Committee defeated AB 680 (Steinberg), which would have reallocated Bradley-Burns Sales Taxes in the greater Sacramento region from pure situs-based allocation into a three-way split based on (1) situs, (2) population, and (3) a situs method that excluded cities that were not “housing eligible.” In 2004, voters approved Proposition 1A to add Section 25.5 of Article XIII of the California Constitution to prohibit the Legislature from enacting a statute that would change the method of distributing revenues derived under Bradley-Burns Uniform Local Sales and Use Tax Law, so any move away from a situs-based sales tax allocation system would require a Constitutional Amendment. SCA 20 (Glazer, 2018) would have allowed the Legislature to provide that the retail sale of tangible personal property transacted online is consummated at the point of delivery, but it was not adopted. AB 2854 would compel needed information about the scope of rebate agreements; however, the symptom of rebate agreements are unlikely to abate so long as situs-based allocation remains.

3. Race to the bottom. Allowing communities to use their sales tax revenue to offer significant rebates—which can total more than half of all local sales tax revenue received—often results in shifting economic activity from one jurisdiction that needs more economic growth to another. For example, a company could decide whether to locate its new warehouse in one of two neighboring cities based on which city offers the highest tax rebate. Both may share similar economic conditions, but are pitted against each other to attract retailers with these incentives in exchange for a promise of jobs and economic activity. As the rebates grow larger and larger, the benefits accrue more and more to the company receiving the rebate. However, both local agencies end up on the losing end. The local agency that loses the competition loses jobs, economic activity, and tax revenue. The local agency that wins the competition ends up sacrificing a portion of the sales tax revenue it may have generated if the retailer had plans to locate in that jurisdiction anyway. As this race to the bottom continues, more and more tax dollars go to retailers, not to local jurisdictions. Taxpayers pay sales tax under the belief the money goes to the state and local agencies to provide services, not to provide a rebate to a corporation. Instead, retailers often receive a significant portion of the benefits of this sales tax revenue.

Businesses make decisions about where to locate based on a variety of factors, including whether or not a local agency offers them a lucrative sales tax rebate. However, it is unclear whether the offer of a sales tax rebate outweighs other factors: proximity to major transportation routes, access to particular markets, and whether a retailer already has warehouses and distribution centers in the area. Some of these businesses may have located in these communities regardless of whether or not the city offered them a rebate because these other market forces like speed of delivery were more important than the incentive received. As a result, some local agencies may be giving away sales tax revenue they would otherwise receive to lure a retailer that already had plans to locate a facility in their jurisdiction.

4. One way or another. Earlier this year, the Committee approved SB 1494 (Glazer), which like AB 2854, required local agencies to publish specified information on its website regarding its Bradley-Burns Sales Tax agreements. Unlike AB 2854, SB 1494 directly affected the agreements by:

• Prohibiting a local agency, on or after January 1, 2024, from entering into, renewing, or extending any form of agreement that would result in the payment, transfer, diversion, or rebate of any sales and use tax revenue to any retailer in exchange for the retailer locating or maintaining a place of business that serves as the place of sale if it generates revenue for another local agency; and
• Declaring any such agreement that exists before January 1, 2024, to be void and unenforceable starting on January 1, 2030.

After advancing from the Committees on Local Government and Revenue & Taxation, SB 1494 failed passage on the Senate Floor by a vote of 17 to 11. The measure was granted reconsideration and is current on the Inactive File.

5. Related legislation: In recent years, the Legislature has approved three bills regarding tax collection and allocation from online purchases:

• SB 531 (Glazer, 2019) prohibited a local agency from entering into an agreement that would result in the rebate of Bradley-Burns revenues to any retailer in exchange for the retailer locating or continuing to maintain a place of business within the local agency. Governor Newsom vetoed the bill.
• AB 147 (Burke, 2019) enacted the Marketplace Facilitator Act, and requires any retailer that sells more than $500,000 in property for delivery in California in the current or preceding year to register to collect and remit use taxes.
• SB 792 (Glazer, 2021) would have required specified retailers to include with their sales tax returns a schedule that reports the gross receipts from sales of property for each local jurisdiction where it shipped or delivered to a purchaser in that jurisdiction. Governor Newsom vetoed the bill.

6. Technical. To ensure that AB 2854’s information is on the local agency’s own website, not just one it maintains, committee staff recommend amending AB 2854 to replace “an internet website” with “a webpage on its internet website” on Page 2, Line 18, and replace “website” with “webpage” on Page 3, Line 2.

Assembly Actions

Assembly Revenue and Taxation Committee: 6-0
Assembly Appropriations Committee: 12-1
Assembly Floor: 61-3

Support and Opposition

(6/21/24)

Support: American Federation of State, County and Municipal Employees, Afl-cio
California Professional Firefighters
California Tax Reform Association
City of Placentia
City of Simi Valley
City of Thousand Oaks

Opposition: California Taxpayers Association

-- END --

1. Laura Mahoney, “California City Revives with Tax Revenue Diverted from Rivals”, Bloomberg Daily Tax Report, February 8, 2021). ↑

2. Laura Mahoney, “California Cities Agree to Rein in Apple-Like Tax Windfalls.” Bloomberg Tax Report, August 17, 2023. ↑

3. Laura Mahoney, “Walmart’s California Sales Tax Deal is Successful but Vulnerable” Bloomberg Tax Report, October 11, 2023. ↑

4. Ibid. ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 2854

Author:(Irwin)

As Amended Ver:April 10, 2024

Majority vote

SUMMARY

Requires cities and counties to annually provide specified information to the California Department of Tax and Fee Administration (CDTFA) and on their website relating to each agreement that results in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns sales and use tax (SUT) revenues, as specified.

Major Provisions

1. Defines "rebated sales and use tax revenues" as any direct or indirect payment, transfer, diversion, or rebate of any tax revenue resulting from the imposition of a SUT under the Bradley-Burns Uniform Sales and Use Tax Law (Bradley-Burns).
2. Requires, on or before April 30^th of each year, local agencies to report to CDTFA, in a form and manner prescribed by the department, all of the following information on each agreement resulting in rebated SUT revenues:
   1. The name or names of any parties to the agreement;
   2. The total dollar amount of rebated SUT revenues received by each party to the agreement on or after the date of the execution of the agreement through and including December 31 of the fiscal year immediately preceding the date of the report;
   3. The total dollar amount of rebated SUT revenues received by each party to the agreement during the fiscal year immediately preceding the date of the report;
   4. The date on which the agreement was originally executed, and the date on which the agreement will terminate, absent any renewal;
   5. The percentage of a retailer's SUTs, if any, used to calculate or otherwise determine the rebated SUT revenues received by each party to the agreement; and,
   6. The percentage of a retailer's SUTs, if any, used to calculate or otherwise determine the rebated SUT revenues received by any other person that is not a party to the agreement.
3. Requires that each local agency publishes the same information provided to the CDTFA on the local agency's website and that a link to the information be present and visible on the homepage of the website at all times.
4. Exempts any local agency that has not directly or indirectly paid, transferred, diverted, or rebated any SUT revenues from providing the above information to the CDTFA and posting the information on its internet website. Instead, such local agencies must attest to this fact in a form and manner prescribed by the department.
5. Provides that, in any case where a local agency fails to provide the information above in a timely manner to the CDTFA or fails to post the information on its internet website, the department must notify the local agency that it has 30 days from receipt of the notice to provide or publish the required information. If a local agency fails to provide or publish the information within 30 days after receiving the notice, the department may impose a penalty in an amount equal to the greater of the following:
   1. 20% of any rebated SUT revenues during the applicable fiscal year; or,
   2. $1,000 for each day the local agency fails to provide or publish the required information after receipt of the 30-day notice from the CDTFA.
6. Requires the CDTFA, on or before June 1, 2025, and annually thereafter, to publish on its internet website the information submitted by local agencies.

COMMENTS

What would this bill do? This bill requires cities and counties to annually provide CDTFA specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues, as well as post that information on their website. Cities and counties that have not entered into any such agreements simply attest to that fact and are exempt from these provisions. Additionally, this bill requires the CDTFA to post this information on its website. By collecting and displaying this information in a centralized location, the author seeks to provide transparency so leaders at all levels can make better informed decisions relating to local tax policy.

Place of sale: Bradley-Burns tax allocation varies depending on whether the transaction is subject to sales tax or use tax. The transaction is subject to sales tax if the retailer's place of business in California participates in the transaction and the sale takes place (i.e., title to the goods passes to the customer) in California. Unless both of these conditions are met, the use tax applies. If a retailer has only one place of business in California, all California retail sales in which that place of business participates occur at that place of business.^[1] If a retailer has more than one place of business in this state participating in the sale, the place of sale is where the principal negotiations occur.^[2]

Let's make a deal: The complicated sourcing rules described above have given many retailers a powerful negotiating tool vis-à-vis local governments. For example, imagine a concrete manufacturer with production and sales offices located throughout the state. This manufacturer could decide to restructure by consolidating all statewide sales into one California office. This sales office, as the place of principal negotiation, could then serve as the retailer's "place of sale" for Bradley-Burns purposes on all of its California sales. Before deciding where to locate its one sales office, the concrete manufacturer could negotiate with an array of cities to see which is willing to rebate the largest percentage of any new Bradley-Burns revenues back to the retailer.

Many cities have reportedly offered large companies over one-half of their new revenues in such negotiations in the hopes of bringing jobs and economic development to their regions.^[3] Retailers are the obvious beneficiaries of such arrangements. It is less clear, however, whether cities similarly benefit given the nature of the jobs created and the revenues siphoned from essential public services. Critics contend that the biggest losers are the many local agencies throughout California that previously received Bradley-Burns taxes from the retailer's sales.

Redirected revenues: In 2007, the Legislative Analyst's Office (LAO) published a report on the allocation of local sales tax, which focused on agreements between cities and private businesses involving diversions of local sales taxes to lure businesses to remain or move into a particular jurisdiction.^[4] The report concluded that the use of such financial incentives does not result in a net benefit to a broader economic region within the state, but rather simply shifts existing sales tax from one jurisdiction to another at the cost of government resources that could be used for other purposes.

Transparency for local economic development: Existing law requires local agencies that provide subsidies, including forgone tax revenues to private businesses in pursuit of economic development, to comply with numerous transparency measures. These measures include posting specified information about the amount of the subsidies; which entities will be receiving the subsidies; the net tax revenue accruing to the local agency as a result of the subsidy; and an estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions. Additionally, local agencies are required to provide a public notice and hearing with an opportunity to hear from members of the community prior to approving any subsidy, as well as hold a subsequent public hearing within either 5 or 10 years of granting the subsidy.

According to the Author

AB 2854 provides much needed transparency for local sales tax revenues by requiring cities and counties to annually submit information to the CDTFA regarding so-called "rebate agreements." Numerous cities and retailers have entered into such sales tax rebate agreements, resulting in a significant – but currently unknown – loss of tax revenues for local agencies across the state. This bill is a direct result of the informational hearing held in November on this topic, where we heard directly from city leaders that greater transparency is needed. Collecting and displaying this information in a centralized location will provide important transparency so leaders at all levels can make better informed decisions relating to local tax policy.

Arguments in Support

This bill is supported by several cities, including the City of Placentia, which notes, in part:

AB 2854 increases transparency and accountability by requiring local agencies to report agreements involving local tax revenues. This can lead to increased trust within a community. When local agencies show transparency in their decision-making processes, they demonstrate a commitment to integrity and ethical governance. Community members are thus more likely to trust government institutions that operate openly and honestly, leading to increased confidence in the system as a whole.

Arguments in Opposition

This bill is opposed by the California Taxpayers Association, which notes, in part:

Sales tax sharing agreements are viewed favorably by both local governments and businesses due to the significant benefits they generate. Local governments receive substantial tax revenue from business activities, residents see increased employment opportunities in their community, and local businesses reinvest in the area…. While it is important for residents to have transparency regarding rebates from sales tax sharing agreements, it is equally important that the benefits of these agreements are also publicly disclosed.

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

1. Absorbable costs to CDTFA to collect and publish rebate information from local agencies and impose authorized penalties.
2. Penalty revenue of an unknown amount, potentially in excess of $150,000 (General Fund (GF)). CDTFA does not anticipate issuing many penalties, since information regarding a local agency's tax sharing agreement is already available in public meeting minutes and a local agency will have the opportunity to cure a violation. However, to the extent a local agency egregiously fails to comply with this bill, there is no maximum limit on the penalty amount that may be imposed.
3. By requiring each city, county, and city and county to submit specified information to CDTFA and post the information online in a specified manner, this bill may create a state-mandated local program. If the Commission on State Mandates determines the provisions of this bill create a new program or impose a higher level of service for which the state must reimburse local costs, the local agency could claim reimbursement from the state (GF). While costs to each local agency on its own are likely to be minimal, aggregate costs may be more substantial, as California has 58 counties and over 480 cities. Although the exact number is unknown, the author's office approximates at least 50 cities have at least one applicable agreement.

According to the Legislative Analyst's Office, the GF faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

VOTES

ASM REVENUE AND TAXATION: 6-0-1

YES: Irwin, Bains, Gipson, Grayson, Jim Patterson, Luz Rivas

ABS, ABST OR NV: Ta

ASM APPROPRIATIONS: 12-1-2

YES: Wicks, Arambula, Bryan, Calderon, Wendy Carrillo, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Villapudua

NO: Sanchez

ABS, ABST OR NV: Dixon, Ta

UPDATED

VERSION: April 10, 2024

CONSULTANT: Wesley Whitaker / REV. & TAX. / (916) 319-2098 FN: 0003251

1. R&TC Section 7205. ↑

2. Cal. Code Regs., tit. 18, Section (Regulation) 1802, subd. (a). ↑

3. Mahoney, Apple's 22-year Tax Break Part of Billions in California Bounty", Bloomberg Tax (April 24, 2019). https://news.bloombergtax.com/daily-tax-report-state/apples-22-year-tax-break-part-of-billions-in-california-bounty. ↑

4. Williams, Allocating Local Sales Taxes: Issues and Options, Legislative Analyst's Office (January 12, 2007). https://lao.ca.gov/2007/sales_tax/sales_tax_012407.aspx. ↑

Date of Hearing: April 24, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2854

Author:(Irwin) – As Amended Ver:April 10, 2024

Urgency: No State Mandated Local Program: Yes Reimbursable: Yes

SUMMARY:

This bill requires a local agency to annually provide specified information to the California Department of Tax and Fee Administration (CDTFA) regarding the rebate of Bradley-Burns Uniform Local Sales and Use Tax Law (BB SUT) revenues.

Specifically, this bill:

1. Requires, by April 30 of each year, a local agency, meaning a city, county, or city and county, to provide information to CDTFA regarding each agreement entered into by the local agency that results in rebated BB SUT revenues. A local agency without such an agreement in the preceding fiscal year must report this fact to CDTFA.
2. Requires, by April 30 of each year, the local agency to publish the information provided to CDTFA on the local agency’s website. A hyperlink to the information must be present and visible on the website homepage.
3. Requires, beginning June 1, 2025, CDTFA to annually publish the information received from local agencies on CDTFA’s website.
4. Allows, after a specified notice period, CDTFA to impose a monetary penalty on a local agency that fails to provide the information to CDTFA or online, in an amount equal to the greater of: (a) 20% of any rebated BB SUT revenues during the applicable fiscal year or (b) $1,000 per day the local agency fails to provide the information after the notice period.

FISCAL EFFECT:

1. Absorbable costs to CDTFA to collect and publish rebate information from local agencies and impose authorized penalties.
2. Penalty revenue of an unknown amount, potentially in excess of $150,000 (General Fund (GF)). CDTFA does not anticipate issuing many penalties, since information regarding a local agency’s tax sharing agreement is already available in public meeting minutes and a local agency will have the opportunity to cure a violation. However, to the extent a local agency egregiously fails to comply with this bill, there is no maximum limit on the penalty amount that may be imposed.
3. By requiring each city, county, and city and county to submit specified information to CDTFA and post the information online in a specified manner, this bill may create a state-mandated local program. If the Commission on State Mandates determines the provisions of this bill create a new program or impose a higher level of service for which the state must reimburse local costs, the local agency could claim reimbursement from the state (GF). While costs to each local agency on its own are likely to be minimal, aggregate costs may be more substantial, as California has 58 counties and over 480 cities. Although the exact number is unknown, the author’s office approximates at least 50 cities have at least one applicable agreement.

According to the Legislative Analyst’s Office, the GF faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

COMMENTS:

1. Purpose. According to the author:

Numerous cities and retailers have entered into such sales tax rebate agreements, resulting in a significant – but currently unknown – loss of tax revenues for local agencies across the state. This bill is a direct result from the informational hearing held in November on this topic, where we heard directly from city leaders that greater transparency is needed. Collecting and displaying this information in a centralized location will provide important transparency so leaders at all levels can make better informed decisions relating to local tax policy.

1. Support and Opposition. This bill is supported by the California Tax Reform Association (CTRA), American Federation of State, County, and Municipal Employees, and the cities of Placentia and Simi Valley. CTRA argues “Enhancing transparency and accountability within these financial arrangements is necessary for the equitable distribution of tax revenues across our state.”

This bill is opposed by the California Taxpayers Association (CTA) unless the bill is amended to “include information relating to job growth, wage data, and employment of residents from underrepresented communities” due to sales tax sharing agreements. CTA notes such agreements are “viewed favorably by both local governments and businesses.”

1. Background.

BB SUT Rules. BB SUT allocation varies depending on whether the transaction is subject to sales tax or use tax, with sales tax allocated to the place of sale. If a retailer has only one place of business in California, all retail sales in which the retailer participates are deemed to occur at that place of business. If a retailer has more than one place of business in California participating in a sale, the place of sale is deemed to be where the principal negotiations occur. These complicated sourcing rules give retailers a powerful negotiating tool against local governments when deciding where to open a place of business. For example, a manufacturer with production and sales offices throughout the state could consolidate all sales operations into one California office, which would serve as the place of principal negotiation for sales tax purposes. Before deciding where to locate the office, the manufacturer could negotiate with an array of cities or counties to determine which local agency is willing to rebate the largest percentage of any new BB SUT revenues back to the company in exchange for locating within the local agency’s jurisdiction.

Redirected BB SUT Revenues. As noted in the Assembly Revenue and Taxation Committee’s analysis of this bill, “Many cities have reportedly offered large companies over one-half of their new revenues in such negotiations in the hopes of bringing jobs and economic development to their regions.” A 2007 report by the Legislative Analyst’s Office that focused on sales tax agreements between cities and businesses concluded that the use of such financial incentives does not result in a net benefit to a broader economic region within the state, but instead shifts existing sales tax from one jurisdiction to another at the cost of government resources that could be used for other purposes.

SB 533 (Pan), Chapter 717, Statutes of 2015, added restrictions on a local agency that enters into a BB SUT rebate agreement and requires a local agency to post the agreement online at least 60 days prior to approval by the governing body. This bill requires a local agency to annually provide CDTFA with specified information from such agreements, such as the total dollar amount of rebated BB SUT revenues received by each party to the agreement and the percentage of a retailer’s sales and use taxes used to calculate rebated BB SUT revenues received by a person who is not a party to the agreement, such as a broker or consultant who helped negotiate the agreement. This bill also requires the local agency, and eventually CDTFA, to post this information online, and authorizes CDTFA to impose penalties on a non-compliant local agency.

1. Related Legislation. SB 1494 (Glazer) prohibits a local agency from entering into, renewing, or extending a BB SUT rebate agreement with a retailer in exchange for locating within the local agency’s jurisdiction and voids such existing agreements on January 1, 2030. SB 1494 is pending hearing in the Senate Revenue and Taxation Committee.
2. Prior Legislation. SB 531 (Glazer), of the 2019-20 Legislative Session, was similar to SB 1494, except SB 531 would not have voided existing agreements. SB 531 was vetoed by Governor Newsom, who stated:

Current use of these tax agreements are limited but also an important local tool that captures additional economic activity, particularly in rural and inland California cities that continue to face significant economic challenges like high unemployment rates. Therefore, completely removing these tax options from local decision makers is the wrong approach.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 8, 2024

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 2854 (

Author:Irwin) – As Amended Ver:March 18, 2024

Majority vote. Fiscal committee.

SUBJECT: Bradley-Burns Uniform Local Sales and Use Tax Law

SUMMARY: Requires cities and counties to annually provide specified information to the California Department of Tax and Fee Administration (CDTFA) and on their website relating to each agreement that results in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns sales and use tax (SUT) revenues, as specified. Specifically, this bill:

1. Defines a "local agency" by cross-reference to Government Code (GC) Section 53084.5.
2. Defines "rebated sales and use tax revenues" as any direct or indirect payment, transfer, diversion, or rebate of any tax revenue resulting from the imposition of a SUT under the Bradley-Burns Uniform Sales and Use Tax Law (Bradley-Burns).
3. Requires, on or before April 30^th of each year, local agencies to report to CDTFA, in a form and manner prescribed by the department, all of the following information on each agreement resulting in rebated SUT revenues:
   1. The name or names of any parties to the agreement;
   2. The total dollar amount of rebated SUT revenues received by each party to the agreement on or after the date of the execution of the agreement through and including December 31 of the calendar year immediately preceding the date of the report;
   3. The total dollar amount of rebated SUT revenues received by each party to the agreement during the calendar year immediately preceding the date of the report;
   4. The date on which the agreement was originally executed, and the date on which the agreement will terminate, absent any renewal;
   5. The percentage of a retailer's SUTs, if any, used to calculate or otherwise determine the rebated SUT revenues received by each party to the agreement; and,
   6. The percentage of a retailer's SUTs, if any, used to calculate or otherwise determine the rebated SUT revenues received by any other person that is not a party to the agreement.
4. Requires that each local agency publishes the same information provided to the CDTFA on the local agency's website and that a link to the information be present and visible on the homepage of the website at all times.
5. Exempts any local agency that has not directly or indirectly paid, transferred, diverted, or rebated any SUT revenues from providing the above information to the CDTFA and posting the information on its internet website. Instead, such local agencies must attest to this fact in a form and manner prescribed by the department.
6. Provides that, in any case where a local agency fails to provide the information above in a timely manner to the CDTFA or fails to post the information on its internet website, the department must notify the local agency that it has 30 days to provide or publish the required information. If a local agency fails to provide or publish the information within 30 days of the date the department provides notice, the department may impose a penalty in an amount equal to the greater of the following:
   1. 20% of any rebated SUT revenues during the applicable calendar year; or,
   2. $1,000 for each day the local agency fails to provide or publish the required information after receipt of the 30-day notice from the CDTFA.
7. Requires the CDTFA, on or before June 1, 2025, and annually thereafter, to publish on its internet website the information submitted by local agencies.

EXISTING LAW:

1. Authorizes counties and cities, under Bradley-Burns, to impose a local SUT for tangible personal property (TPP) sold at retail in the county or city, or purchased for storage, use, or other consumption in the county or city. (Revenue and Taxation Code (R&TC) Section 7202 et seq.)
2. Requires the county or city to contract with the CDTFA for the administration of the taxes and requires CDTFA, in turn, to transmit those taxes to the city or county.  (R&TC Section 7202(d).)
3. Provides that, for purposes of a local Bradley-Burns sales tax, all retail sales are consummated at the place of business of the retailer, unless otherwise specified.  (R&TC Section 7205.)
4. Prohibits a local agency from entering into any agreement that would result in the payment, transfer, diversion, or rebate of any Bradley-Burns revenues to any person when both of the following conditions apply:
   1. The agreement reduces the amount of Bradley-Burns revenue that, absent the agreement, would be received by another local agency; and,
   2. The retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency.  (GC Section 53084.5(a).) 
5. Requires any local agency entering into an agreement that reduces the amount of Bradley-Burns revenues that would otherwise be received by another local agency to:
   1. Post the proposed agreement on its internet website for at least 30 days before ratification or approval; and,
   2. Notify the other local agency by certified mail, as specified, at least 60 days before ratification or approval.  (GC Section 53084.5(b).) 
6. Requires a local agency to post any such agreement on its internet website.  (GC Section 53084.5(b)(3).) 
7. Requires each local agency to provide specified information to the public before approving an economic development subsidy within its jurisdiction, and to, among other things, hold hearings and report on those subsidies. For these purposes, "economic development subsidy" is defined as any expenditure of public funds or loss of revenue to a local agency in an amount of $100,000 or more. (GC Section 53083 et seq.)
8. Requires the officer of each local agency who has charge of the financial records to annually provide a report to the Controller containing all of the financial transactions of the local agency during the preceding year, as well as information relating to annual compensation. The report must contain underlying data from audited financial statements prepared in accordance with generally accepted accounting principles, if the data are available. (GC 53891 et seq.)

FISCAL EFFECT: A fiscal estimate is pending from the CDTFA, however, this bill is unlikely to affect either state or local revenues.

COMMENTS:

1. The author has provided the following statement in support of this bill:

AB 2854 provides much needed transparency for local sales tax revenues by requiring cities and counties to annually submit information to the CDTFA regarding so-called "rebate agreements." Numerous cities and retailers have entered into such sales tax rebate agreements, resulting in a significant – but currently unknown – loss of tax revenues for local agencies across the state. This bill is a direct result from the informational hearing held in November on this topic, where we heard directly from city leaders that greater transparency is needed. Collecting and displaying this information in a centralized location will provide important transparency so leaders at all levels can make better informed decisions relating to local tax policy.

1. Writing in support of the measure, the City of Placentia, notes, in part:

AB 2854 increases transparency and accountability by requiring local agencies to report agreements involving local tax revenues. This can lead to increased trust within a community. When local agencies show transparency in their decision-making processes, they demonstrate a commitment to integrity and ethical governance. Community members are thus more likely to trust government institutions that operate openly and honestly, leading to increased confidence in the system as a whole.

1. Writing in opposition to the measure, the California Taxpayers Association, notes, in part:

Sales tax sharing agreements are viewed favorably by both local governments and businesses due to the significant benefits they generate. Local governments receive substantial tax revenue from business activities, residents see increased employment opportunities in their community, and local businesses reinvest in the area…. While it is important for residents to have transparency regarding rebates from sales tax sharing agreements, it is equally important that the benefits of these agreements are also publicly disclosed.

1. Committee Staff Comments:
   1. What would this bill do? This bill requires cities and counties to annually provide CDTFA specified information relating to each agreement resulting in the direct or indirect payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues, as well as post that information on their website. Cities and counties that have not entered into any such agreements simply attest to that fact and are exempt from these provisions. Additionally, this bill requires the CDTFA to post this information on its website. By collecting and displaying this information in a centralized location, the author seeks to provide transparency so leaders at all levels can make better informed decisions relating to local tax policy.
   2. Overview of Bradley-Burns: In 1955, the Legislature enacted Bradley-Burns, which authorized counties and cities to impose a local SUT, but required them to contract with the State Board of Equalization (BOE) to perform all administrative functions, including tax collection and revenue allocation to the appropriate local governments. Bradley-Burns was enacted to provide an additional source of revenue for local governments, to promote a uniform and integrated SUT regime throughout the state, and to avoid retailers having to pay different taxes to different governmental entities by having the integrated SUT program administered by the state.
      
      Responsibility for administering Bradley-Burns was shifted from the BOE to the CDTFA as part of the Taxpayer Transparency and Fairness Act of 2017. The tax rate is fixed at 1.25% of the sales price of TPP sold at retail in the county or purchased outside the county for use within the county. Current law authorizes cities to impose a local Bradley-Burns SUT rate of up to 1%. The city SUT rate is "credited" against the county rate so that the combined rate does not exceed 1.25%.
      
      Of the 1.25%, cities and counties use 1% to support general operations. The remaining 0.25% is designated by statute for county transportation purposes and restricted to road maintenance or the operation of transit systems. Counties receive the 0.25% tax for transportation purposes regardless of whether the sale occurs in a city or in the unincorporated area of the county. In California, all counties impose Bradley-Burns local taxes at a total uniform rate of 1.25%, and most cities impose Bradley-Burns local taxes at a rate of 1.00%. Certain cities impose the tax at a slightly lower rate than 1.00% via agreement with their respective counties.
   3. Place of sale: Bradley-Burns tax allocation varies depending on whether the transaction is subject to sales tax or use tax. The transaction is subject to sales tax if the retailer's place of business in California participates in the transaction and the sale takes place (i.e., title to the goods passes to the customer) in California. Unless both of these conditions are met, the use tax applies.

As noted above, the local sales tax is allocated to the place of sale. For purposes of local sales tax, the place of sale is a place of business of the retailer.^[1] The term "sale" means "[a]ny transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of [TPP] for a consideration."^[2] If a retailer has only one place of business in California, all California retail sales in which that place of business participates occur at that place of business. If a retailer has more than one place of business in this state participating in the sale, the place of sale is where the principal negotiations occur.^[3]

Local use tax is generally allocated to local jurisdictions through a countywide pool. Each local jurisdiction within a county, including the county itself, receives a prorated amount of the countywide pool (based on its proportion of the local tax that is directly allocated to jurisdictions within the county).^[4]

• 1. Let's make a deal: The rather complicated sourcing rules described above have given many retailers a powerful negotiating tool vis-à-vis local governments. For example, imagine a concrete manufacturer with production and sales offices located throughout the state. This manufacturer could decide to restructure by consolidating all statewide sales into one California office. This sales office, as the place of principal negotiation, could then serve as the retailer's "place of sale" for Bradley-Burns purposes on all of its California sales. Before deciding where to locate its one sales office, the concrete manufacturer could negotiate with an array of cities to see which is willing to rebate the largest percentage of any new Bradley-Burns revenues back to the retailer.

Many cities have reportedly offered large companies over one-half of their new revenues in such negotiations in the hopes of bringing jobs and economic development to their regions.^[5] Retailers are the obvious beneficiaries of such arrangements. It is less clear, however, whether cities similarly benefit given the nature of the jobs created and the revenues siphoned from essential public services. Critics contend that the biggest losers are the many local agencies throughout California that previously received Bradley-Burns taxes from the retailer's sales.

• 1. Redirected revenues: In 2007, the Legislative Analyst's Office (LAO) published a report on the allocation of local sales tax, which focused on agreements between cities and private businesses involving diversions of local sales taxes to lure businesses to remain or move into a particular jurisdiction.^[6] The report concluded that the use of such financial incentives does not result in a net benefit to a broader economic region within the state, but rather simply shifts existing sales tax from one jurisdiction to another at the cost of government resources that could be used for other purposes.

On November 15, 2023, this Committee held an informational hearing on the topic of Bradley-Burns revenues and the impacts of rebate agreements. The hearing featured presentations from the CDTFA, the LAO, and Michael Colantuono, a distinguished attorney that has represented local agencies on related matters. Additionally, the hearing featured a panel of municipal leaders from the cities of Fresno, Simi Valley, and Placentia, as well as public comment from representatives from various other California cities.^[7]

• 1. Transparency for local economic development: As described above, existing law requires local agencies that provide subsidies, including forgone tax revenues, to private businesses in pursuit of economic development to comply with numerous transparency measures. These measures include posting specified information about the amount of the subsidies, which entities will be receiving the subsidies; the net tax revenue accruing to the local agency as a result of the subsidy; and an estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions. Additionally, local agencies are required to provide a public notice and hearing with an opportunity to hear from members of the community prior to approving any subsidy, as well as hold a subsequent public hearing within either 5 or 10 years of granting the subsidy.
  2. Technical amendments: In order to address implementation concerns raised by local agencies, the author has agreed amend the bill as follows:
     1. Clarify that these provisions do not make a local agency liable for disclosure of taxpayer information under R&TC Section 7056;
     2. Allow a local agency to explain why it is unable to comply with the reporting deadline before being penalized;
     3. Delete references to "calendar year" and replace with "fiscal year"; and,
     4. Provide greater specificity on the deadlines to provide information and request an extension.
  3. Related legislation: SB 1494 (Glazer) would prohibit a local agency from entering into, renewing, or extending any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion or rebate of Bradley-Burns revenues to any retailer, as specified. Additionally, SB 1494 would make those forms of agreements existing before January 1, 2024 void and unenforceable as of January 1, 2030. SB 1494 is currently pending hearing by the Senate Revenue and Taxation Committee.
  4. Prior legislation:
     1. SB 792 (Glazer), of the 2021-22 Legislative Session, would have required qualified retailers to include with each SUT return a schedule that reports for each local jurisdiction the gross receipts from the qualified sale of TPP shipped or delivered to a purchaser in that jurisdiction. Governor Newsom vetoed SB 792, noting the following in his veto message:

This bill requires certain online retailers to include with their tax returns an additional schedule that reports the gross receipts for each local jurisdiction that qualified goods were delivered to a purchaser.

This duplicates extensive sales and use tax information that is already accessible on the California Department of Tax and Fee Administration's online portal, and results in General Fund costs that are not included in the Budget Act.

I support increased transparency and oversight of the use of local government tax related economic development agreements, which is why I signed AB 485 (Chapter 803, Statutes of 2019). However, this bill creates a burdensome and costly new reporting requirement for many retailers that is unrelated to their tax obligations.

• • 1. SB 531 (Glazer), of the 2019-20 Legislative Session, would have prohibited a local agency from entering into an agreement that would result in the rebate of Bradley-Burns revenues to any retailer in exchange for the retailer locating or continuing to maintain a place of business within the local agency, as specified. Governor Newsom vetoed SB 531, noting the following in his veto message:

This bill would prohibit a local agency from entering into any agreement that would result, directly or indirectly, in a rebate of the Bradley-Burns Uniform Local Sales and Use Tax revenues to a retailer that locates or maintains a place of sale within the jurisdiction of that local agency.

Current use of these tax agreements are limited but also an important local tool that captures additional economic activity, particularly in rural and inland California cities that continue to face significant economic challenges like high unemployment rates. Therefore, completely removing these tax options from local decision makers is the wrong approach.

I do support greater oversight with respect to the use of these tax agreements and have signed Assembly Bill 485, which will increase transparency regarding the economic outcomes that result from these types of agreements. This will allow the state to better understand the nature of the agreements between local jurisdictions and businesses, as well as the challenges and obstacles to inclusive growth.

• • 1. SB 1466 (Glazer), of the 2017-18 Legislative Session, would have provided that the place of sale for certain online transactions is the point of delivery for the TPP, as specified. SB 1466 was not heard in the Senate Governance and Finance Committee.
    2. SB 533 (Pan), Chapter 717, Statutes of 2015, added additional restrictions on local agencies that entered into agreements that result in the payment, transfer, diversion or rebate of any Bradley-Burns local tax revenues and required cities to post the agreements on their internet websites at least 60 days prior to approval by their governing body.
    3. SB 27 (Hancock), Chapter 4, Statutes of 2009, prohibited a local agency from entering into an agreement that results in the payment, transfer, diversion, or rebate of any Bradley-Burns local tax revenues, as specified.

REGISTERED SUPPORT / OPPOSITION:

Support

AFSCME California

California Tax Reform Association

City of Placentia

Oppose unless amended

California Taxpayers Association

Analysis Prepared by: Wesley Whitaker / REV. & TAX. / (916) 319-2098

1. R&TC Section 7205. ↑

2. R&TC Section 6006. ↑

3. Cal. Code Regs., tit. 18, § (Regulation) 1802, subd. (a). ↑

4. Local and District Tax Guide for Retailers, California Department of Tax and Fee Administration. https://www.cdtfa.ca.gov/industry/localanddistricttaxes.htm#Local-Tax. ↑

5. Mahoney, Apple's 22-year Tax Break Part of Billions in California Bounty", Bloomberg Tax (April 24, 2019). https://news.bloombergtax.com/daily-tax-report-state/apples-22-year-tax-break-part-of-billions-in-california-bounty. ↑

6. Williams, Allocating Local Sales Taxes: Issues and Options, Legislative Analyst's Office (January 12, 2007). https://lao.ca.gov/2007/sales_tax/sales_tax_012407.aspx. ↑

7. Following the Money: How Local Sales Tax Revenues Are Allocated Among California Cities, California Assembly Committee on Revenue and Taxation (November 15, 2023). https://arev.assembly.ca.gov/media/817. ↑