CC - Item 6B - Discussion and Possible Support of the League of California Cities Proposed Resolution Regarding the Fair and Equitable Distribution of Sales Tax Derived from On-line RetailersROSEMEAD CITY COUNCIL
STAFF REPORT
TO: THE HONORABLE MAYOR AND CITY COUNCIL
FROM: GLORIA MOLLEDA, CITY MANAGER S.m:,.
DATE: SEPTEMBER 7, 2021
SUBJECT: DISCUSSION AND POSSIBLE SUPPORT OF THE LEAGUE OF
CALIFORNIA CITIES PROPOSED RESOLUTION REGARDING THE
FAIR AND EQUITABLE DISTRIBUTION OF SALES TAX DERIVED
FROM ON-LINE RETAILERS
SUMMARY
This item is presented to the City Council at the request of Council Member Margaret Clark to
discuss the League of California Cities (Cal Cities) proposed resolution under consideration at
the League's Annual Conference in Sacramento on September 22 -24, 2021. Council Member
Clark would like to discuss the City's position to support the resolution from Cal Cities,
requesting the Legislature to pass legislation that provides for a fair and equitable distribution of
the Bradley Burns 1% local sales tax from in-state online purchases.
STAFF RECOMMENDATION
That the City Council discuss and provide further direction to City staff.
STRATEGIC PLAN IMPACT - None
FISCAL IMPACT - None
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process.
Attachment A: League of California Cities Proposed Resolution
AGENDA ITEM 6.11
Attachment A
League of California Cities
Proposed Resolution
1. RESOLUTION OF THE LEAGUE OF CALIFORNIA CITIES ("CAL CITIES") CALLING ON
THE STATE LEGISLATURE TO PASS LEGISLATION THAT PROVIDES FOR A FAIR
AND EQUITABLE DISTRIBUTION OF THE BRADLEY BURNS 1% LOCAL SALES TAX
FROM IN-STATE ONLINE PURCHASES, BASED ON DATA WHERE PRODUCTS ARE
SHIPPED TO, AND THAT RIGHTFULLY TAKES INTO CONSIDERATION THE IMPACTS
THAT FULFILLMENT CENTERS HAVE ON HOST CITIES BUT ALSO PROVIDES A FAIR
SHARE TO CALIFORNIA CITIES THAT DO NOT AND/OR CANNOT HAVE A
FULFILLMENT CENTER WITHIN THEIR JURISDICTION
Source: City of Rancho Cucamonga
Concurrence of five or more cities/city officials:
Cities: Town of Apple Valley; City of EI Cerrito; City of La Canada Flintridge; City of La Verne;
City of Lakewood; City of Moorpark; City of Placentia; City of Sacramento
Referred to: Revenue and Taxation Policy Committee
WHEREAS, the 2018 U.S. Supreme Court decision in Wayfair v. South Dakota clarified
that states could charge and collect tax on purchases even if the seller does not have a physical
presence in the state; and
WHEREAS, California cities and counties collect 1 % in Bradley Burns sales and use tax
from the purchase of tangible personal property and rely on this revenue to provide critical
public services such as police and fire protection; and
WHEREAS, in terms of "siting" the place of sale and determining which jurisdiction
receives the 1 % Bradley Burns local taxes for online sales, the California Department of Tax
and Fee Administration (CDTFA) determines "out-of-state" online retailers as those with no
presence in California that ship property from outside the state and are therefore subject to use
tax, not sales tax, which is collected in a countywide pool of the jurisdiction where the property
is shipped from; and
WHEREAS, for online retailers that have a presence in California and have a stock of
goods in the state from which it fulfills orders, CDTFA considers the place of sale ("situs") as the
location from which the goods were shipped such as a fulfillment center; and
WHEREAS, in early 2021, one of the state's largest online retailers shifted its ownership
structure so that it is now considered both an in-state and out-of-state retailer, resulting in the
sales tax this retailer generates from in-state sales now being entirely allocated to the specific
city where the warehouse fulfillment center is located as opposed to going into a countywide
pool that is shared with all jurisdictions in that County, as was done previously; and
WHEREAS, this all -or -nothing change for the allocation of in-state sales tax has created
winners and losers amongst cities as the online sales tax revenue from the retailer that was
once spread amongst all cities in countywide pools is now concentrated in select cities that host
a fulfillment center; and
WHEREAS, this has created a tremendous inequity amongst cities, in particular for cities
that are built out, do not have space for siting a 1 million square foot fulfillment center, are not
located along a major travel corridor, or otherwise not ideally suited to host a fulfillment center;
and
WHEREAS, this inequity affects cities statewide, but in particular those with specific
circumstances such as no/low property tax cities that are extremely reliant on sales tax revenue
as well as cities struggling to meet their RHNA obligations that are being compelled by the State
to rezone precious commercial parcels to residential; and
WHEREAS, the inequity produced by allocating in-state online sales tax revenue
exclusively to cities with fulfillment centers is exasperated even more by, in addition to already
reducing the amount of revenue going into the countywide pools, the cities with fulfillment
centers are also receiving a larger share of the dwindling countywide pool as it is allocated
based on cities' proportional share of sales tax collected; and
WHEREAS, while it is important to acknowledge that those cities that have fulfillment
centers experience impacts from these activities and deserve equitable supplementary
compensation, it should also be recognized that the neighboring cities whose residents are
ordering product from that center now receive no revenue from the center's sales activity
despite also experiencing the impacts created by the center, such as increased traffic and air
pollution; and
WHEREAS, the COVID-19 pandemic greatly accelerated the public's shift towards
online purchases, a trend that is unlikely to be reversed to pre -pandemic levels; and
NOW, THEREFORE, BE IT RESOLVED that Cal Cities calls on the State Legislature to
pass legislation that provides for a fair and equitable distribution of the Bradley Burns 1% local
sales tax from in-state online purchases, based on data where products are shipped to, and that
rightfully takes into consideration the impacts that fulfillment centers have on host cities but also
provides a fair share to California cities that do not and/or cannot have a fulfillment center within
their jurisdiction.
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