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 jurisdiction not exceed 2%.

This bill would authorize, until December 31, 2030, or December 31, 2031, as specified, various jurisdictions to levy taxes pursuant to the Transactions and Use Tax Law at specified rates, as prescribed. The bill would authorize those taxes to exceed the 2% limit described above.

This bill would make legislative findings and declarations as to the necessity of a special statute for the jurisdictions authorized to impose a tax pursuant to the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

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 jurisdiction not exceed 2%.

This bill would authorize, until December 31, 2030, or December 31, 2031, as specified, various jurisdictions to levy taxes pursuant to the Transactions and Use Tax Law at specified rates, as prescribed. The bill would authorize those taxes to exceed the 2% limit described above.

This bill would make legislative findings and declarations as to the necessity of a special statute for the jurisdictions authorized to impose a tax pursuant to the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

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 jurisdiction not exceed 2%.

This bill would authorize, until December 31, 2031, 2030, or December 31, 2031, as specified, various jurisdictions to levy taxes pursuant to the Transactions and Use Tax Law at specified rates, as prescribed. The bill would authorize those taxes to exceed the 2% limit described above.

This bill would make legislative findings and declarations as to the necessity of a special statute for the jurisdictions authorized to impose a tax pursuant to the bill.

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 jurisdiction not exceed 2%.

This bill would authorize the City of Hercules to impose a transactions and use tax for general or specific purposes, at a rate of no more than 1%, that, in combination with other transactions and use taxes, would exceed the above-described combined rate limit of 2%, if certain requirements are met. authorize, until December 31, 2031, various jurisdictions to levy taxes pursuant to the Transactions and Use Tax Law at specified rates, as prescribed. The bill would provide that a transactions and use tax rate imposed pursuant to the bill will not be considered for purposes of the combined rate authorize those taxes to exceed the 2% limit described above.

This bill would make legislative findings and declarations as to the necessity of a special statute for the City of Hercules. jurisdictions authorized to impose a tax pursuant to the bill.

Existing law declares that resource conservation is of fundamental importance to the prosperity and welfare of the people of this state, and provides for the formation and powers of resource conservation districts.

This bill would provide that it is the intent of the Legislature to enact subsequent legislation relating to natural resources.

 UNFINISHED BUSINESS  

Bill No: SB 762

Author: Arreguín (D), et al.

Amended: 6/10/26

Vote: 27 - Urgency

SENATE LOCAL GOVERNMENT COMMITTEE: 5-2, 1/14/26

AYES: Durazo, Arreguín, Cabaldon, Laird, Wiener

NOES: Choi, Seyarto

SENATE REVENUE AND TAXATION COMMITTEE: 4-1, 1/14/26

AYES: McNerney, Ashby, Grayson, Umberg

NOES: Valladares

SENATE FLOOR: 29-10, 1/27/26

AYES: Allen, Archuleta, Arreguín, Ashby, Becker, Blakespear, Cabaldon, Caballero, Cortese, Durazo, Gonzalez, Grayson, Hurtado, Laird, Limón, McGuire, McNerney, Menjivar, Padilla, Pérez, Reyes, Richardson, Rubio, Smallwood-Cuevas, Stern, Umberg, Wahab, Weber Pierson, Wiener

NOES: Alvarado-Gil, Choi, Dahle, Grove, Jones, Niello, Ochoa Bogh, Seyarto, Strickland, Valladares

NO VOTE RECORDED: Cervantes

ASSEMBLY FLOOR: 54-13, 7/2/26 - See last page for vote

SUBJECT: Transactions and use taxes: various jurisdictions

SOURCE: City of Hercules

DIGEST:

This bill allows several jurisdictions to impose a district tax, by ordinance or voter initiative, of up to 1% even if it exceeds the 2% cap.

Assembly Amendments of 6/10/26

(1) Add several other local jurisdictions to its provisions, thereby allowing them to impose district taxes in excess of the 2% cap, (2) in its provisions affecting the City of Hercules, remove references to citizens’ initiatives imposing the additional tax, (3) in its provisions affecting the City of Hercules, sunset the authority to exceed the 2% cap on December 31, 2031, and (4) add an urgency clause.

ANALYSIS:

Existing law:

1. Imposes the sales tax on every retailer engaged in business in this state that sells tangible personal property, and requires them to remit taxes collected from purchasers to the California Department of Tax and Fee Administration (CDTFA).
2. Applies whenever a retail sale is made, which is basically any sale other than one for resale in the regular course of business.
3. Provides that unless the person pays the sales tax to the retailer, he or she is liable for the use tax, which is imposed on any person consuming tangible personal property in the state. The use tax rate is the same rate as the sales tax rate, and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.
4. Levies the sales and use tax at the 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 (BART) and the Contra Costa County Transportation Authority, to increase the sales and use tax applied within their jurisdictions, also known as district or transactions and use taxes, for either specific or general purposes pursuant to the California Constitution’s voter approval requirements.
7. 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, Humboldt 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. Provides that BART’s district tax does not count toward the 2% cap (AB 723, Quirk, Chapter 747, Statutes of 2019).

This bill:

1. Allows several local jurisdictions to impose a district tax up to specified rates above the 2% cap when combined with other district taxes imposed in the respective county, specifically:
   1. City of Carpinteria, 0.25%.
   2. City of Hercules, 1%.
   3. City of Los Altos, 1%.
   4. City of Pacifica, 1%.
   5. City of Palo Alto, 0.5%.
   6. City of Rohnert Park, 0.75%.
   7. City of San Gabriel, 1%.
   8. City of San Pablo, 0.5%.
   9. City of Santa Maria, 0.5%.
   10. City of Santa Rosa, 0.5%.
   11. County Santa Barbara, 0.5%.
   12. County of Santa Cruz, 0.5%.
   13. Town of Los Gatos, 0.5%.
2. Requires each local agency to adopt an ordinance proposing the tax.
3. States that the ordinance must be submitted to the electorate for approval and be approved by voters according to the appropriate Constitutional voter approval threshold.
4. Requires the tax to otherwise conform to state district tax law, except for the 2% cap.
5. Sunsets the authority for each of the above local jurisdictions to impose a district tax in excess of the 2% cap on December 31, 2031, except for the County of Santa Cruz, whose authority sunsets on December 31, 2030.
6. Contains an urgency clause.

Comments

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 heavily on low-income individuals than on 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. While below the highest rate in the state (the cities of Lancaster and Palmdale in Los Angeles County currently impose 11.25% rates), this bill could result in rates nearly as high in other jurisdictions.

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

SUPPORT: (Verified 7/27/26)

City of Hercules (source)
Association of Intermediate Employees 
California Professional Firefighters
Central California Alliance for Health
City of Los Altos
City of Pacifica
City of Palo Alto
City of Rohnert Park
City of San Pablo
City of Santa Rosa
Community Action Board of Santa Cruz County, Inc.
County of Santa Barbara
County of Santa Cruz
Housing Authority of the County of Santa Cruz
Los Altos Police Officer Association
Operating Engineers Local 3
Pacifica Police Officers Association
Palo Alto Community Initiative 2026
Planned Parenthood Mar Monte
San Pablo Police Employees Association
SEIU California
Teamsters Local Union No. 856
Town of Los Gatos

OPPOSITION: (Verified 7/27/26)

Alameda County Taxpayers’ Association, Inc.
California Taxpayers Association
Contra Costa Taxpayers Association
Howard Jarvis Taxpayers Association

ARGUMENTS IN SUPPORT: According to the author, “Cities and counties across California are experiencing growing fiscal pressures driven by rising service demands, aging infrastructure and health and public safety obligations. SB 762 establishes a limited and legally sound process that enables eligible local governments to seek voter approval for transactions and use tax rates above the current statutory cap. By requiring local voter authorization, the bill preserves accountability and transparency while providing communities with greater flexibility to address their unique fiscal circumstances. The measure recognizes that local governments face varying financial challenges and that voters should have the opportunity to decide whether additional revenue tools are appropriate for their communities.”

ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association and the Howard Jarvis Taxpayers Association, “the transactions and use tax is a regressive tax that has the most harmful impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of most goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding to the cost of living with a sales tax increase would harm Californians and 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% plus any additional voter-approved transactions and use taxes. Taxing business inputs increases overall production costs for everyday goods produced in California.”

ASSEMBLY FLOOR: 54-13, 7/2/26

AYES: Addis, Aguiar-Curry, Ahrens, Alanis, Alvarez, Arambula, Ávila Farías, Bauer-Kahan, Bennett, Berman, Bonta, Caloza, Carrillo, Connolly, Elhawary, Flora, Fong, Gabriel, Garcia, Gipson, Mark González, Haney, Harabedian, Hart, Irwin, Jackson, Kalra, Krell, Lowenthal, McKinnor, Muratsuchi, Nguyen, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Celeste Rodriguez, Michelle Rodriguez, Rogers, Blanca Rubio, Schultz, Sharp-Collins, Solache, Soria, Stefani, Valencia, Ward, Wicks, Wilson, Zbur, Rivas

NOES: Castillo, Davies, DeMaio, Dixon, Jeff Gonzalez, Hadwick, Hoover, Johnson, Macedo, Patterson, Ta, Tangipa, Wallis

NO VOTE RECORDED: Bains, Boerner, Bryan, Calderon, Chen, Ellis, Lackey, Lee, Patel, Ransom, Sanchez, Schiavo

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

7/30/26 15:10:11

**** END ****

SENATE THIRD READING

STR Bill Id:SB 762

Author:(Arreguín)

As Amended Ver:June 10, 2026

2/3 vote. Urgency

SUMMARY

Authorizes various cities and counties to impose a transactions and use tax (TUT) that exceeds the 2% statutory limitation.

Major Provisions

1. Allows the City of Hercules, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
2. Allows Santa Barbara County to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
3. Allows the City of Carpinteria, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .25% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
4. Allows the City of Santa Maria, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
5. Allows the City of Palo Alto, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
6. Allows the City of Los Altos, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
7. Allows the City of Santa Rosa, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
8. Allows the City of Rohnert Park, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .75% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
9. Allows the Town of Los Gatos, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
10. Allows the City of Pacifica, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
11. Allows the City of San Gabriel, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
12. Allows the City of San Pablo, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
13. Allows Santa Cruz County to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
14. Requires that all the following requirements be met for each authorization to exceed the 2% cap outlined above:
    1. The city council or board of supervisors to adopt an ordinance proposing the TUT by the applicable voting requirement.
    2. The ordinance proposing the TUT is submitted to the electorate and is approved by the voters voting on the ordinance by the applicable voting approval requirement in accordance with the California Constitution.
    3. The TUT conforms to the TUT Law.
15. Specifies that a TUT imposed for all the above authorizations to exceed the 2% cap shall not be considered for purposes of the 2% combined rate limitation.
16. Specifies for all the above authorizations to exceed the 2% cap, that if, as of December 31, 2031 (except Santa Cruz County which is December 31, 2030), an ordinance proposing a TUT has not been approved in the respective city or county, the provisions of this bill related to that city or county shall be repealed.
17. Contains an urgency clause.

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%

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 a 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. Generally, the combined TUT tax 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.

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, which imposed the uniform 2% countywide cap.

1. AB 464 (Mullin) of 2015 would have increased the maximum combined rate of all TUTs that may be levied by authorized entities within a county from 2% to 3%. This bill was vetoed by Governor Brown stating, "This bill would raise, on a blanket basis, the limit on local transactions and use tax for all counties and cities from 2% to 3%. Although I have approved raising the limit for individual counties, I am reluctant to approve this measure in view of all the taxes being discussed and proposed for the 2016 ballot."

As of April 1, 2026, local agencies impose 486 district taxes for general or special purposes: 408 imposed citywide, 72 imposed countywide, and six imposed in unincorporated county areas. 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. However, three transportation operators in the Bay Area have regional district taxes:

• 1. The Bay Area Rapid Transit (BART) District, which covers Alameda, Contra Costa, and San Francisco counties.
  2. The Peninsula Corridor Joint Powers Board (CalTrain), which covers San Francisco, San Mateo, and Santa Clara counties.
  3. The Sonoma-Marin Rail Transit District, which includes Sonoma and Marin counties.

According to the Author

"Cities and counties across California are experiencing growing fiscal pressures driven by rising service demands, aging infrastructure and health and public safety obligations. SB 762 establishes a limited and legally sound process that enables eligible local governments to seek voter approval for transactions and use tax rates above the current statutory cap. By requiring local voter authorization, the bill preserves accountability and transparency while providing communities with greater flexibility to address their unique fiscal circumstances. The measure recognizes that local governments face varying financial challenges and that voters should have the opportunity to decide whether additional revenue tools are appropriate for their communities."

Arguments in Support

According to the City of Hercules, the sponsor of this bill, "SB 762 is a thoughtful and balanced measure that recognizes the growing fiscal pressures facing local governments throughout California while preserving the fundamental principal of local voter control. Importantly, the bill does not impose any tax increase. Rather, it simply authorizes local jurisdictions to place a locally determined measure before their own voters for consideration pursuant to existing constitutional voter approval requirements."

"Like many California cities, Hercules is confronting mounting structural fiscal pressures driven by inflationary cost increases, aging infrastructure, deferred maintenance obligations, rising public safety costs, and growing community needs. The City is currently facing a significant structural fiscal imbalance despite implementing meaningful corrective actions, including holding vacant positions, reducing non-essential spending, and pursuing operational efficiencies across departments."

"At the same time, the City continues to experience increasing pressure on essential municipal services and infrastructure systems. Budget constraints have impacted core public safety and administrative operations, while continued reliance on reserves to sustain ongoing services is not sustainable over the long term. Without additional local fiscal flexibility, cities like Hercules will face increasingly difficult decisions involving service reductions, delayed infrastructure investments, and diminished emergency response capacity."

"SB 762 provides a responsible local solution to these challenges. This bill would allow Hercules voters – not the State, and not the City alone – to determine whether additional locally controlled revenue is necessary to preserve public safety services, maintain infrastructure, strengthen economic resilience, and support long-term fiscal sustainability within the community."

"Importantly, this measure also reduces pressure on the State to backfill growing fiscal challenges in the future. Rather than seeking ongoing state financial assistance, Hercules is simply requesting the authority to allow local residents to determine whether they wish to invest in maintaining the quality of life and public services they rely upon every day."

"California's long-term economic success depends upon financially stable local governments that can continue delivering essential public services, maintaining infrastructure, supporting economic development, and responding to evolving community needs. SB 762 acknowledges the unique fiscal circumstances facing local jurisdictions and provides a measured, voter-driven pathway for communities to address those realities locally."

Arguments in Opposition

According to the California Taxpayers Association and the Howard Jarvis Taxpayers Association, "…The transactions and use tax is a regressive tax that has the most harmful impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of most goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding to the cost of living with a sales tax increase would harm Californians and 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% plus any additional voter-approved transactions and use taxes. Taxing business inputs increases overall production costs for everyday goods produced in California. Authorizing various cities in the Bay Area to exceed the 2% transactions and use tax cap would increase the cost of doing business for critical industries and companies, including the biotech R&D company that is the city's largest employer. "

"…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 city. "

"…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: 29-10-1

YES: Allen, Archuleta, Arreguín, Ashby, Becker, Blakespear, Cabaldon, Caballero, Cortese, Durazo, Gonzalez, Grayson, Hurtado, Laird, Limón, McGuire, McNerney, Menjivar, Padilla, Pérez, Reyes, Richardson, Rubio, Smallwood-Cuevas, Stern, Umberg, Wahab, Weber Pierson, Wiener

NO: Alvarado-Gil, Choi, Dahle, Grove, Jones, Niello, Ochoa Bogh, Seyarto, Strickland, Valladares

ABS, ABST OR NV: Cervantes

ASM REVENUE AND TAXATION: 4-2-1

YES: Gipson, Carrillo, McKinnor, Quirk-Silva

NO: Sanchez, DeMaio

ABS, ABST OR NV: Michelle Rodriguez

ASM LOCAL GOVERNMENT: 8-1-1

YES: Carrillo, Pacheco, Fong, Ransom, Blanca Rubio, Stefani, Ward, Wilson

NO: Ta

ABS, ABST OR NV: Alanis

UPDATED

VERSION: June 10, 2026

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0003182

Date of Hearing: June 17, 2026

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Juan Carrillo, Chair

SBPCA Bill Id:SB 762

Author:(Arreguín) – As Amended Ver:June 10, 2026

SENATE VOTE: 29-10

SUBJECT: Transactions and use taxes: various jurisdictions.

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

1. Allows the City of Hercules, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
2. Allows Santa Barbara County to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
3. Allows the City of Carpinteria, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .25% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
4. Allows the City of Santa Maria, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
5. Allows the City of Palo Alto, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
6. Allows the City of Los Altos, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
7. Allows the City of Santa Rosa, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
8. Allows the City of Rohnert Park, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .75% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
9. Allows the Town of Los Gatos, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
10. Allows the City of Pacifica, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
11. Allows the City of San Gabriel, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than 1% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
12. Allows the City of San Pablo, by ordinance, to impose a TUT for general or specific purposes at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
13. Allows Santa Cruz County to impose a TUT for general or specific purposes to support countywide programs at a rate of no more than .5% that would, in combination with all TUTs imposed, exceed the 2% limit established in existing law.
14. Requires that all the following requirements be met for each authorization to exceed the 2% cap outlined above:
    1. The city council or board of supervisors to adopt an ordinance proposing the TUT by the applicable voting requirement.
    2. The ordinance proposing the TUT is submitted to the electorate and is approved by the voters voting on the ordinance by the applicable voting approval requirement in accordance with the California Constitution.
    3. The TUT conforms to the TUT Law.
15. Specifies that a TUT imposed for all the above authorizations to exceed the 2% cap shall not be considered for purposes of the 2% combined rate limitation.
16. Specifies for all the above authorizations to exceed the 2% cap, that if, as of December 31, 2031 (except Santa Cruz County which is December 31, 2030), an ordinance proposing a TUT has not been approved in the respective city or county, the provisions of this bill related to that city or county shall be repealed.
17. Contains an urgency clause.
18. Finds and declares that a special statute is necessary and that aa general statute cannot be made applicable because of the unique fiscal circumstances of the jurisdictions authorized to impose a tax pursuant to this bill.

FISCAL EFFECT: None.

COMMENTS:

1. Bill Summary and Author’s Statement. This bill allows various cities and counties to impose a TUT that exceeds the 2% statutory limitation, as specified. The Cities of Hercules, Los Altos, Pacifica, San Pablo, and the Town of Los Gatos are the sponsors of this bill.
   

According to the Author, “Cities and counties across California are experiencing growing fiscal pressures driven by rising service demands, aging infrastructure and health and public safety obligations. SB 762 establishes a limited and legally sound process that enables eligible local governments to seek voter approval for transactions and use tax rates above the current statutory cap. By requiring local voter authorization, the bill preserves accountability and transparency while providing communities with greater flexibility to address their unique fiscal circumstances. The measure recognizes that local governments face varying financial challenges and that voters should have the opportunity to decide whether additional revenue tools are appropriate for their communities.”

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 a 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. Generally, the combined TUT tax 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.
   
   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, which imposed the uniform 2% countywide cap.

AB 464 (Mullin) of 2015 would have increased the maximum combined rate of all TUTs that may be levied by authorized entities within a county from 2% to 3%. This bill was vetoed by Governor Brown stating, "This bill would raise, on a blanket basis, the limit on local transactions and use tax for all counties and cities from two percent to three percent. Although I have approved raising the limit for individual counties, I am reluctant to approve this measure in view of all the taxes being discussed and proposed for the 2016 ballot."

As of April 1, 2026, local agencies impose 486 district taxes for general or special purposes: 408 imposed citywide, 72 imposed countywide, and six imposed in unincorporated county areas. 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. However, three transportation operators in the Bay Area have regional district taxes:

• 1. The Bay Area Rapid Transit (BART) District, which covers Alameda, Contra Costa, and San Francisco counties.
  2. The Peninsula Corridor Joint Powers Board (CalTrain), which covers San Francisco, San Mateo, and Santa Clara counties.
  3. The Sonoma-Marin Rail Transit District, which includes Sonoma and Marin counties.

1. Related Legislation. AB 1919 (Pellerin) specifies that special taxes may be imposed through the initiative process in the Santa Cruz Metropolitan Transit District (SC Metro) and establishes procedures for the placement of a retail TUT ordinance on the ballot for the consideration of SC Metro voters. This bill is currently pending in the Senate Rules Committee.

AB 2484 (Alvarez) authorizes the San Diego Metropolitan Transit System (MTS) to impose a TUT that exceeds the 2% statutory limitation, and specifies that the TUT may be imposed by a qualified voter initiative. This bill is currently pending in the Senate Rules Committee.

SB 1078 (Laird) allows the Santa Cruz County to impose a TUT, by ordinance, of up to 0.5% even if it exceeds the 2% cap. This bill is currently pending in this committee.

SB 1408 (Arreguin) authorizes, until January 1, 2045, the Contra Costa Transportation Authority to impose a TUT for the support of countywide transportation programs at up to 1% even if it exceeds the combined countywide rate limit of 2%. This bill 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 tax 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 tax imposed by BART nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap and made a similar change in Santa Cruz County.

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.

AB 1256 (Wood), Chapter 572, Statutes of 2023, authorized Humboldt County to impose a TUT of up to 1% that exceeds the 2% statutory limitation.

AB 1385 (Garcia), Chapter 578, Statutes of 2023, raised the maximum TUT that RCTC may impose, from 1% to 1.5%.

AB 1679 (Santiago), Chapter 731, Statutes of 2023, authorizes Los Angeles County to impose a TUT of up to .5% that exceeds the 2% statutory limitation, as specified.

SB 335 (Cortese), Chapter 391, Statutes of 2023, allows the Santa Clara County Board of Supervisors to propose a TUT of up to .625% in Santa Clara County that exceeds the 2% cap and shifted the authority to impose a TUT for countywide transportation purposes in Ventura County that exceeds the 2% cap from the Ventura County Transportation Commission to the County.

SB 862 (Laird), Chapter 296, Statutes of 2023, authorized the board of directors of the Santa Cruz Metropolitan Transit District to impose a retail TUT of up to .5% after January 1, 2024, that is excluded from the 2% combined rate limit, if certain conditions are met.

SB 904 (Dodd), Chapter 866, Statutes of 2024, specified that special taxes may be imposed through the initiative process in the Sonoma-Marin Area Rail Transit District, among other provisions.

AB 2431 (Mathis) of 2024 would have authorized a city, county, or city and county to impose a TUT at an unspecified rate that exceeds the 2% statutory limitation if certain conditions are met. This bill died in the Assembly Local Government Committee.

AB 2443 (Carrillo), Chapter 961, Statutes of 2024, authorized the cities of Lancaster, Palmdale, and Victorville to impose a transaction and use tax (TUT) that exceeds the 2% statutory limitation.

AB 3259 (Wilson), Chapter 852, Statutes of 2024, allowed the cities of Campbell and Pinole, the Solano County Board of Supervisors and a city council in Solano County to impose a TUT, by ordinance or voter initiative, of up to 0.5% even if it exceeds the 2% cap. This bill is currently pending on the Senate Floor.

AB 761 (Addis), Chapter 706, Statutes of 2025, made changes to Monterey-Salinas Transit District’s authority to impose a TUT.

SB 63 (Wiener), Chapter 740, Statutes of 2025, established the Public Transit Revenue Measure District including Alameda, Contra Costa, Santa Clara, and San Mateo Counties and the City and County of San Francisco, and specified that special taxes may be imposed through the initiative process in that district, among other provisions.

SB 333 (Laird), Chapter 750, Statutes of 2025, allowed the San Luis Obispo Council of Governments to impose a TUT by ordinance of up to 1% even if it exceeds the 2% cap.

SB 512 (Pérez) of 2025, would have specified that voters of a district may impose TUTs for transportation purposes by a citizen’s initiative. SB 512 was vetoed by Governor Newsom. In his veto message, the Governor wrote, “This bill reaffirms that jurisdictions may use the initiative process to impose transactions and use taxes for transportation purposes. The courts have consistently and repeatedly affirmed this existing authority; therefore, this bill is unnecessary.”

AB 1768 (Bryan), Chapter 11, Statutes of 2026, allowed Los Angeles and Contra Costa Counties to impose TUT that exceeds the 2% statutory limitation.

1. Arguments in Support. According to the City of Hercules, the sponsor of this bill, “SB 762 is a thoughtful and balanced measure that recognizes the growing fiscal pressures facing local governments throughout California while preserving the fundamental principal of local voter control. Importantly, the bill does not impose any tax increase. Rather, it simply authorizes local jurisdictions to place a locally determined measure before their own voters for consideration pursuant to existing constitutional voter approval requirements.

“Like many California cities, Hercules is confronting mounting structural fiscal pressures driven by inflationary cost increases, aging infrastructure, deferred maintenance obligations, rising public safety costs, and growing community needs. The City is currently facing a significant structural fiscal imbalance despite implementing meaningful corrective actions, including holding vacant positions, reducing non-essential spending, and pursuing operational efficiencies across departments.

“At the same time, the City continues to experience increasing pressure on essential municipal services and infrastructure systems. Budget constraints have impacted core public safety and administrative operations, while continued reliance on reserves to sustain ongoing services is not sustainable over the long term. Without additional local fiscal flexibility, cities like Hercules will face increasingly difficult decisions involving service reductions, delayed infrastructure investments, and diminished emergency response capacity.

“SB 762 provides a responsible local solution to these challenges. This bill would allow Hercules voters – not the State, and not the City alone – to determine whether additional locally controlled revenue is necessary to preserve public safety services, maintain infrastructure, strengthen economic resilience, and support long-term fiscal sustainability within the community.

“Importantly, this measure also reduces pressure on the State to backfill growing fiscal challenges in the future. Rather than seeking ongoing state financial assistance, Hercules is simply requesting the authority to allow local residents to determine whether they wish to invest in maintaining the quality of life and public services they rely upon every day.

“California’s long-term economic success depends upon financially stable local governments that can continue delivering essential public services, maintaining infrastructure, supporting economic development, and responding to evolving community needs. SB 762 acknowledges the unique fiscal circumstances facing local jurisdictions and provides a measured, voter-driven pathway for communities to address those realities locally.”

1. Arguments in Opposition. According to the California Taxpayers Association and the Howard Jarvis Taxpayers Association, “…The transactions and use tax is a regressive tax that has the most harmful impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of most goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding to the cost of living with a sales tax increase would harm Californians and 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 various cities in the Bay Area to exceed the 2 percent transactions and use tax cap would increase the cost of doing business for critical industries and companies, including the biotech R&D company that is the city’s largest employer.

“…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 city.

“…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 Revenue and Taxation Committee, where it passed on 4-2 vote on June 8, 2026.
   

REGISTERED SUPPORT / OPPOSITION:

Support

The City of Hercules [SPONSOR]

City of Los Altos [SPONSOR]

City of Pacifica [SPONSOR]

City of San Pablo [SPONSOR]

Town of Los Gatos [SPONSOR]

Association of Intermediate Employees

City of Palo Alto

City of Rohnert Park

City of Santa Rosa

City of Watsonville

Central California Alliance for Health

Community Action Board of Santa Cruz County, Inc.

Dientes Community Dental

Encompass Community Services

Housing Authority of the County of Santa Cruz

Los Altos Police Officers’ Association

Operating Engineers, Local 3

Pacifica Police Officers Association

Palo Alto Community Initiative 2026

San Pablo Police Chief, Brian Bubar

San Pablo Police Employees Association

San Pablo Police Employees Association, Management Unit

Santa Barbara County

Santa Cruz County

Service Employees Union International (SEIU) California

Teamsters California

Teamsters Local Union No. 856

Opposition

Alameda County Taxpayers’ Association

California Taxpayers Association

Contra Costa Taxpayers Association

Howard Jarvis Taxpayers Association

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

Date of Hearing: June 8, 2026

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Mike Gipson, Chair

SBPCA Bill Id:SB 762

Author:(Arreguín) – As Amended Ver:June 1, 2026

Majority vote.

SENATE VOTE: 29-10

SUBJECT: Transactions and use taxes: various jurisdictions

SUMMARY: Authorizes, generally until December 31, 2031, various local jurisdictions to levy taxes pursuant to the Transactions and Use Tax (TUT) Law at specified rates, as prescribed. Specifically, this bill:

1. Authorizes various local jurisdictions, by ordinance, to impose a TUT for general or specific purposes at specified rates that would, in combination with all TUTs imposed, exceed the 2% rate cap if all the following conditions are met:
   1. The local jurisdiction adopts an ordinance proposing the TUT by the 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 by the applicable voting approval requirement in accordance with the California Constitution; and,
   3. The TUT conforms to the TUT Law, except as specified.
2. Authorizes the following local jurisdictions to impose a TUT as follows:
   1. The City of Hercules, at a rate of no more than 1%;
   2. The County of Santa Barbara, at a rate of no more than 0.5%;
   3. The City of Carpinteria, at a rate of no more than 0.25%;
   4. The City of Santa Maria, at a rate of no more than 0.5%;
   5. The City of Palo Alto, at a rate of no more than 0.5%;
   6. The City of Los Altos, at a rate of no more than 1%;
   7. The City of Santa Rosa, at a rate of no more than 0.5%;
   8. The City of Rohnert Park, at a rate of no more than 0.75%;
   9. The Town of Los Gatos, at a rate of no more than 0.5%;
   10. The City of Pacifica, at a rate of no more than 1%;
   11. The City of San Gabriel, at a rate of no more than 1%;
   12. The City of San Pablo, at a rate of no more than 0.5%; and,
   13. The County of Santa Cruz, at a rate of no more than 0.5%.
3. Provides that, notwithstanding Revenue and Taxation Code (R&TC) Section 7251.1, a TUT imposed pursuant to this bill shall not be considered for purposes of the 2% combined rate limitation.
4. Provides that if, as of December 31, 2031^[1], an ordinance proposing a TUT has not been approved in the local jurisdiction, the local jurisdiction's statutory authorization shall be repealed.
5. 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 circumstances of the jurisdictions authorized to impose a tax pursuant to this bill.

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 et seq.)
2. Provides that the combined rate of all taxes imposed in accordance with the TUT Law in any county may not exceed 2%. (R&TC Section 7251.1)

FISCAL EFFECT: This bill would not impact state revenues.

COMMENTS:

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

Cities and counties across California are experiencing growing fiscal pressures driven by rising service demands, aging infrastructure and health and public safety obligations. SB 762 establishes a limited and legally sound process that enables eligible local governments to seek voter approval for transactions and use tax rates above the current statutory cap. By requiring local voter authorization, the bill preserves accountability and transparency while providing communities with greater flexibility to address their unique fiscal circumstances. The measure recognizes that local governments face varying financial challenges and that voters should have the opportunity to decide whether additional revenue tools are appropriate for their communities.

1. This bill is co-sponsored by the City of Hercules, which notes:

SB 762 is a thoughtful and balanced measure that recognizes the growing fiscal pressures facing local governments throughout California while preserving the fundamental principle of local voter control. Importantly, the bill does not impose any tax increase. Rather, it simply authorizes local jurisdictions to place a locally determined measure before their own voters for consideration pursuant to existing constitutional voter approval requirements.

Like many California cities, Hercules is confronting mounting structural fiscal pressures driven by inflationary cost increases, aging infrastructure, deferred maintenance obligations, rising public safety costs, and growing community needs. The City is currently facing a significant structural fiscal imbalance despite implementing meaningful corrective actions, including holding vacant positions, reducing non-essential spending, and pursuing operational efficiencies across departments.

At the same time, the City continues to experience increasing pressure on essential municipal services and infrastructure systems. Budget constraints have impacted core public safety and administrative operations, while continued reliance on reserves to sustain ongoing services is not sustainable over the long term. Without additional local fiscal flexibility, cities like Hercules will face increasingly difficult decisions involving service reductions, delayed infrastructure investments, and diminished emergency response capacity.

1. This bill is supported by Teamsters California, which notes:

SB 762 represents a thoughtful, balanced, and locally accountable approach to addressing the growing fiscal and infrastructure challenges facing communities throughout California. Importantly, the bill does not impose any tax increase or mandate any local action. Rather, it preserves local democratic control by allowing local voters to determine whether additional locally controlled revenue is necessary to maintain essential public services, preserve infrastructure, and support long-term community stability. 762 provides a responsible local option that empowers communities to make their own decisions regarding future investment priorities. If approved by local voters, revenues generated through this authority could support critical community priorities including public safety services, roadway and infrastructure maintenance, park and recreation improvements, community facilities, economic development initiatives, homelessness response efforts, youth and senior services, emergency preparedness investments, and other locally identified needs.

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

Continuing to Authorize Waivers Makes California Less Affordable. The transactions and use tax is a regressive tax that has the most harmful impact on low-income residents because it makes it more expensive for these taxpayers to purchase everyday necessities. Inflation has increased the cost of most goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding to the cost of living with a sales tax increase would harm Californians and disproportionately impact the state's most vulnerable residents.

Increases Costs of Manufacturing and R&D. 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 various cities in the Bay Area to exceed the 2 percent transactions and use tax cap would increase the cost of doing business for critical industries and companies, including the biotech R&D company that is the city's largest employer.

Increases Government Costs. 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 city.

1. Committee Staff Comments:
   1. The TUT Law: The TUT Law authorizes cities and counties to impose TUTs under specified conditions. Counties may impose a TUT for general or specific purposes at a rate of 0.125%, or multiples thereof, if the required percentage of county voters approves the ordinance imposing the tax. Cities may also impose a TUT for general or specific purposes at a rate of 0.125%, or multiples thereof, if the required percentage of city voters approves the ordinance imposing the tax.

Generally, the combined TUT rate imposed within any local jurisdiction cannot exceed 2%. To evaluate whether a county has reached the combined TUT rate limitation, all countywide taxes and the highest combined tax rate imposed by a city within the county are counted towards the county's combined TUT rate cap.

• 1. What would this bill do? This bill would authorize various local jurisdictions, by ordinance, to impose a TUT for general or specific purposes at specified rates that would, in combination with all TUTs imposed, exceed the 2% rate cap. Additionally, this bill would provide that, notwithstanding R&TC Section 7251.1, a TUT imposed pursuant to this bill shall not be considered for purposes of the 2% combined rate limitation. Finally, this bill provides that if, as of December 31, 2031^[2], an ordinance proposing a TUT has not been approved in the local jurisdiction, the local jurisdiction's statutory authorization shall be repealed.
  2. 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. For example, such authority has been granted to the Counties of Alameda, Humboldt, Los Angeles, Monterey, San Luis Obispo, San Mateo, Santa Clara, Solano, Sonoma, and Ventura; the cities of Alameda, Berkeley, Campbell, El Cerrito, Lancaster, Palmdale, Pinole, Santa Fe Springs, Victorville; and any cities in the Counties of Solano or Sonoma.
  3. 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). 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.
  4. Urgency: The Assembly Committee on Rules has granted permission for amendments adding an urgency clause to be adopted in this Committee.
  5. Double referral: This bill was double referred with the Assembly Committee on Local Government, which will hear this bill should it pass this Committee.
  6. Related legislation:
     1. AB 1768 (Bryan), Chapter 11, Statutes of 2026, authorizes the County of Los Angeles, by ordinance, to levy a TUT at a rate not to exceed 0.5% for general or special purposes, subject to voter approval, as specified. AB 1768 (Bryan) also authorizes the County of Contra Costa, by ordinance, to levy a TUT at a rate not to exceed 0.625% for general or specific purposes, subject to voter approval, as specified.
     2. AB 2484 (Alvarez) would authorize a San Diego Metropolitan Transit System TUT to be imposed by a qualified voter initiative. AB 2484 is pending referral by the Senate Committee on Rules.
     3. SB 1078 (Laird) would authorize the County of Santa Cruz, by ordinance, to levy a TUT at a rate not to exceed 0.5% for general or special purposes, subject to voter approval, as specified. SB 1078 (Laird) is currently pending hearing in the Assembly Committee on Local Government.
     4. SB 1408 (Arreguín) would authorize the Contra Costa Transportation Authority 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%, if the ordinance proposing the tax is approved by the voters, subject to applicable voter approval requirements, as specified. SB 1408 (Arreguín) is currently at the Assembly Desk.

REGISTERED SUPPORT / OPPOSITION:

Support

City of Hercules (Co-sponsor)

City of Los Altos (Co-sponsor)

City of Pacifica (Co-sponsor)

City of San Pablo (Co-sponsor)

Town of Los Gatos (Co-sponsor)

City of Rohnert Park

City of Santa Rosa

County of Santa Cruz

Los Altos Peace Officers' Association

Pacifica Police Officers' Association

Teamsters California

Teamsters Local 856

Opposition

California Taxpayers Association

Howard Jarvis Taxpayers Association

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

1. For the County of Santa Cruz, this date is December 31, 2030. ↑

2. For the County of Santa Cruz, this date is December 31, 2030. ↑

 THIRD READING 

Bill No: SB 762

Author: Arreguín (D)

Amended: 1/5/26

Vote: 21

SENATE LOCAL GOVERNMENT COMMITTEE: 5-2, 1/14/26

AYES: Durazo, Arreguín, Cabaldon, Laird, Wiener

NOES: Choi, Seyarto

SENATE REVENUE AND TAXATION COMMITTEE: 4-1, 1/14/26

AYES: McNerney, Ashby, Grayson, Umberg

NOES: Valladares

SUBJECT: Transactions and use tax: City of Hercules

SOURCE: City of Hercules

DIGEST:

This bill allows the City of Hercules to impose a district tax, by ordinance or voter initiative, of up to 1% even if it exceeds the 2% cap.

ANALYSIS:

Existing law:

1. Imposes the sales tax on every retailer engaged in business in this state that sells tangible personal property, and requires them to remit taxes collected from purchasers to the California Department of Tax and Fee Administration (CDTFA).
2. Applies whenever a retail sale is made, which is basically any sale other than one for resale in the regular course of business.
3. Provides that unless the person pays the sales tax to the retailer, he or she is liable for the use tax, which is imposed on any person consuming tangible personal property in the state. The use tax rate is the same rate as the sales tax rate, and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.
4. Levies the sales and use tax at a current rate of 7.25%.
5. States that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (California Constitution, Article XIII C).
6. Allows cities, counties, and specified special districts, including the San Francisco Bay Area Rapid Transit District (BART) and the Contra Costa County Transportation Authority, to increase the sales and use tax applied within their jurisdictions, also known as district or transactions and use taxes, for either specific or general purposes pursuant to the California Constitution’s voter approval requirements.
7. 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, Humboldt 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. Provides that BART’s district tax does not count toward the 2% cap (AB 723, Quirk, Chapter 747, Statutes of 2019).

This bill:

1. Allows the City of Hercules to impose a district tax, by ordinance or voter initiative, of up to 1% above the 2% cap when combined with other district taxes imposed by local agencies in Contra Costa County.
2. Requires the Hercules City Council to adopt an ordinance proposing the tax unless it’s proposed by voter initiative.
3. States that the ordinance must be submitted to the electorate for approval and be approved by voters according to the appropriate Constitutional voter approval threshold.
4. Requires the tax to otherwise conform to state district tax law, except for the 2% cap.

Background

Located on the coast of San Pablo Bay in Contra Costa County, the City of Hercules has a population of 26,016 according to the 2020 U.S. Census. The City has imposed a 0.5% district tax since January 1, 2012, which, when combined with the three other 0.5% district taxes imposed in Contra Costa County (BART, Contra Costa County Transportation Authority, and Contra Costa County), results in a 9.25% rate in the City. Currently, the City can impose another district tax of 0.5% without legislation because BART’s rate does not count towards the cap.

Comment

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 heavily on low-income individuals than on 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. While below the highest rate in the state (the cities of Lancaster and Palmdale in Los Angeles County currently impose 11.25% rates), the rate could reach 10.25% in the City of Hercules should voters fully utilize SB 762’s authority. Additionally, the City can currently impose a 0.5% tax without a legislative exemption from the cap.

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

SUPPORT: (Verified 1/15/26)

City of Hercules (source)

OPPOSITION: (Verified 1/15/26)

None received

ARGUMENTS IN SUPPORT: According to the author, “SB 762 provides the City of Hercules residents with a limited opportunity to vote on local tax measures. The increase in revenue would support the protection and maintenance of essential

city services- such as faster 911 response times and improved park infrastructure - while achieving long-term financial stability and economic development.”

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

1/15/26 15:57:39

**** END ****

SENATE COMMITTEE ON LOCAL GOVERNMENT

Senator María Elena Durazo, Chair

2025 - 2026 Regular

Transactions and use tax: City of Hercules

Allows the City of Hercules to impose a district tax, by ordinance or voter initiative, of up to 1% even if it exceeds the 2% cap.

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, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect and remit appropriate tax at purchase and remit the amount 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. CDTFA collects sales taxes from retailers, deposits the state share in the General Fund, and then allocates the local share of the Bradley-Burns sales tax and any district tax to the appropriate jurisdiction.

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 the 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 enacting an ordinance or adopting 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. As of January 1, 2026, local agencies impose 484 district taxes for general or special purposes: 407 imposed citywide, 71 imposed countywide, and 6 imposed in unincorporated county areas. 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. However, three transportation operators in the Bay Area have regional district taxes:

• The Bay Area Rapid Transit (BART) District, which covers Alameda, Contra Costa, and San Francisco counties;
• The Peninsula Corridor Joint Powers Board (CalTrain), which covers San Francisco, San Mateo, and Santa Clara counties; and
• The Sonoma-Marin Rail Transit District, which includes Sonoma and Marin counties.

State law caps the total tax rate for any county district tax at 2%. The cap applies countywide, so if one agency imposes a district tax, it may limit the ability of another agency in the same jurisdiction to impose a district tax if there is no remaining room under 2% cap. For example, if city X imposes a 1% tax in county A, county A in which city X is located could not impose an additional district tax above 1%. The Legislature has enacted numerous exceptions to the countywide 2% cap as outlined in the table below.

City of Hercules. Hercules is a city of over 26,000 residents in Contra Costa County. There are three countywide district taxes that combined add a total of 1.5% to the statewide rate of 7.25%. The City of Hercules imposes a district tax to add 0.5% for a total of 2%. This means the tax rate in the City of Hercules is 9.25%. State law excludes one of the 0.5% countywide taxes from the 2% cap. As a result, the City has an additional 0.5% under the district tax limitation, so its voters can approve a tax rate up to 9.75% without hitting the cap.

The City reports that various funding needs, including supporting essential city services, like parks and emergency services. It wants to give its voters the opportunity to decide whether to raise additional revenue to fund these needs.

Proposed Law

Senate Bill 762 allows the City of Hercules to impose a district tax, by ordinance or voter initiative, of up to 1% even if it exceeds the 2% cap when combined with other district taxes imposed by local agencies.

The city council must adopt an ordinance proposing the tax, submit the ordinance to the electorate for approval, and be approved by voters. The tax must also conform to state district tax law.

Comments

1. Purpose of the bill. According to the author, “SB 762 provides the City of Hercules residents with a limited opportunity to vote on local tax measures.  The increase in revenue would support the protection and maintenance of essential city services - such as faster 911 response times and improved park infrastructure - while achieving long-term financial stability and economic development.”

2. Too high? While the state sales and use tax rate decreased from 7.5% to 7.25% on January 1, 2017, 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 heavily on low-income individuals than on 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. SB 762 could lead to a 10.75% tax rate in Hercules if the city imposes the maximum tax rate allowed under the bill and exercises its right under existing law to increase the tax rate by 0.5%. While local voters must approve any tax, the Committee may wish to consider whether SB 762 allows for rates that are too high.

3. Necessary? The City of Hercules can already impose an additional district tax up to 0.5% without hitting the 2% tax rate limitation. The Committee may wish to consider whether the City should use its existing room under the cap before going above it.

4. Existing cap. SB 566 (Scott, 2003) imposed the uniform 2% cap for both cities and counties, in response to a multitude of jurisdiction-specific bills seeking to authorize district taxes. The cap set an upper limit on the local rate, since, as noted above, California’s sales and use tax rate is very high. In 2015, AB 464 (Mullin) attempted to raise the cap to 3%, however, Governor Brown vetoed the bill, stating:

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

5. Upland. On August 28, 2017, the California Supreme Court entered a decision in California Cannabis Coalition v. City of Upland, 3 Cal. 5^th 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 Senate Governance and Finance 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 argued 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. SB 762’s authority for Hercules to exceed the 2% cap applies to both taxes imposed by ordinance or initiative, so if voters submitted an initiative, rather than the City, the measure would have a majority vote requirement.

6. Gut and amend. As amended in March 2025, SB 762 made changes to the San Francisco Bay Conservation and Development Commission. On January 5, 2026, the author amended the bill to delete the initial contents of SB 762 and insert the current language relating to the City of Hercules.

7. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Section 16 of Article IV). SB 762 contains findings and declarations explaining the need for legislation that applies only to transaction and use taxes imposed within the City of Hercules.

8. Incoming! The Senate Rules Committee has ordered a double referral of SB 762: first to the Committee on Revenue and Taxation, which is scheduled to hear the measure at its January 14^th meeting, and second to the Committee on Local Government.

Support and Opposition

(1/9/2026)

Support: City of Hercules (Sponsor)

Opposition: None Submitted

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SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Jerry McNerney, Chair

2025 - 2026 Regular

Transactions and use tax: City of Hercules

Allows the City of Hercules to impose a district tax, by ordinance or voter initiative, of up to 1% above the 2% countywide cap.

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, requiring them to register with the California Department of Fee & Tax Administration (CDTFA), and remit taxes collected from purchasers to CDTFA. Sales tax applies whenever there is a retail sale. The current sales and use tax rate is 7.25%. Additionally, cities, counties, and specified special districts may increase the sales and use tax, also known as district or transactions and use taxes.

CDTFA collects sales taxes from retailers, deposits the state share in the General Fund, and then allocates the local share of the Bradley-Burns sales tax and any district tax to the appropriate jurisdiction. 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 assessed at the same rate as the sales tax and must be remitted on or before the last day of the month following the quarterly period in which the purchase was made.

District Taxes. The California Constitution states that taxes levied by local governments are either general taxes or special taxes. General taxes are levied to fund general governmental purposes, without being imposed for any specific purpose, and are subject to majority approval by voters. Special taxes are subject to a 2/3 vote approval by voters. Proposition 13 (1978) required a 2/3 vote of each house of the Legislature for state tax increases, and a 2/3 vote for local special taxes. Proposition 62 (1986) prohibited local agencies from imposing general taxes without majority approval of local voters, or 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. As of January 1, 2026, local jurisdictions impose a combined 484 district taxes for general or special purposes. Of the 484 district taxes, 71 are imposed countywide, six are imposed in county unincorporated areas, and 407 are imposed citywide. Generally, local agencies impose these taxes throughout one entire jurisdiction, such as a single county, an unincorporated area within a single county, or an incorporated city. However, transportation operators in the San Francisco Bay Area have regional district taxes, among them the Bay Area Rapid Transit (BART) District, which covers Alameda and Contra Costa counties, as well as the City and County of San Francisco.

State law caps the total rate for district or transactions and use taxes in any county to 2%. The cap applies countywide, so if one agency imposes a district tax, it may limit the ability of another agency in the same county to impose an additional district tax. For example, if city x (located in county a) imposes a 1% district tax, then county a could not impose an additional county-wide district tax of 1.5% because now, city x would be subject to district taxes of 2.5%, which is above the 2% cap. Therefore, county a could only enact an additional district tax of up to 1%. Anything greater would exceed the 2% cap.

The Legislature generally enacts exceptions to the 2% cap annually. In 2024, the Legislature enacted exemptions for Solano County, any of its cities, and the Cities of Pinole and Campbell (AB 3259, Wilson); as well as for the Cities of Lancaster, Palmdale, and Victorville (AB 2443, J. Carrillo). Last year, the Legislature enacted similar exemptions for the San Luis Obispo Council of Governments (SB 333, Laird) and the Monterey-Salinas Transit District (AB 761, Addis).

City of Hercules. Located on the coast of San Pablo Bay in Contra Costa County, the City of Hercules has a population of 26,016 according to the 2020 U.S. Census. The City has imposed a 0.5% district tax since January 1, 2012, which, when combined with the three other 0.5% district taxes imposed in Contra Costa County (BART, Contra Costa County Transportation Authority, and Contra Costa County), results in a 9.25% rate in the City. Currently, the City can impose another district tax of 0.5% without legislation because BART’s rate does not count towards the cap (AB 723, Quirk, 2020).

To protect essential services and improve critical transportation infrastructure, the City wants authority to exceed the 2% cap to impose a district tax of up to 1%.

Proposed Law

Senate Bill 762 allows the City of Hercules to impose a district tax, by ordinance or voter initiative, of up to 1% above the 2% cap when combined with other district taxes imposed by local agencies in Contra Costa County.

The Board or respective city council must adopt an ordinance proposing the tax unless it’s proposed by voter initiative. The ordinance must be submitted to the electorate for approval and be approved by voters according to the appropriate Constitutional voter approval threshold. Other than the 2% cap, the tax must otherwise conform to state district tax law.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. “SB 762 provides the City of Hercules residents with a limited opportunity to vote on local tax measures. The increase in revenue would support the protection and maintenance of essential city services- such as faster 911 response times and improved park infrastructure - while achieving long-term financial stability and economic development.”

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 heavily on low-income individuals than on 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. While below the highest rate in the state (the cities of Lancaster and Palmdale in Los Angeles County currently impose 11.25% rates), the rate could reach 10.25% in the City of Hercules should voters fully utilize SB 762’s authority. Additionally, the City can currently impose a 0.5% tax without a legislative exemption from the cap. While local voters must approve any tax, the Committee may wish to consider whether SB 762 allows for rates that are too high.

3. Existing cap. SB 566 (Scott, 2003) imposed the uniform 2% cap for both cities and counties in response to a multitude of jurisdiction-specific bills seeking to authorize district taxes. The cap set an upper limit on the local rate, since, as noted above, California’s sales and use tax rate is very high. In 2015, AB 464 (Mullin) attempted to raise the cap to 3%; however, Governor Brown vetoed the bill, stating:

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

4. Upland. On August 28, 2017, the California Supreme Court entered a decision in California Cannabis Coalition v. City of Upland, 3 Cal. 5^th 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 Senate Governance and Finance 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 argued 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). Since then, voters in several local agencies across the state have approved special taxes by majority-vote initiative, and no court thus far has invalidated them, most recently in the City of San Diego (All. San Diego v. California Taxpayers Action Network, 114 Cal. App. 5th 1121, 1127, 337 Cal. Rptr. 3d 589, (2025)). SB 762’s authority for the City of Hercules to exceed the 2% cap applies to both taxes imposed by ordinance or initiative, so if voters submitted an initiative to impose a special tax, rather than the county or a city, they could approve it by majority vote.

5. Special legislation. The California Constitution prohibits special legislation when a general law can apply (Section 16 of Article IV). SB 762 contains findings and declarations explaining the need for legislation that applies only to transaction and use taxes imposed within the City of Hercules.

6. Hello friend. The Senate Rules Committee ordered a double referral of SB 762. First, to the Committee on Revenue & Taxation, and second to the Committee on Local Government.

Support and Opposition

(1/8/26)

Support: City of Hercules (Sponsor).

Opposition: None received.

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