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JUNE: June 18, 2018
TO
FROM
Honorable Mayor and Members of the City Council
John C. Brown, City Manager,
Agenda Item #3.1
SUBJECT: Resolution Supporting Senate Constitutional Amendment 20 Regarding Local
Sales Taxes From Online Sales and Authorizing the Mayor to Execute a Letter of
Support
RECOMMENDATION
It is recommended the City Council adopt the attached Resolution supporting Senate
Constitutional Amendment 20 (SCA 20) Regarding Local Sales Taxes From Online Sales and
authorizing the Mayor to execute a letter of support.
BACKGROUND
California's cities, counties and special districts provide services such as fire and police
protection, water, libraries, and parks and recreation programs. Local agencies pay for these
services using revenue derived from, among other sources, local taxes and fees, user charges, and
state and federal aid. Property tax, the Bradley -Burns uniform local sales and use tax, and the
vehicle license fee (VLF) are the three major revenue sources for most of the state's local
agencies.
The California Constitution prohibits the Legislature from imposing taxes for local purposes,
providing instead that the Legislature can authorize local agencies to impose them, such as parcel
taxes, utility user taxes, hotel taxes and business license taxes. Proposition 13 (1978) authorized
the state to allocate local property taxes among local government entities, including schools and
college districts, and in 1990-91, used that authority to require that property taxes previously
allocated to local governments be shifted to education purposes. It also reduced the VLF rate in
1998, and backfilled the local revenue loss first with subventions and then with increased
property taxes. SCA 4 was approved by voters as Proposition IA in November 2004 and
significantly limited the ability of the Legislature to alter local tax and revenue allocation.
The Bradley -Burns uniform local sales and use tax law authorizes counties and cities to impose a
local sales and use tax in accordance with that law for tangible personal property sold at retail in
the county or city, or purchased for storage, use, or other consumption. Existing law requires the
city tax rate to be credited against the county rate so that the combined rate does not exceed
1.25%, and requires the county or city to contract with the California Department of Tax and Fee
Administration (CDTFA) for the administration and transmittal of those taxes to cities and
counties.
DISCUSSION
SCA 20, introduced by Senator Glazer in March 2018 (Attachment 2), seeks to reallocate
Bradley -Burns local sales tax revenue resulting from online sales from the jurisdiction that is the
place of sale to the jurisdiction where the property is delivered, or to any address designated by
the purchaser.
Statewide, Bradley -Burns sales taxes are currently based on the place of the sale of property and
are allocated to the place of business of the retailer, unless the property sold is delivered by the
retailer to an out-of-state destination, in which case no tax is collected. The CDTFA must
consider specific characteristics of the retailer to determine the place of sale and correctly
allocate the local share of Bradley -Burns sales tax:
• For a retailer that has one location in the state, that location is determined to be the place
of sale for all of its sales.
• For a retailer that has more than one location in the state, the California Department of
Tax and Fee Administration (CDTFA) will determine the location based on where the
principal negotiations occurred.
• For a retailer that has no location in the state, but has a stock of property in the state from
which it fills orders, CDTFA will consider the place of sale as the location from which
the property is shipped.
SCA 20 would do the following:
Amend the California Constitution, upon approval of the voters, to provide, for purposes
of allocating the Bradley -Burns share of the sales tax, that the retail sale of property
transacted online is consummated at the point of delivery to the purchaser's address, or
any address designated by the purchaser.
Provides that it does not apply to contracts entered into by cities and counties to
reallocate Bradley -Burns sales taxes.
Defines "transacted online" to mean
o the purchaser's order and payment for the sale and purchase of tangible personal
property is transacted and completed on an Internet website or web -based
application;
o the purchaser's order and payment for the sale and purchase of tangible personal
property is not initiated by the qualified retailer using the retailer's equipment at
the retailer's place of business;
o the purchaser does not receive the tangible personal property at the retailer's place
of business or another location designated by the retailer.
Defines "qualified retailer" as a retailer whose cumulative total gross receipts from all of
the retailer's sales, within the preceding 12 months, of tangible personal property to
purchasers in California transacted online exceeds $100,000.
MuniServices, the City's sales tax consultant, believes an insignificant percentage of all
statewide sales taxes are attributed to warehouse distribution facilities, with the primary focus of
SCA 20 centered on the impacts of e-commerce sales tax transactions and how public funds are
being used when cities enter into sales tax rebate agreements to attract warehouse and
distribution centers.
2
MuniServices indicates that the author plans to amend SCA20 with language that will implement
a phase-in/out approach, beginning January 1, 2020, to mitigate the measure's potential impact to
agencies who stand to lose revenue as a result of the bill over a nine year period.
The Appropriations Committee's May 25th hearing on SCA 20 was postponed and placed in a
suspense file. A suspense file is a bill or set of bills, with a fiscal impact, that are set aside in the
Appropriations Committee by a majority of members present and voting, and which may be
heard at a later hearing.
As of this date, the League of California Cities has not taken a position on this measure.
FINANCIAL IMPACT
The current system of sales tax allocation favors jurisdictions that house distribution centers and
warehouses that fulfill internet sales; such locations would lose these revenues while cities and
counties with residents that make purchases online would receive increased revenues, the
amounts of which are yet to be determined.
JCB:kc
ATTACHMENTS
1. Resolution
2. Draft Letter of Support
3. Text of SCA 20
ATTACHMENT 1
RESOLUTION SUPPORTING SENATE CONSTITUTIONAL AMENDMENT 20
REGARDING LOCAL SALES TAXES FROM ONLINE SALES AND AUTHORIZING
THE MAYOR TO EXECUTE A LETTER OF SUPPORT
WHEREAS, California's cities, counties and special districts provide services such as
fire and police protection, water, libraries, and parks and recreation programs. Local agencies
pay for these services using revenue derived from, among other sources, local taxes and fees,
user charges, and state and federal aid. Property tax, the Bradley -Burns uniform local sales and
use tax (SUT), and the vehicle license fee (VLF) are the three major revenue sources for most of
the state's local agencies; and
WHEREAS, the California Constitution prohibits the Legislature from imposing taxes
for local purposes, providing instead that the Legislature can authorize local agencies to impose
them, such as parcel taxes, utility user taxes, hotel taxes and business license taxes; and
WHEREAS, as statutes, the Legislature had authority to change the VLF and SUT rates
and exempt items from tax; and in 1978 and 1990, shifted property taxes to schools, and in 1998,
reduced the VLF rate and backfilled the loss of revenue with increased property taxes; and
WHEREAS, SCA 4 was approved by voters as Proposition lA in November 2004 which
significantly limited the ability of the Legislature to alter local tax and revenue allocation; and
WHEREAS, SCA 20 is a Constitutional Amendment that seeks to reallocate Bradley -
Burns local sales tax revenue resulting from online sales from the jurisdiction that is the place of
sale to the one where the property is delivered; and
WHEREAS, local agencies are confronting a critical shortage of funding to improve
public structures and infrastructure, including streets and roads, water/wastewater/storm water,
and flood control projects, public safety buildings, and parks; and
WHEREAS, if approved by California voters, SCA 20 would provide additional sales
tax revenue to local cities, counties and special districts, to address local needs.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of
Petaluma supports SCA 20, and authorizes the Mayor to execute a letter expressing that support.
4
June 19, 2018
The Honorable Steven Glazer
California State Senate
State Capitol
Sacramento, CA 95814
The Honorable John Moorlach
ATTACHMENT 2
The Honorable Ben Allen
California State Senate
State Capitol
Sacramento, CA 95814
The Honorable Scott Wiener
California State Senate California State Senate
State Capitol State Capitol
Sacramento, CA 95814 Sacramento, CA 95814
RE: Letter of Support for SCA 20 — Local Sales Taxes: Online Sales
Dear Senators Glazer, Allen, Moorlach and Wiener,
At its June 18, 2018 meeting, the City of Petaluma City Council voted unanimously /or
by a vote of to , to support SCA 20, which seeks to shift the allocation of sales
and use tax for all online purchases from point-of-sale to point -of -destination by
reallocating Bradley -Burns local sales tax revenue.
Local agencies are confronting a critical shortage of funding to improve public structures
and infrastructure, including streets and roads, water/wastewater/storm water, and flood
control projects, public safety buildings, and parks. Local agencies pay for these services
using revenue derived from, among other sources, local taxes and fees, user charges, and
state and federal aid. Property tax, the Bradley -Burns uniform local sales and use tax,
and the vehicle license fee are the three major revenue sources for most of the state's
local agencies.
If approved by California voters, SCA 20 would provide a much needed additional
stream of sales tax revenue to local cities, counties and special districts to better address
local service demands. We urge your support of SCA 20.
Sincerely,
David Glass
Mayor
cc: Senator Ricardo Lara, Appropriations Committee Chair: senator.Iara@senate.ca.gov
Senator Henry Stern, Elections and Constitutional Amendments Committee Chair:
senator.stern gc senate. ca. gov
Senator Mike McGuire, Governance and Finance Committee Chair:
senator.mcguire@senate.ca.gov
Nancy Bennett, League of California Cities: nbennett@cacities.org
Bill Text - SCA -20 Local sales taxes: online sales.
Page 1 of 4
ATTACHMENT 3
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SCA -20 Local sales taxes: online sales. (2017-2018)
AMENDED IN SENATE APRIL 23, 2018
CALIFORNIA LEGISLATURE— 2017-2018 REGULAR SESSION
SENATE CONSTITUTIONAL
AMENDMENT
No. 20
Introduced by Senator Glazer
(Coauthors; Senators Allen, Moorlach, and Wiener)
March 22, 2018
A resolution to propose to the people of the State of California an amendment to the Constitution of the
State, by amending Section 25.5 of Article XIII thereof, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
SCA 20, as amended, Glazer. Local sales taxes: online sales,
The Bradley -Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose a local sales and
use tax in accordance with that law for tangible personal property sold at retail in the county or city, or purchased
for storage, use, or other consumption in the county or city. Existing law requires the city tax rate to be credited
against the county rate so that the combined rate does not exceed 1.25%. Existing law requires the county or city
to contract with the California Department of Tax and Fee Administration for the administration of the taxes and
requires the department to transmit those taxes to the city or county.
The Bradley -Burns Uniform Local Sales and Use Tax Law provides that for the purpose of a local sales tax adopted
pursuant to that law, all retail sales are consummated at the place of business of the retailer, unless otherwise
specified. Existing law provides that these local sales taxes are allocated to the place where the sale is deemed to
take place.
The California Constitution prohibits the Legislature from enacting a statute that would change the method of
distributing revenues derived under the Bradley -Burns Uniform Local Sales and Use Tax Law, as that law read on
November 3, 2004, except the Legislature may change that law by statute to allow the state to participate in an
interstate compact or to comply with federal law.
This measure would provide that, on and after January 1, 2020, for the purpose of distributing the revenues
derived under a sales tax imposed pursuant to the Bradley -Sums Uniform Local Sales and Use Tax Law, the retail
sale of tangible personal property by a qualified retailer, as defined, that is transacted online is instead
http://Ieg'tnfo.lec,islatui-e.ca.gov/faces/billTextClient.xhtiiil?blll_ld=201720180SCA20 6/5/2018
Bill Text - SCA -20 Local sales taxes: online sales.
Page 2 of 4
consummated at the point of the delivery of that tangible personal property to the purchaser's address or to any
other delivery address designated by the purchaser.
This bill, o, a„u- a _ , ��afiaary-4-,z �0� LO,-weafd-aN re--to-ehanatutethe R,e
diStFibUt4fig the revenues derived urger a 3a4e54ax-in,pescd1 purs:;ant ta4-he-Bi-ad1ey--Bur9s nifsr;r: Local r�!es
and Usa Ta:: Laev for a{e-ef-tangib{a pe=:renal prape4y-by-,i-quaVffied-retai{ef-that is-trar:sa:.t,�e.
Vote: 2/3 Appropriation: no Fiscal Committee: Heyes Local Program: no
Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 2017-18
Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house
concurring, hereby proposes to the people of the State of California, that the Constitution of the State be
amended as follows:
That Section 25.5 of Article XIII thereof is amended to read:
SEC. 25.5. (a) On or after November 3, 2004, the Legislature shall not enact a statute to do any of the following:
(1) (A) Except as otherwise provided in subparagraph (B), modify the manner in which ad valorem property tax
revenues are allocated in accordance with subdivision (a) of Section 1 of Article XIIIA so as to reduce for any
fiscal year the percentage of the total amount of ad valorem property tax revenues in a county that is allocated
among all of the local agencies in that county below the percentage of the total amount of those revenues that
would be allocated among those agencies for the same fiscal year under the statutes in effect on November 3,
2004. For purposes of this subparagraph, "percentage" does not include any property tax revenues referenced in
paragraph (2).
(B) In the 2009-10 fiscal year only, and except as otherwise provided in subparagraph (C), subparagraph (A)
may be suspended for that fiscal year if all of the following conditions are met:
(i) The Governor issues a proclamation that declares that, due to a severe state fiscal hardship, the suspension of
subparagraph (A) is necessary.
(ii) The Legislature enacts an urgency statute, pursuant to a bill passed in each house of the Legislature by rollcall
vote entered in the journal, two-thirds of the membership concurring, that contains a suspension of subparagraph
(A) for that fiscal year and does not contain any other provision.
(iii) No later than the effective date of the statute described in clause (ii), a statute is enacted that provides for
the full repayment to local agencies of the total amount of revenue losses, including interest as provided by law,
resulting from the modification of ad valorem property tax revenue allocations to local agencies. This full
repayment shall be made not later than the end of the third fiscal year immediately following the fiscal year to
which the modification applies.
(C) A suspension of subparagraph (A) shall not result in a total ad valorem property tax revenue loss to all local
agencies within a county that exceeds 8 percent of the total amount of ad valorem property tax revenues that
were allocated among all local agencies within that county for the fiscal year immediately preceding the fiscal
year for which subparagraph (A) is suspended.
(2) (A) Except as otherwise provided in subparagraphs (B) and (C) and in subdivision (b), restrict the authority of
a city, county, or city and county to impose a tax rate under, or change the method of distributing revenues
derived under, the Bradley -Burns Uniform Local Sales and Use Tax Law set forth in Part 1.5 (commencing with
Section 7200) of Division 2 of the Revenue and Taxation Code, as that law read on November 3, 2004. The
restriction imposed by this subparagraph also applies to the entitlement of a city, county, or city and county to
the change in tax rate resulting from the end of the revenue exchange period, as defined in Section 7203.1 of the
Revenue and Taxation Code as that section read on November 3, 2004.
(B) The Legislature may change by statute the method of distributing the revenues derived under a use tax
imposed pursuant to the Bradley -Burns Uniform Local Sales and Use Tax Law to allow the State to participate in
an interstate compact or to comply with federal law.
(C) The Legislature may authorize by statute two or more specifically identified local agencies within a county,
with the approval of the governing body of each of those agencies, to enter into a contract to exchange
allocations of ad valorem property tax revenues for revenues derived from a tax rate imposed under the Bradley -
Burns Uniform Local Sales and Use Tax Law. The exchange under this subparagraph of revenues derived from a
tax rate imposed under that law shall not require voter approval for the continued imposition of any portion of an
existing tax rate from which those revenues are derived.
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(3) Except as otherwise provided in subparagraph (C) of paragraph (2), change for any fiscal year the pro rata
shares in which ad valorem property tax revenues are allocated among local agencies in a county other than
pursuant to a bill passed in each house of the Legislature by rollcall vote entered in the journal, two-thirds of the
membership concurring. The Legislature shall not change the pro rata shares of ad valorem property tax pursuant
to this paragraph, nor change the allocation of the revenues described in Section 15 of Article XI, to reimburse a
local government when the Legislature or any state agency mandates a new program or higher level of service on
that local government.
(4) Extend beyond the revenue exchange period, as defined in Section 7203.1 of the Revenue and Taxation Code
as that section read on November 3, 2004, the suspension of the authority, set forth in that section on that date,
of a city, county, or city and county to impose a sales and use tax rate under the Bradley -Burns Uniform Local
Sales and Use Tax Law.
(5) Reduce, during any period in which the rate authority suspension described in paragraph (4) is operative, the
payments to a city, county, or city and county that are required by Section 97.68 of the Revenue and Taxation
Code, as that section read on November 3, 2004.
(6) Restrict the authority of a local entity to impose a transactions and use tax rate in accordance with the
Transactions and Use Tax Law (Part 1.6 (commencing with Section 7251) of Division 2 of the Revenue and
Taxation Code), or change the method for distributing revenues derived under a transaction and use tax rate
imposed under that law, as it read on November 3, 2004.
(7) Require a community redevelopment agency (A) to pay, remit, loan, or otherwise transfer, directly or
indirectly, taxes on .ad valorem real property and tangible personal property allocated to the agency pursuant to
Section 16 of Article XVI to or for the benefit of the State, any agency of the State, or any jurisdiction; or (B) to
use, restrict, or assign a particular purpose for such taxes for the benefit of the State, any agency of the State, or
any jurisdiction, other than (i) for making payments to affected taxing agencies pursuant to Sections 33607.5 and
33607.7 of the Health and Safety Code or similar statutes requiring such payments, as those statutes read on
January 1, 2008, or (ii) for the purpose of increasing, improving, and preserving the supply of low and moderate
income housing available at affordable housing cost.
after January. 2020,the LegislatuFe may ..L.,nge by statute the method—ef flstrituting—the
revenues ed under a al t , impssea nth I S'alas ani Use w
for the sale eted online
(b) (1) On and after January 1, 2020, for the purpose of distributing the revenues derived under a sales, tax
imposed pursuant to the Bradley -Burns Uniform Local Sales and Use Tax Law, the retail sale of tangible personal
property by a qualified retailer that is transacted online is consummated at the point of the delivery of that
tangible personal property to the purchaser's address or to any other delivery address designated by the
purchaser.
(2) A sale is "transacted online" if all of the following conditions are met:
(A) The purchaser's order and payment for the sale and purchase of tangible personal property is transacted and
completed on an Internet Web site or web -based application.
i (B) The purchaser's order and payment for the sale and purchase of tangible personal property is not initiated by
the qualified retailer using the qualified retailer's equipment at the qualified retailer's place of business.
(C) The purchaser does not receive the tangible personal property at the qualified retailer's place of business or at
another location designated by the qualified retailer.
(3) "Qualified retailer" means a retailer whose total cumulative gross receipts from all of the retailer's sales,
within the preceding 12 months, of tangible personal property to purchasers in this state transacted online
exceeds one hundred thousand dollars ($100,000).
(4) This subdivision shall not be interpreted to prevent a city, county, or city and county from entering into a
contract pursuant to subdivision (b) of Section 29 to apportion between them the revenue derived from any sales
tax or use tax imposed by them pursuant to the Bradley -Burns Uniform Local Sales and Use Tax Law.
(c) For purposes of this section, the following definitions apply:
(1) "Ad valorem property tax revenues" means all revenues derived from the tax collected by a county under
subdivision (a) of Section 1 of Article XIII A, regardless of any of this revenue being otherwise classified by
statute.
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(2) "Local agency" has the same meaning as specified in Section 95 of the Revenue and Taxation Code as that
section read on November 3, 2004.
(3) "Jurisdiction" has the same meaning as specified in Section 95 of the Revenue and Taxation Code as that
section read on November 3, 2004.
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