(1)Existing law authorizes cities and counties, subject to certain limitations and approval requirements, to levy a transactions and use tax for general or specific purposes, in accordance with the procedures and requirements set forth in the Transactions and Use Tax Law, including a requirement that the combined rate of all taxes that may be imposed in accordance with that law in the county not exceed 2%.

This bill would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes at a rate of no more than 0.625% that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if the county adopts an ordinance proposing the tax and the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements, as specified. The bill would specify that a transactions and use tax established pursuant to its provisions would not be considered for purposes of the 2% combined rate limitation. The bill would repeal this authorization on December 31, 2028, if an ordinance proposing the tax has not been approved by that date.

(2)Existing law authorizes the Ventura County Transportation Commission to impose a transactions and use tax for the support of countywide transportation programs at a rate of no more than 0.5% that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if the county adopts an ordinance proposing the tax and the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements.

This bill would amend these provisions to instead authorize the County of Ventura to impose such a transactions and use tax for the support of countywide transportation programs.

This bill would make legislative findings and declarations as to the necessity of a special statute for the Counties of Santa Clara and Ventura.

(1)Existing law authorizes cities and counties, subject to certain limitations and approval requirements, to levy a transactions and use tax for general or specific purposes, in accordance with the procedures and requirements set forth in the Transactions and Use Tax Law, including a requirement that the combined rate of all taxes that may be imposed in accordance with that law in the county not exceed 2%.

This bill would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes at a rate of no more than 0.625% that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if the county adopts an ordinance proposing the tax and the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements, as specified. The bill would specify that a transactions and use tax established pursuant to its provisions would not be considered for purposes of the 2% combined rate limitation. The bill would repeal this authorization on December 31, 2028, if an ordinance proposing the tax has not been approved by that date.

(2)Existing law authorizes the Ventura County Transportation Commission to impose a transactions and use tax for the support of countywide transportation programs at a rate of no more than 0.5% that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if the county adopts an ordinance proposing the tax and the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements.

This bill would amend these provisions to instead authorize the County of Ventura to impose such a transactions and use tax for the support of countywide transportation programs.

This bill would make legislative findings and declarations as to the necessity of a special statute for the Counties of Santa Clara and Ventura.

(1)Existing law authorizes cities and counties, subject to certain limitations and approval requirements, to levy a transactions and use tax for general or specific purposes, in accordance with the procedures and requirements set forth in the Transactions and Use Tax Law, including a requirement that the combined rate of all taxes that may be imposed in accordance with that law in the county not exceed 2%.

This bill would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes at a rate of no more than 0.625% that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if the county adopts an ordinance proposing the tax and the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements, as specified. The bill would specify that a transactions and use tax established pursuant to its provisions would not be considered for purposes of the 2% combined rate limitation. The bill would repeal this authorization on December 31, 2028, if an ordinance proposing the tax has not been approved by that date.

This bill would make legislative findings and declarations as to the necessity of a special statute for the County Counties of Santa Clara. Clara and Ventura.

Existing law authorizes cities and counties, subject to certain limitations and approval requirements, to levy a transactions and use tax for general or specific purposes, in accordance with the procedures and requirements set forth in the Transactions and Use Tax Law, including a requirement that the combined rate of all taxes that may be imposed in accordance with that law in the county not exceed 2%.

This bill would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes at a rate of no more than 0.625% that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if the county adopts an ordinance proposing the tax and the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements, as specified. The bill would specify that a transactions and use tax established pursuant to its provisions would not be considered for purposes of the 2% combined rate limitation. The bill would repeal this authorization on December 31, 2028, if an ordinance proposing the tax has not been approved by that date.

This bill would make legislative findings and declarations as to the necessity of a special statute for the County of Santa Clara.

Existing law authorizes cities and counties, subject to certain limitations and approval requirements, to levy a transactions and use tax for general or specific purposes, in accordance with the procedures and requirements set forth in the Transactions and Use Tax Law, including a requirement that the combined rate of all taxes that may be imposed in accordance with that law in the county not exceed 2%.

This bill would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes at a rate of no more than 0.625% that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if the county adopts an ordinance proposing the tax and the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements, as specified. The bill would specify that a transactions and use tax established pursuant to its provisions would not be considered for purposes of the 2% combined rate limitation. The bill would repeal this authorization on December 31, 2028, if an ordinance proposing the tax has not been approved by that date.

This bill would make legislative findings and declarations as to the necessity of a special statute for the County of Santa Clara.

Existing law requires the Department of Industrial Relations to complete and publish an annual report containing statistics on state work injuries and occupational diseases and fatalities by industry classifications by December 31 of the following calendar year and requires all of the reports and statistics to be available to the public.

This bill would specify that the reports and statistics described above are required to be available to the public in a manner determined by the department. require the department to submit the annual report to the Legislature and the Governor.

Existing law requires the Department of Industrial Relations to complete and publish an annual report containing statistics on state work injuries and occupational diseases and fatalities by industry classifications by December 31 of the following calendar year and requires all of the reports and statistics to be available to the public.

This bill would specify that the reports and statistics described above are required to be available to the public in a manner determined by the department.

 UNFINISHED BUSINESS  

Bill No: SB 335

Author: Cortese (D), et al.

Amended: 8/28/23

Vote: 21

PRIOR SENATE VOTES NOT RELEVANT

SENATE GOVERNANCE & FIN. COMMITTEE: 6-2, 9/7/23 (Pursuant to Senate Rule 29.10)

AYES: Caballero, Blakespear, Durazo, Glazer, Skinner, Wiener

NOES: Seyarto, Dahle

ASSEMBLY FLOOR: 51-17, 9/5/23 - See last page for vote

SUBJECT: Transactions and use taxes: County of Santa Clara

SOURCE: County of Santa Clara; Rebuild SoCal

DIGEST:

This bill allows the Santa Clara County Board of Supervisors to propose a district tax of up to 0.625% in Santa Clara County that exceeds the 2% cap; shifts the authority to impose a district tax for countywide transportation purposes in Ventura County that exceeds the 2% cap from the Ventura County Transportation Commission to the County

Assembly Amendments

delete the previous contents of the bill, relating to a Department of Industrial Relations report, and insert the current ones.

ANALYSIS:

1. Imposes the sales tax on every retailer engaged in business in this state that sells tangible personal property, and requires them to collect the appropriate tax from the purchase and remit the amount to the California Department of Tax and Fee Administration.
2. Applies whenever a retail sale is made, which is basically any sale other than one for resale in the regular course of business.
3. Provides that unless the person pays the sales tax to the retailer, they are liable for the use tax, which is imposed on any person consuming tangible personal property in the state. The use tax rate is the same rate as the sales tax rate, and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.
4. Levies the sales and use tax at a current rate of 7.25%.
5. States that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (California Constitution, Article XIII C).
6. Allows cities, counties, and specified special districts, including the San Francisco Bay Area Rapid Transit District and the Santa Cruz County Metropolitan Transit District, to increase the sales and use tax applied within their jurisdictions, also known as district or transactions and use taxes, for either specific or general purposes pursuant to the California Constitution’s voter approval requirements.
7. Allows counties to impose a district tax solely in the unincorporated area of a county (AB 2119, Stone, Chapter 148, Statutes of 2014).
8. Caps the maximum district tax rate at 2% within a county; however, allows exceptions from the cap for the Cities of El Cerrito and Santa Fe Springs, Contra Costa County, San Mateo County, Sonoma County (and any city in Sonoma County), the Transportation Agency for Monterey County, and the Los Angeles Metropolitan Transportation Authority, among others.
9. Authorizes the Ventura County Transportation Commission (VCTC) to impose a district tax for countywide transportation purposes in excess of the 2% cap, subject to the applicable voter threshold in Article XIIIC of the California Constitution (AB 2453, Bennett, Chapter 286, Statutes of 2022).
10. Precludes voter initiatives in districts formed under a law that does not provide a procedure for elections, including those proposing special taxes.

This bill:

1. Authorizes the Santa Clara County Board of Supervisors to impose a district tax that exceeds the 2% cap if:
   1. The Board adopts an ordinance imposing the tax, and submits it to the electorate,
   2. The rate of tax does not exceed 0.65%
   3. The voters approve the tax in accordance with Article XIII C of the California Constitution; and,
   4. The tax otherwise conforms to the Transactions and Use Tax Law, other than the 2% cap.
2. Repeals its provisions on December 31, 2028, if the tax is not approved.
3. Shifts AB 2453’s authority to impose a countywide district tax for countywide transportation programs in Ventura County from VCTC to Ventura County.
4. Deletes the requirement that voters approve the Ventura County tax in accordance with Article XIIIC of the California Constitution, instead providing that voters must approve the tax by the applicable voter threshold in accordance with the California Constitution.
5. Makes conforming changes.
6. Includes a legislative finding justifying the need for special legislation in Santa Clara and Ventura Counties.

Background

Upland. On August 28, 2017, the California Supreme Court entered a decision in California Cannabis Coalition v. City of Upland, 3 Cal. 5th 924, which held that Article XIIIC, Section Two, subdivision (b)’s requirement that general taxes be submitted to the electorate at a regularly scheduled general election where members of the local governing board are subject to election did not apply to taxes proposed by voter initiative. Groups seeking to impose special taxes by majority vote by initiative soon argued that if the Court held the general election requirement in subdivision (b) did not apply to initiatives, then neither did the 2/3 vote requirement for special taxes in subdivision (d). At least seven such taxes imposed by voters in various local agencies across the state have been approved, and no court thus far has invalidated them. On August 11^th of this year, the Fourth Appellate District Court held that Measure C in San Diego, a special tax imposed by majority vote by voter initiative, did not violate Propositions 13 and 218, further affirming that the initiatives’ restrictions do not apply to voter initiatives (Alliance San Diego v. City of San Diego, D080199, (2023)).

District tax caps. Since the Legislature enacted district taxes in 1969, it has capped district tax rates, with a current countywide cap of 2%. The cap applies countywide, so if one agency imposes a district tax, it limits the ability of another agency in that county that shares the jurisdiction to do so to any remaining room under 2%. For example, if a city imposes a 1% tax, the county in which the city is located or a special district serving that city could not impose one above 1%, unless the Legislature enacts an exemption. The Legislature has enacted several exceptions to the 2% cap, including, among others, in the cities of Alameda, Berkeley, Emeryville, and Santa Fe Springs; as well as several counties.

Santa Clara County. Santa Clara County currently has six countywide district taxes at a total rate of 1.8625%. One of these taxes – the Peninsula Corridor Joint Powers Board’s 0.125% - is exempt from the cap (SB 797, Hill, Chapter 653, Statutes of 2017). Additionally, the Cities of Campbell (0.25%), Los Gatos (0.125%), Milpitas (0.25%), and San Jose (0.25%) impose their own district taxes. As a result, the 2% cap precludes further countywide or city district taxes in Santa Clara County.

Ventura County. Last year, the Legislature enacted AB 2453 (Bennett), which authorizes the Ventura County Transportation Commission (VCTC) to impose a district tax for countywide transportation programs that would exceed the combined rate limit of 2%. VCTC has not yet imposed a tax under this authority. The Elections Code precludes voter initiatives, including those imposing a special tax, in a district that is not formed under a law that provides a procedure for elections. As a County Transportation Commission with board members appointed by other government entities, VCTC does not have such a procedure. As a result, AB 2453’s authority to impose a tax that exceeds the 2% cap is limited solely to measures VCTC places on the ballot, and does not apply to one imposed by voter initiatives.

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

SUPPORT: (Verified 9/7/23)

County of Santa Clara

OPPOSITION: (Verified 9/7/23)

Bay Area Council
California Manufacturers & Technology Association
California Taxpayers Association
Silicon Valley Leadership Group

ARGUMENTS IN SUPPORT: According to the author, "The County of Santa Clara is facing significant and growing budget challenges. For the 2023-24 fiscal year, the County had to address a substantial budget deficit; forecasts predict an even greater shortfall the following budget season. The County invested well over $1 billion into pandemic response activities to protect community health, much of which will either not be reimbursed at all or may take many years for reimbursement. The impact of inflation and flattening revenue are also causing significant challenges. Meanwhile, the community need for County services is extensive, including mental health services, supportive housing, and critical health services provided through the County's three hospitals. Community needs are only expected to rise in the coming years, particularly if economic conditions continue to worsen. Currently, the County and local voters lack the opportunity to even consider increasing local sales taxes to fund critical services should the need arise. The County serves as the safety net for those communities that are traditionally the most disproportionately affected by budget cuts. Thus, passage of SB 335 provides local voters the ability to continue protecting our communities who need the most assistance."

ARGUMENTS IN OPPOSITION: According to a coalition of business organizations, “California has the highest state-level sales and use tax rate in the country, and several cities in California, including Campbell, Los Gatos, Milpitas, and San Jose, have even higher rates. The sales and use tax is a regressive tax that has the greatest impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of everyday goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding even more to the cost of living with a sales tax increase would harm Californians, and will disproportionately impact the state’s most vulnerable residents. In 1953, the Senate Committee on State and Local Taxation recommended that California adopt a uniform state and local sales tax with a rate cap. The cap has served the state well, and should not be circumvented.”

ASSEMBLY FLOOR: 51-17, 9/5/23

AYES: Addis, Aguiar-Curry, Alvarez, Arambula, Bains, Bennett, Berman, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, Stephanie Nguyen, Ortega, Pacheco, Papan, Pellerin, Ramos, Rendon, Reyes, Luz Rivas, Blanca Rubio, Santiago, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NOES: Chen, Megan Dahle, Davies, Dixon, Essayli, Flora, Vince Fong, Gallagher, Hoover, Irwin, Lackey, Mathis, Joe Patterson, Sanchez, Ta, Waldron, Wallis

NO VOTE RECORDED: Alanis, Bauer-Kahan, Boerner, Cervantes, McKinnor, Muratsuchi, Jim Patterson, Petrie-Norris, Quirk-Silva, Rodriguez, Schiavo, Soria

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

9/8/23 10:18:34

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Transactions and use taxes: County of Santa Clara

Allows the Santa Clara County Board of Supervisors to propose a district tax of up to 0.625% in Santa Clara County that exceeds the 2% cap; shifts the authority to impose a district tax for countywide transportation purposes in Ventura County that exceeds the 2% cap from the Ventura County Transportation Commission to the County.

Background

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

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 like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

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

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or transactions and use taxes. Generally, local agencies impose these taxes throughout the entire area of a single county, the entire unincorporated area within a single county, or a single incorporated city, except for those imposed by the Bay Area Rapid Transit (BART) District (which covers Alameda, Contra Costa, and the City and County of San Francisco) and the Sonoma-Marin Rail Transit District (whichincludes Sonoma and Marin counties). As of July 1, 2023, local agencies impose 412 district taxes for general or special purposes – 67 are imposed countywide, four are imposed in unincorporated county areas, and 341 are imposed citywide.

Upland. On August 28, 2017, the California Supreme Court entered a decision in California Cannabis Coalition v. City of Upland, 3 Cal. 5th 924, which held that Article XIIIC, Section Two, subdivision (b)’s requirement that general taxes be submitted to the electorate at a regularly scheduled general election where members of the local governing board are subject to election did not apply to taxes proposed by voter initiative. As discussed in the Committee’s March 7, 2018, joint oversight hearing, “Uproar over Upland? Assessing the California Supreme Court’s Decision,” groups seeking to impose special taxes by majority vote by initiative soon argued that if the Court held the general election requirement in subdivision (b) did not apply to initiatives, then neither did the 2/3 vote requirement for special taxes in subdivision (d). At least seven such taxes imposed by voters in various local agencies across the state have been approved, and no court thus far has invalidated them. On August 11^th of this year, the Fourth Appellate District Court held that Measure C in San Diego, a special tax imposed by majority vote by voter initiative, did not violate Propositions 13 and 218, further affirming that the initiatives’ restrictions do not apply to voter initiatives (Alliance San Diego v. City of San Diego, D080199, (2023)).

District tax caps. Since the Legislature enacted district taxes in 1969, it has capped district tax rates, with a current countywide cap of 2%. The cap applies countywide, so if one agency imposes a district tax, it limits the ability of another agency in that county that shares the jurisdiction to do so to any remaining room under 2%. For example, if a city imposes a 1% tax, the county in which the city is located or a special district serving that city could not impose one above 1%, unless the Legislature enacts an exemption. The Legislature has enacted several exceptions to the 2% cap, including, among others, in the cities of Alameda, Berkeley, Emeryville, and Santa Fe Springs; as well as Alameda, Contra Costa, and Santa Clara counties.

Santa Clara County. Santa Clara County currently has six countywide district taxes at a total rate of 1.8625%. One of these taxes – the Peninsula Corridor Joint Powers Board’s 0.125% - is exempt from the cap (SB 797, Hill, 2017). Additionally, the Cities of Campbell (0.25%), Los Gatos (0.125%), Milpitas (0.25%), and San Jose (0.25%) impose their own district taxes. As a result, the 2% cap precludes further countywide or city district taxes in Santa Clara County. Santa Clara County wants to place a measure before voters to impose a district tax to fund essential countywide programs.

Ventura County. Last year, the Legislature enacted AB 2453 (Bennett), which authorizes the Ventura County Transportation Commission (VCTC) to impose a district tax for countywide transportation programs that would exceed the combined rate limit of 2%. VCTC has not yet imposed a tax under this authority. The Elections Code precludes voter initiatives, including those imposing a special tax, in a district that is not formed under a law that provides a procedure for elections. As a County Transportation Commission with board members appointed by other government entities, VCTC does not have such a procedure. As a result, AB 2453’s authority to impose a tax that exceeds the 2% cap is limited solely to measures VCTC places on the ballot, and does not apply to one imposed by voter initiatives. Rebuild SoCal wants to shift AB 2453’s authority to Ventura County, where voters can impose taxes by initiative.

Proposed Law

Senate Bill 335 makes two changes:

First, the bill allows Santa Clara County to impose a district tax above the 2% cap if:

• The board adopts the ordinance proposing the tax by any applicable voter approval requirement;
• Voters approve the tax according to voter thresholds in Article XIIIC of the California Constitution; and
• The rate of the additional tax does not exceed 0.625%.

The measure clarifies the application of the cap to its additional tax, and sunsets the measure’s authority on December 31, 2028, if voters have not approved the tax.

Second, the measure shifts AB 2453’s authority to impose a countywide district tax for countywide transportation programs from VCTC to Ventura County. The bill deletes the requirement that voters approve the tax in accordance with Article XIIIC of the California Constitution, instead providing that voters must approve the tax by the applicable voter threshold in accordance with the California Constitution. SB 335 also makes conforming changes to the section of law added by AB 2453.

Lastly, the bill include a legislative finding justifying the need for special legislation in Santa Clara and Ventura Counties.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, "The County of Santa Clara is facing significant and growing budget challenges. For the 2023-24 fiscal year, the County had to address a substantial budget deficit; forecasts predict an even greater shortfall the following budget season. The County invested well over $1 billion into pandemic response activities to protect community health, much of which will either not be reimbursed at all or may take many years for reimbursement. The impact of inflation and flattening revenue are also causing significant challenges. Meanwhile, the community need for County services is extensive, including mental health services, supportive housing, and critical health services provided through the County's three hospitals. Community needs are only expected to rise in the coming years, particularly if economic conditions continue to worsen. Currently, the County and local voters lack the opportunity to even consider increasing local sales taxes to fund critical services should the need arise. The County serves as the safety net for those communities that are traditionally the most disproportionately affected by budget cuts. Thus, passage of SB 335 provides local voters the ability to continue protecting our communities who need the most assistance."

2. Too high? California’s sales and use tax rate is high compared to other states, especially when incorporating locally imposed district taxes. Tax experts generally agree that sales and use taxes are regressive, meaning the tax incidence falls more on low-income individuals than high-income individuals because those of lesser means generally spend a greater percentage of their income on taxable sales, even if California exempts many necessities such as food and prescription medication. When combining current rates imposed by the county, special districts, and some of its cities, SB 335 could lead to a rate of 10% in Campbell, Milpitas, and San Jose if Santa Clara County imposes the maximum tax rate allowed under the bill. While local voters must approve any tax, the Committee may wish to consider whether SB 335 allows for rates that are too high.

3. Trouble ahead? Among the initiatives currently listed as eligible for the 2024 November Election is Initiative 21-0042A1. Among other provisions, the initiative amends Article XIIIC to delete the word “government” from subdivision (b), and restates voter approval requirements, including the 2/3 vote requirement for special taxes, to apply to a “law whether proposed by the governing body or by an elector.” The measure contains a look-back provision that makes void a tax adopted after January 1, 2022, but before the measure’s effective date if it was not adopted, or reenacted in compliance with the measure’s requirements

4. Do it again. SB 703 (Skinner, 2017), also authorized Santa Clara County to impose a district tax for general or specific purposes up to 0.625% that would exceed the 2% cap. However, SB 703’s authority expired on December 31, 2022, without the county having ever placed an ordinance approving an increased sales tax forward to the voters by that statutory deadline.

5. Related legislation. There are currently four proposals under consideration in the Legislature regarding district tax authority:

• AB 1256 (Wood) authorizes the Humboldt County Board of Supervisors to impose a district tax for general or transportation purposes that exceeds the 2% countywide cap. The Committee approved the measure on June 7^th, and it is currently pending on the Senate Floor.
• AB 1385 (E. Garcia) increases from 1% to 1.5% the maximum district tax that can be imposed by the Riverside County Transportation Commission. The Committee approved the measure on July 5^th, and it is currently pending on the Senate Floor.
• AB 1679 (Santiago) allows Los Angeles County to impose a district tax up to 0.5% that exceeds the 2% cap, including by citizen’s initiative, if it replaces Measure H’s current 0.25% tax that funds homelessness programs in Los Angeles County. The Committee approved the measure on July 12^th, and it is currently pending on the Senate Floor.
• SB 862 (Laird) allows the Santa Cruz Metropolitan Transportation Authority’s board to place a measure before its voters authorizing a district tax above the 2% cap. The Committee recommended concurrence with Assembly amendments at its August 30^th hearing, and the measure is currently pending on the Senate Floor.

6. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Section 16 of Article IV). SB 335 contains findings and declarations explaining the need for legislation that applies only to Santa Clara and Ventura Counties because of its unique fiscal pressures.

7. 29.10(d). As introduced and approved by the Senate, SB 335 required the Department of Industrial Relations to send a report containing statistics on work injuries and occupational diseases and fatalities to the Legislature and the Governor. On June 8^th, the author amended the bill to remove those contents and insert its current ones. Because this topic was never heard in the Senate, the Senate Rules Committee referred the amended bill under Senate Rule 29.10(d) to the Senate Governance and Finance Committee for a hearing on the Assembly’s amendments. At its hearing, the Committee can:

• Hold the bill;
• Recommend that the Assembly amendments be concurred in;
• Recommend that the Assembly amendments not be concurred in;
• Recommend that the Assembly amendments be taken up for consideration; or
• Re-refer the measure to another committee.

Assembly Actions

Assembly Local Government Committee: 5-2
Assembly Revenue and Taxation Committee: 6-3
Assembly Floor: 51-17

Support and Opposition

(9/6/23)

Support: County of Santa Clara

Opposition: Bay Area Council
California Manufacturers & Technology Association
California Taxpayers Association
Silicon Valley Leadership Group

-- END --

SENATE THIRD READING

STR Bill Id:SB 335

Author:(Cortese)

As Amended Ver:August 28, 2023

Majority vote

SUMMARY

Authorizes Santa Clara County to impose a transactions and use tax (TUT) that exceeds the 2% statutory limitation, and authorizes the County of Ventura to impose a specified TUT instead of the Ventura County Transportation Commission.

Major Provisions

1. Allows the County of Santa Clara to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than .625% that would, in combination with all taxes imposed in accordance with TUT Law, exceed the 2% cap established by law, if all of the following conditions are met:
   1. The county adopts an ordinance proposing the TUT by any applicable voting approval requirement.
   2. The ordinance proposing the TUT is submitted to the electorate and is approved by the voters voting on the ordinance pursuant to Article XIII C of the California Constitution.
   3. The TUT conforms to TUT Law, as specified.
2. Specifies that a TUT rate imposed pursuant to 1), above, shall not be considered for purposes of the combined rate limitation established by law.
3. Provides that if, as of December 31, 2028, an ordinance proposing a TUT has not been approved in the County of Santa Clara as authorized by this bill, the provisions of this bill shall be repealed.
4. Authorizes the County of Ventura to impose a specified TUT instead of the Ventura County Transportation Commission

COMMENTS

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

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

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

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district taxes or TUTs. Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

Generally, the combined TUT rate imposed within a local jurisdiction cannot exceed 2%. To determine whether a county has reached this rate limitation, all countywide taxes and the highest combined rate imposed by a city within the county are counted towards the county's rate limit. For example, if a county imposes three 0.5% countywide taxes and two cities within the county each impose a 0.5% tax, the combined rate in those two cities would be 2%. In such a circumstance, the two cities could not impose another TUT, and the county could not impose another countywide TUT, absent special authority to exceed the rate limitation.

As of April 1, 2023, local jurisdictions impose a combined 411 TUTs for general or special purposes. Generally, TUTs are levied throughout the entire area of a single county, the entire unincorporated area within a single county, or a single incorporated city, except for those imposed by the Bay Area Rapid Transit (BART) District (Alameda, Contra Costa, and San Francisco counties) and the Sonoma-Marin Rail Transit District (Sonoma and Marin counties). Of the 411 TUTs, 67 are imposed countywide, four are imposed in unincorporated county areas, and 340 are imposed citywide.

According to the Author

According to the author, "The County of Santa Clara is facing significant and growing budget challenges. For the 2023-24 fiscal year, the County had to address a substantial budget deficit; forecasts predict an even greater shortfall the following budget season. The County invested well over $1 billion into pandemic response activities to protect community health, much of which will either not be reimbursed at all or may take many years for reimbursement.  The impact of inflation and flattening revenue are also causing significant challenges.  

"Meanwhile, the community need for County services is extensive, including mental health services, supportive housing, and critical health services provided through the County's three hospitals. Community needs are only expected to rise in the coming years, particularly if economic conditions continue to worsen. Currently, the County and local voters lack the opportunity to even consider increasing local sales taxes to fund critical services should the need arise.

"The County serves as the safety net for those communities that are traditionally the most disproportionately affected by budget cuts. Thus, passage of SB 335 provides local voters the ability to continue protecting our communities who need the most assistance."

Arguments in Support

According to Santa Clara County, "SB 335 would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes that, in combination with other transactions and use taxes, would exceed the 2% cap established by existing law, subject to applicable voter approval requirements. Allowing for a waiver of the current statutory tax limit for Santa Clara County would provide our voters and Board of Supervisors the flexibility to adopt a modest tax increase of no more than 0.625% above the current statutory limit.

"Given voter approval, implementation of a tax increase would provide our Board the ability to deepen our investments in essential countywide programs and services that improve the lives of our County residents, including supportive housing services for unhoused residents, behavioral health services, trauma and emergency care for the community, services for children and families, health coverage for the uninsured, public safety services, and other local priorities. Passage of SB 335 does not automatically adjust the local sales tax rate, but simply allows the County the ability to present the option to our community."

Arguments in Opposition

According to the California Taxpayers Association and a coalition of organizations in opposition, "California has the highest state-level sales and use tax rate in the country, and several cities in California, including Campbell, Los Gatos, Milpitas, and San Jose, have even higher rates. The sales and use tax is a regressive tax that has the greatest impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of everyday goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding even more to the cost of living with a sales tax increase would harm Californians, and will disproportionately impact the state's most vulnerable residents.

"...Businesses engaged in manufacturing and research-and-development activities face a significant sales and use tax burden in California. Under existing law, when a business purchases manufacturing or R&D equipment, the purchase is subject to a one-time local sales tax of 1.25 percent plus any additional voter-approved transactions and use taxes. Taxing business inputs increases overall production costs for everyday goods produced in California. Authorizing Santa Clara County to exceed the 2 percent transactions and use tax cap would increase the cost of doing business for critical industries in the area – including the semiconductor manufacturing industry, which the state has prioritized through investments.

"...Unlike the federal government, which receives an exemption for all state and local sales taxes, purchases made by municipal and state agencies are subject to state and local sales taxes. Increasing the local sales tax would increase costs for purchases made by cities and counties, public school districts, and universities operating in the county.

"...In 1953, the Senate Committee on State and Local Taxation recommended that California adopt a uniform state and local sales tax with a rate cap. The committee reported that with a cap, the local sales tax would have a 'minimum adverse' impact on taxpayers. The committee noted the following principles to consider when adopting sales tax changes: '[Local sales and use taxes] may and frequently do place unduly heavy compliance costs upon retailers'; and 'Local business taxes levied under various ordinances and at different rates may produce artificial and unfair discrimination between retailers in the jurisdictions.' The cap has served the state well, and should not be circumvented."

FISCAL COMMENTS

None.

VOTES

SENATE FLOOR: 37-0-3

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

ABS, ABST OR NV: Blakespear, Glazer, Wilk

ASM LOCAL GOVERNMENT: 5-2-1

YES: Aguiar-Curry, Grayson, Pacheco, Ramos, Wilson

NO: Dixon, Waldron

ABS, ABST OR NV: Boerner

ASM REVENUE AND TAXATION: 6-3-2

YES: Irwin, Bains, Grayson, Pacheco, Valencia, Zbur

NO: Wallis, Jim Patterson, Ta

ABS, ABST OR NV: Petrie-Norris, Luz Rivas

UPDATED

VERSION: August 28, 2023

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0001362

SENATE THIRD READING

STR Bill Id:SB 335

Author:(Cortese)

As Amended Ver:August 14, 2023

Majority vote

SUMMARY

Authorizes Santa Clara County to impose a transactions and use tax (TUT) that exceeds the 2% statutory limitation.

Major Provisions

1. Allows the County of Santa Clara to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than .625% that would, in combination with all taxes imposed in accordance with TUT Law, exceed the 2% cap established by law, if all of the following conditions are met:
   1. The county adopts an ordinance proposing the TUT by any applicable voting approval requirement.
   2. The ordinance proposing the TUT is submitted to the electorate and is approved by the voters voting on the ordinance pursuant to Article XIII C of the California Constitution.
   3. The TUT conforms to TUT Law, as specified.
2. Specifies that a TUT rate imposed pursuant to 1) above, shall not be considered for purposes of the combined rate limitation established by law.
3. Provides that if, as of December 31, 2028, an ordinance proposing a TUT has not been approved in the County of Santa Clara as authorized by this bill, the provisions of this bill shall be repealed.
4. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable because of the unique fiscal pressures being experienced in the County of Santa Clara in providing essential programs.

COMMENTS

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

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

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

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district taxes or TUTs. Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

Generally, the combined TUT rate imposed within a local jurisdiction cannot exceed 2%. To determine whether a county has reached this rate limitation, all countywide taxes and the highest combined rate imposed by a city within the county are counted towards the county's rate limit. For example, if a county imposes three 0.5% countywide taxes and two cities within the county each impose a 0.5% tax, the combined rate in those two cities would be 2%. In such a circumstance, the two cities could not impose another TUT, and the county could not impose another countywide TUT, absent special authority to exceed the rate limitation.

As of April 1, 2023, local jurisdictions impose a combined 411 TUTs for general or special purposes. Generally, TUTs are levied throughout the entire area of a single county, the entire unincorporated area within a single county, or a single incorporated city, except for those imposed by the Bay Area Rapid Transit (BART) District (Alameda, Contra Costa, and San Francisco counties) and the Sonoma-Marin Rail Transit District (Sonoma and Marin counties). Of the 411 TUTs, 67 are imposed countywide, four are imposed in unincorporated county areas, and 340 are imposed citywide.

1. Santa Clara County. Santa Clara County has ten TUTs levied within its borders, including six countywide taxes and four citywide taxes. The current TUT rate in the cities of Campbell, Milpitas, and San Jose is 9.375%. If Santa Clara County were to be given the authority specified in this bill, the TUT rates in those cities could be as high as 10%.

SB 703 (Skinner), Chapter 651, Statutes of 2017, allowed the Counties of Alameda and Santa Clara, as well as the City of Santa Fe Springs, to impose TUTs outside the current 2% countywide cap. Specifically, this bill gave Santa Clara County the authority to impose a TUT of no more than .625%. However, SB 703 contained a sunset date of December 31, 2022, and this authority was never utilized.

According to the Author

According to the author, "The County of Santa Clara is facing significant and growing budget challenges.  For the 2023-24 fiscal year, the County had to address a substantial budget deficit; forecasts predict an even greater shortfall the following budget season.  The County invested well over $1 billion into pandemic response activities to protect community health, much of which will either not be reimbursed at all or may take many years for reimbursement.  The impact of inflation and flattening revenue are also causing significant challenges.  

"Meanwhile, the community need for County services is extensive, including mental health services, supportive housing, and critical health services provided through the County's three hospitals.  Community needs are only expected to rise in the coming years, particularly if economic conditions continue to worsen.   Currently, the County and local voters lack the opportunity to even consider increasing local sales taxes to fund critical services should the need arise.

"The County serves as the safety net for those communities that are traditionally the most disproportionately affected by budget cuts. Thus, passage of SB 335 provides local voters the ability to continue protecting our communities who need the most assistance."

Arguments in Support

According to Santa Clara County "SB 335 would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes that, in combination with other transactions and use taxes, would exceed the 2% cap established by existing law, subject to applicable voter approval requirements. Allowing for a

waiver of the current statutory tax limit for Santa Clara County would provide our voters and Board of Supervisors the flexibility to adopt a modest tax increase of no more than 0.625% above the current statutory limit.

"Given voter approval, implementation of a tax increase would provide our Board the ability to deepen our investments in essential countywide programs and services that improve the lives of our County residents, including supportive housing services for unhoused residents, behavioral health services, trauma and emergency care for the community, services for children and families, health coverage for the uninsured, public safety services, and other local priorities. Passage of SB 335 does not automatically adjust the local sales tax rate, but simply allows the County the ability to present the option to our community."

Arguments in Opposition

According to the California Taxpayers Association and a coalition of organizations in opposition, "California has the highest state-level sales and use tax rate in the country, and several cities in California, including Campbell, Los Gatos, Milpitas, and San Jose, have even higher rates. The sales and use tax is a regressive tax that has the greatest impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of everyday goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding even more to the cost of living with a sales tax increase would harm Californians, and will disproportionately impact the state's most vulnerable residents.

"...Businesses engaged in manufacturing and research-and-development activities face a significant sales and use tax burden in California. Under existing law, when a business purchases manufacturing or R&D equipment, the purchase is subject to a one-time local sales tax of 1.25 percent plus any additional voter-approved transactions and use taxes. Taxing business inputs increases overall production costs for everyday goods produced in California. Authorizing Santa Clara County to exceed the 2 percent transactions and use tax cap would increase the cost of doing business for critical industries in the area – including the semiconductor manufacturing industry, which the state has prioritized through investments.

"...Unlike the federal government, which receives an exemption for all state and local sales taxes, purchases made by municipal and state agencies are subject to state and local sales taxes. Increasing the local sales tax would increase costs for purchases made by cities and counties, public school districts, and universities operating in the county.

"...In 1953, the Senate Committee on State and Local Taxation recommended that California adopt a uniform state and local sales tax with a rate cap. The committee reported that with a cap, the local sales tax would have a 'minimum adverse' impact on taxpayers. The committee noted the following principles to consider when adopting sales tax changes: '[Local sales and use taxes] may and frequently do place unduly heavy compliance costs upon retailers'; and 'Local business taxes levied under various ordinances and at different rates may produce artificial and unfair discrimination between retailers in the jurisdictions.' The cap has served the state well, and should not be circumvented."

FISCAL COMMENTS

None.

VOTES

SENATE FLOOR: 37-0-3

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

ABS, ABST OR NV: Blakespear, Glazer, Wilk

ASM LOCAL GOVERNMENT: 5-2-1

YES: Aguiar-Curry, Grayson, Pacheco, Ramos, Wilson

NO: Dixon, Waldron

ABS, ABST OR NV: Boerner

ASM REVENUE AND TAXATION: 6-3-2

YES: Irwin, Bains, Grayson, Pacheco, Valencia, Zbur

NO: Wallis, Jim Patterson, Ta

ABS, ABST OR NV: Petrie-Norris, Luz Rivas

UPDATED

VERSION: August 14, 2023

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0001237

Date of Hearing: July 10, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

SBPCA Bill Id:SB 335

Author:(Cortese) – As Amended Ver:June 19, 2023

Majority vote.

SENATE VOTE: 37-0

SUBJECT: Transactions and use taxes: County of Santa Clara

SUMMARY: Authorizes the County of Santa Clara to impose a transactions and use tax (TUT) for general or specific purposes to support countywide programs at a rate of no more than 0.625% that would, in combination with all taxes imposed in accordance with the TUT Law, exceed the combined rate limit of 2%, as specified. Specifically, this bill:

1. Provides that, notwithstanding any other law, the County of Santa Clara may impose a TUT for general or specific purposes to support countywide programs at a rate of no more than 0.625% that would, in combination with all taxes imposed in accordance with the TUT Law, exceed the combined rate limit of 2%, if all the following conditions are met:
   1. The county adopts an ordinance proposing the TUT by any applicable voting approval requirement;
   2. The ordinance proposing the TUT is submitted to the electorate and is approved by the voters voting on the ordinance pursuant to Article XIII C of the California Constitution; and,
   3. The TUT conforms to the TUT Law, other than the combined rate limit imposed by Revenue and Taxation Code (R&TC) Section 7251.1.
2. Provides that, notwithstanding R&TC Section 7251.1, a TUT rate imposed pursuant to this bill shall not be considered for purposes of the combined rate limitation established by R&TC Section 7251.1.
3. Provides that if, as of December 31, 2028, an ordinance proposing a TUT has not been approved in the County of Santa Clara as required, this bill's provisions shall be repealed as of that same date.
4. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique fiscal pressures being experienced in the County of Santa Clara in providing essential programs.

EXISTING LAW:

1. Authorizes cities and counties, subject to certain limitations and approval requirements, to levy a TUT for general or specific purposes, in accordance with the procedures and requirements set forth in the TUT Law. (R&TC Section 7251.)
2. Provides that the combined rate of all taxes that may be imposed in accordance with the TUT Law in a county shall not exceed 2%. (R&TC Section 7251.1.)

FISCAL EFFECT: None

COMMENTS:

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

The County of Santa [Clara] is facing significant and growing budget challenges. For the 2023-24 fiscal year, the County had to address a substantial budget deficit; forecasts predict an even greater shortfall the following budget season. The County invested well over $1 billion into pandemic response activities to protect community health, much of which will either not be reimbursed at all or may take many years for reimbursement. The impact of inflation and flattening revenue are also causing significant challenges.

Meanwhile, the community need for County services is extensive, including mental health services, supportive housing, and critical health services provided through the County's three hospitals. Community needs are only expected to rise in the coming years, particularly if economic conditions continue to worsen. Currently, the County and local voters lack the opportunity to even consider increasing local sales taxes to fund critical services should the need arise.

The County serves as the safety net for those communities that are traditionally the most disproportionately affected by budget cuts. Thus, passage of SB 335 provides local voters the ability to continue protecting our communities who need the most assistance.

1. This bill is sponsored by the County of Santa Clara, which notes the following:

Given voter approval, implementation of a tax increase would provide our Board the ability to deepen our investments in essential countywide programs and services that improve the lives of our County residents, including supportive housing services for unhoused residents, behavioral health services, trauma and emergency care for the community, services for children and families, health coverage for the uninsured, public safety services, and other local priorities.

Passage of SB 335 does not automatically adjust the local sales tax rate, but simply allows the County the ability to present the option to our community.

1. This bill is opposed by the California Taxpayers Association, which notes the following:

California has the highest state-level sales and use tax rate in the country, and several cities in California, including Campbell, Los Gatos, Milpitas, and San Jose, have even higher rates. The sales and use tax is a regressive tax that has the greatest impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of everyday goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding even more to the cost of living with a sales tax increase would harm Californians, and will disproportionately impact the state's most vulnerable residents.

1. Committee Staff Comments:
   1. What would this bill do? This bill would authorize the County of Santa Clara to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than 0.625% that would, in combination with other TUTs, exceed the combined rate limit of 2%. The County would first have to adopt an ordinance proposing the tax and the ordinance would need to be approved by the voters, subject to applicable approval thresholds. Any TUT approved pursuant to this bill would not be considered for purposes of the combined rate limit. Finally, this bill would repeal this authorization on December 31, 2028 if an ordinance proposing the tax has not been approved by that date.
   2. Need for this bill: The author's office notes that this bill is needed because the combined rate limit has already been reached in parts of Santa Clara County. Specifically, the author notes:

While the countywide sales tax rate in Santa Clara County currently stands at 1.875% [. . .], several municipalities within the county have reached the 2% limit through voter-approved sales taxes enacted at the municipal level. Under existing law, if any portion of the community has already reached the 2% cap, no additional countywide sales tax measure can be placed on the ballot without special state legislative authority.

• 1. A well-established precedent: It should be noted that the Legislature has, on numerous occasions, granted specific statutory authority to exceed the general 2% rate limitation. Specifically, such authority has been granted to the Counties of Alameda, Contra Costa, Los Angeles, Monterey, San Francisco, San Mateo, Santa Clara, Sonoma, and Ventura and the cities of Alameda, Berkeley, El Cerrito, and Santa Fe Springs.
  2. A less than perfect tax: The sales tax has been widely criticized as a regressive exaction that most heavily impacts those least able to pay. For example, a survey by the Nevada Legislative Counsel Bureau long ago concluded that in the case of a retail sales tax with food exempt, "the lowest income group would experience the highest ratio of tax to income . . . ." [Survey of Sales Taxes Applicable to Nevada 59 (Bull. No. 3, May 1948).] Others, however, contend that a degree of progressivity is provided via the various exemptions built into most state sales tax laws (i.e., for certain necessities of life such as food, housing, and medical care). Additionally, the author's office notes that distributional impacts will be further addressed via the programs funded by the proposed tax. Specifically, the author's office notes:

Equity is central to the County of Santa Clara's mission. The core function of the County is to provide excellent safety net services to disadvantaged communities, including health and behavioral health care for uninsured and underinsured individuals, supportive services for unhoused residents, public assistance for low-income families, housing and employment services for former foster youth, services to protect abused and neglected children, and numerous other critical programs that promote equity.

Nevertheless, its bears noting that California already has a relatively high sales tax rate. High rates arguably promote non-compliance and encourage out-of-state purchases, placing California retailers at a competitive disadvantage. High rates also risk impacting consumer decision-making, which runs counter to widely accepted principles of sound tax policy.

• 1. Double referral: This bill was double referred with the Assembly Committee on Local Government, which passed this bill on June 28, 2023, by a vote of 5-to-2. For additional discussion of this bill's provisions, please refer to the analysis prepared by the Assembly Committee on Local Government.
  2. Related legislation: AB 1256 (Wood) would authorize the Humboldt County Board of Supervisors to impose a TUT for the support of countywide transportation programs at a rate of no more than 1% that would, in combination with other TUTs, exceed the combined rate limit of 2%, as specified. AB 1256 is currently on the Senate Third Reading File.
  3. Prior legislation: SB 703 (Skinner), Chapter 651, Statutes of 2017, authorized the County of Santa Clara to impose a TUT for general or specific purposes at a rate of no more than 0.625% that would, in combination with all other TUTs, exceed the combined rate limit of 2%, as specified. The author's office notes that this law "expired on December 31, 2022, as the County put no ordinance approving an increased sales tax forward to the voters by that statutory deadline."
  4. Technical amendment: On page 3, in line 3, strike "(b)" and insert "(a)".

REGISTERED SUPPORT / OPPOSITION:

Support

Santa Clara County Board of Supervisors

Opposition

Bay Area Council

California Manufacturers and Technology Association

California Taxpayers Association

Silicon Valley Leadership Group

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098

Date of Hearing: June 28, 2023

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

SBPCA Bill Id:SB 335

Author:(Cortese) – As Amended Ver:June 19, 2023

SENATE VOTE: 37-0

SUBJECT: Transactions and use taxes: County of Santa Clara.

SUMMARY: Authorizes Santa Clara County to impose a transactions and use tax (TUT) that exceeds the 2% statutory limitation. Specifically, this bill:

1. Allows the County of Santa Clara to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than .625% that would, in combination with all taxes imposed in accordance with TUT Law, exceed the 2% cap established by law, if all of the following conditions are met:
   1. The county adopts an ordinance proposing the TUT by any applicable voting approval requirement.
   2. The ordinance proposing the TUT is submitted to the electorate and is approved by the voters voting on the ordinance pursuant to Article XIII C of the California Constitution.
   3. The TUT conforms to TUT Law, as specified.
2. Specifies that a TUT rate imposed pursuant to 1) above, shall not be considered for purposes of the combined rate limitation established by law.
3. Provides that if, as of December 31, 2028, an ordinance proposing a TUT has not been approved in the County of Santa Clara as authorized by this bill, the provisions of this bill shall be repealed.
4. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable because of the unique fiscal pressures being experienced in the County of Santa Clara in providing essential programs.

FISCAL EFFECT: None.

COMMENTS:

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

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

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

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district taxes or TUTs. Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

Generally, the combined TUT rate imposed within a local jurisdiction cannot exceed 2%. To determine whether a county has reached this rate limitation, all countywide taxes and the highest combined rate imposed by a city within the county are counted towards the county's rate limit. For example, if a county imposes three 0.5% countywide taxes and two cities within the county each impose a 0.5% tax, the combined rate in those two cities would be 2%. In such a circumstance, the two cities could not impose another TUT, and the county could not impose another countywide TUT, absent special authority to exceed the rate limitation.

As of April 1, 2023, local jurisdictions impose a combined 411 TUTs for general or special purposes. Generally, TUTs are levied throughout the entire area of a single county, the entire unincorporated area within a single county, or a single incorporated city, except for those imposed by the Bay Area Rapid Transit (BART) District (Alameda, Contra Costa, and San Francisco counties) and the Sonoma-Marin Rail Transit District (Sonoma and Marin counties). Of the 411 TUTs, 67 are imposed countywide, four are imposed in unincorporated county areas, and 340 are imposed citywide.

1. Santa Clara County. Santa Clara County has ten TUTs levied within its borders, including six countywide taxes and four citywide taxes. The current TUT rate in the cities of Campbell, Milpitas, and San Jose is 9.375%. If Santa Clara County were to be given the authority specified in this bill, the TUT rates in those cities could be as high as 10%.

SB 703 (Skinner), Chapter 651, Statutes of 2017, allowed the Counties of Alameda and Santa Clara, as well as the City of Santa Fe Springs, to impose TUTs outside the current 2% countywide cap. Specifically, this bill gave Santa Clara County the authority to impose a TUT of no more than .625%. However, SB 703 contained a sunset date of December 31, 2022, and this authority was never utilized.

1. Bill Summary and Author’s Statement. This bill allows Santa Clara County to impose a TUT to support countywide programs and general services at a rate of no more than .625% that would, in combination with all taxes imposed, exceed the 2% cap established by law, if specified conditions are met. This bill provides that if an ordinance proposing the TUT authorized by this bill is not approved, the provisions in this bill shall be repealed on December 31, 2028. Santa Clara County is the sponsor of this bill.
   

According to the author, “The County of Santa Clara is facing significant and growing budget challenges.  For the 2023-24 fiscal year, the County had to address a substantial budget deficit; forecasts predict an even greater shortfall the following budget season.  The County invested well over $1 billion into pandemic response activities to protect community health, much of which will either not be reimbursed at all or may take many years for reimbursement.  The impact of inflation and flattening revenue are also causing significant challenges.  

“Meanwhile, the community need for County services is extensive, including mental health services, supportive housing, and critical health services provided through the County’s three hospitals.  Community needs are only expected to rise in the coming years, particularly if economic conditions continue to worsen.   Currently, the County and local voters lack the opportunity to even consider increasing local sales taxes to fund critical services should the need arise.

“The County serves as the safety net for those communities that are traditionally the most disproportionately affected by budget cuts. Thus, passage of SB 335 provides local voters the ability to continue protecting our communities who need the most assistance.”

1. Policy Consideration. California’s sales tax rate is currently at 7.25%, which is high compared to other states, especially when incorporating locally imposed TUTs. Some tax experts argue that sales and use taxes are regressive, meaning that the tax incidence falls more on low-income individuals than high-income individuals because those of lesser means generally spend a greater percentage of their income on taxable sales, instead of intangible products or services which are not taxed. With this bill, the sales tax rate could grow as high as 10% in some areas of Santa Clara County. While any increase would have to be approved by the voters, the Committee may wish to consider whether SB 335 allows for rates that are too high.
2. Related Legislation. AB 1256 (Wood) authorizes Humboldt County to impose a TUT that exceeds the 2% statutory limitation. AB 1256 was heard in this Committee on April 19 and passed with a 5-2 vote.

AB 1385 (Garcia) authorizes the Riverside County Transportation Commission to impose a maximum TUT of 1.5%. AB 1385 was heard in this Committee on May 3 and passed with a vote of 5-2.

SB 862 (Laird) specifies that a TUT imposed by the Santa Cruz Metropolitan Transit District shall not be considered for combined rate limit if certain conditions are met. SB 682 is currently pending in this Committee.

1. Previous Legislation. AB 618 (Stone) of 2019 would have permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a TUT of up to 0.25% that exceeds the 2% cap. AB 618 was vetoed with a message that stated, “The Cities of Emeryville and Scotts Valley have not yet reached the statewide cap of 2 percent, making it unclear why additional tax authority is needed.”
   

AB 723 (Quirk), Chapter 747, Statutes of 2019, provided that neither the TUT imposed by BART nor the TUT imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County.

SB 1349 (Glazer), Chapter 369, Statutes of 2020, permitted Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local TUTs.

AB 2453 (Bennett), Chapter 286, Statutes of 2022, authorized the Ventura County Transportation Commission to impose a TUT of no more than 0.5% that does not count against the cap in Ventura County.

1. Arguments in Support. According to Santa Clara County “SB 335 would authorize the County of Santa Clara to impose a transactions and use tax for general or specific purposes that, in combination with other transactions and use taxes, would exceed the 2% cap established by existing law, subject to applicable voter approval requirements. Allowing for a

waiver of the current statutory tax limit for Santa Clara County would provide our voters and Board of Supervisors the flexibility to adopt a modest tax increase of no more than 0.625% above the current statutory limit.

“Given voter approval, implementation of a tax increase would provide our Board the ability to deepen our investments in essential countywide programs and services that improve the lives of our County residents, including supportive housing services for unhoused residents, behavioral health services, trauma and emergency care for the community, services for children and families, health coverage for the uninsured, public safety services, and other local priorities. Passage of SB 335 does not automatically adjust the local sales tax rate, but simply allows the County the ability to present the option to our community.”

1. Arguments in Opposition. According to the California Taxpayers Association and a coalition of organizations in opposition, “California has the highest state-level sales and use tax rate in the country, and several cities in California, including Campbell, Los Gatos, Milpitas, and San Jose, have even higher rates. The sales and use tax is a regressive tax that has the greatest impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of everyday goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding even more to the cost of living with a sales tax increase would harm Californians, and will disproportionately impact the state’s most vulnerable residents.

“...Businesses engaged in manufacturing and research-and-development activities face a significant sales and use tax burden in California. Under existing law, when a business purchases manufacturing or R&D equipment, the purchase is subject to a one-time local sales tax of 1.25 percent plus any additional voter-approved transactions and use taxes. Taxing business inputs increases overall production costs for everyday goods produced in California. Authorizing Santa Clara County to exceed the 2 percent transactions and use tax cap would increase the cost of doing business for critical industries in the area – including the semiconductor manufacturing industry, which the state has prioritized through investments.

“...Unlike the federal government, which receives an exemption for all state and local sales taxes, purchases made by municipal and state agencies are subject to state and local sales taxes. Increasing the local sales tax would increase costs for purchases made by cities and counties, public school districts, and universities operating in the county.

“...In 1953, the Senate Committee on State and Local Taxation recommended that California adopt a uniform state and local sales tax with a rate cap. The committee reported that with a cap, the local sales tax would have a ‘minimum adverse’ impact on taxpayers. The committee noted the following principles to consider when adopting sales tax changes: ‘[Local sales and use taxes] may and frequently do place unduly heavy compliance costs upon retailers’; and ‘Local business taxes levied under various ordinances and at different rates may produce artificial and unfair discrimination between retailers in the jurisdictions.’ The cap has served the state well, and should not be circumvented.”

1. Double-Referral. This bill is double-referred to the Assembly Committee on Revenue and Taxation.
   

REGISTERED SUPPORT / OPPOSITION:

Support

Santa Clara County [SPONSOR]

Opposition

Bay Area Council

California Manufacturers & Technology Association

California Taxpayers Association

Silicon Valley Leadership Group

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

 CONSENT 

Bill No: SB 335

Author: Cortese (D)

Amended: 3/13/23

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 5-0, 4/12/23

AYES: Cortese, Wilk, Durazo, Laird, Smallwood-Cuevas

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Labor statistics: annual report

SOURCE: Author

DIGEST:

This bill requires the Department of Industrial Relations to submit an annual report on workplace injuries and occupational diseases and fatalities to the Legislature and the Governor.

ANALYSIS:

Existing law:

1. Assures, under the California Occupational Safety and Health Act, safe and healthful working conditions for all California workers by authorizing the enforcement of effective standards, assisting and encouraging employers to maintain safe and healthful working conditions, and by providing for research, information, education, training, and enforcement in the field of occupational safety and health. (Labor Code §6300)
2. Establishes the Division of Occupational Safety and Health (known as Cal/OSHA) within the Department of Industrial Relations (DIR) to, among other things, propose, administer, and enforce occupational safety and health standards. (Labor Code §6300 et seq.)
3. Authorizes citations to be issued to employers when Cal/OSHA has evidence that an employee was exposed to a hazard in violation of any requirement enforceable by the division, including the exposing, creating and controlling employer. (Labor Code §6400)
4. Requires all employers to file a complete report of every occupational injury, occupational illness or death of any employee which results in lost time beyond the date of the injury or illness, or which requires medical treatment beyond first aid, with the Department of Industrial Relations or, if an insured employer, with the insurer, on a form or online mechanism prescribed by the department for that purpose. (Labor Code §6409.1)
5. Requires the Department of Industrial Relations to complete and publish an annual report containing statistics on state work injuries and occupational diseases and fatalities by industry classifications by December 31 of the following calendar year. (Labor Code §156)

This bill:

1. Requires the Department of Industrial Relations to, in addition to making it available to the public, submit a copy of the report on workplace injuries and occupational diseases and fatalities to the Legislature and the Governor.
2. Requires this report to be submitted in compliance with existing Government Code Section 9795, which addresses the process for submitting reports to the legislature.

Background

As noted above, existing law requires employers to report occupational injuries, illnesses or deaths of employees’ to Cal/OSHA within a specified timeframe. Cal/OSHA is required to compile this information and make it available to the public. Unfortunately, the data on these reports are not readily accessible on the website. This information is necessary for a variety of reasons but primarily to help draw attention to industries or occupations with higher incidents of injury or illnesses, as well as shed light on disproportionate impacts among workers.

According to the author, “although Cal/OSHA collects and is required to publicly share information regarding occupational injuries, illnesses and deaths in the state, the information is not readily accessible online. This bill is necessary to ensure that the legislature and the Governor receive a complete report detailing state occupational injuries, illnesses and deaths to help guide policy and focus on the areas of occupational safety and health that need improvements or reform. Protecting and improving the working conditions of workers is our priority – and getting access to this information is crucial in achieving this goal. This bill simply directs DIR to submit a copy of the report on workplace injuries and occupational diseases and fatalities to the Legislature and the Governor by the December 31 deadline.”

Related/Prior Legislation

SB 1278 (Cortese, 2022) was almost identical to this bill. The hearing in the Assembly Appropriations Committee was cancelled at the request of the author.

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

SUPPORT: (Verified 4/24/23)

American Federation of State, County and Municipal Employees

OPPOSITION: (Verified 4/24/23)

None received

ARGUMENTS IN SUPPORT: According to proponents, “SB 335 is a simple, straightforward measure which compiles this existing information and makes it readily accessible to the public, as well as requiring an annual report on labor statistics to be given to the legislature and the Governor. SB 335 brings transparency to an already existent process in which Californians have a right to know how industries are complying with workplace safety laws. SB 335 will also help inform our elected officials to craft better policies to address workplace safety.”

Prepared by: Alma Perez-Schwab / L., P.E. & R. / (916) 651-1556

4/26/23 15:11:40

**** END ****

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Dave Cortese, Chair

2023 - 2024 Regular

Bill No: SB 335 Hearing Date: April 12, 2023

SUBJECT: Labor statistics: annual report

KEY ISSUE

Should the Legislature require that the Department of Industrial Relations submit a copy of the report on workplace injuries and occupational diseases and fatalities to the Legislature and the Governor?

ANALYSIS

Existing law:

1. The California Occupational Safety and Health Act, assures safe and healthful working conditions for all California workers by authorizing the enforcement of effective standards, assisting and encouraging employers to maintain safe and healthful working conditions, and by providing for research, information, education, training, and enforcement in the field of occupational safety and health. (Labor Code §6300)
2. Establishes the Division of Occupational Safety and Health (known as Cal/OSHA) within the Department of Industrial Relations (DIR) to, among other things, propose, administer, and enforce occupational safety and health standards. (Labor Code §6300 et seq.)
3. Authorizes citations to be issued to employers when Cal/OSHA has evidence that an employee was exposed to a hazard in violation of any requirement enforceable by the division, including the exposing, creating and controlling employer. (Labor Code §6400)
4. Requires all employers to file a complete report of every occupational injury, occupational illness or death of any employee which results in lost time beyond the date of the injury or illness, or which requires medical treatment beyond first aid, with the Department of Industrial Relations or, if an insured employer, with the insurer, on a form or online mechanism prescribed by the department for that purpose. (Labor Code §6409.1)
5. Requires the Department of Industrial Relations to complete and publish an annual report containing statistics on state work injuries and occupational diseases and fatalities by industry classifications by December 31 of the following calendar year. (Labor Code §156)

This bill:

1. Requires the Department of Industrial Relations to, in addition to making it available to the public, submit a copy of the report on workplace injuries and occupational diseases and fatalities to the Legislature and the Governor.
2. Requires this report to be submitted in compliance with existing Government Code Section 9795, which addresses the process for submitting reports to the legislature.

COMMENTS

1. Need for this bill?

As noted above, existing law requires employers to report occupational injuries, illnesses or deaths of employees’ to Cal/OSHA within a specified timeframe. Cal/OSHA is required to compile this information and make it available to the public. Unfortunately, the data on these reports are not readily accessible on the website. This information is necessary for a variety of reasons but primarily to help draw attention to industries or occupations with higher incidents of injury or illnesses, as well as shed light on disproportionate impacts among workers.

According to the author, “although Cal/OSHA collects and is required to publicly share information regarding occupational injuries, illnesses and deaths in the state, the information is not readily accessible online. This bill is necessary to ensure that the legislature and the Governor receive a complete report detailing state occupational injuries, illnesses and deaths to help guide policy and focus on the areas of occupational safety and health that need improvements or reform. Protecting and improving the working conditions of workers is our priority – and getting access to this information is crucial in achieving this goal. This bill simply directs DIR to submit a copy of the report on workplace injuries and occupational diseases and fatalities to the Legislature and the Governor by the December 31 deadline.”

2. Proponent Arguments:

According to proponents, “SB 335 is a simple, straightforward measure which compiles this existing information and makes it readily accessible to the public, as well as requiring an annual report on labor statistics to be given to the legislature and the Governor. SB 335 brings transparency to an already existent process in which Californians have a right to know how industries are complying with workplace safety laws. SB 335 will also help inform our elected officials to craft better policies to address workplace safety.”

3. Opponent Arguments:

None received

4. Prior Legislation:

SB 1278 (Cortese, 2022) was almost identical to this measure. Hearing in Assembly Appropriations Committee was canceled at the request of the author.

SUPPORT

American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO

OPPOSITION

None received

-- END --