Business

Newsom vetoes ban on sales tax rebates for distribution centers

A push to ban California cities from offering sales tax incentives to businesses as a recruiting tool to relocate was vetoed by Gov. Gavin Newsom on Saturday. At the same time, Newsom also signed a bill requiring municipalities to publish these agreements before approving them. 

Saturday, Newsom vetoed Senate Bill 531, authored by Sen. Steve Glazer (D–Orinda), that would have prohibited cities from offering rebates or payments of sales tax revenue. 

In a veto statement issued Saturday, Newsom said banning the agreements was “the wrong approach.”

“Current use of these tax agreements are limited but also an important local tool that captures additional economic activity, particularly in rural and inland California cities that continue to face significant economic challenges like high unemployment rates,” he said in the statement.

Newsom’s rationale could well have described Fresno and its use of tax incentives to woo major employers.

In the late 1990s, Fresno officials utilized tax incentives to help deliver The Gap distribution center in east-central Fresno. 

More recently, Fresno Mayor Lee Brand leveraged sales tax rebates in pitching e-commerce giant Amazon and cosmetics retailer Ulta to open distribution centers in southwest Fresno. 

The tax incentives helped Fresno edge out Phoenix as the site for Ulta’s distribution center, which opened its center last year with more than 500 local employees on-hand at launch.

Similarly, Amazon opened its 855,000-square-foot facility in southwest Fresno last year.

Fresno City Council member Miguel Arias routinely criticized the tax incentives for the warehouses was “selling Fresno short.” Arias has repeatedly argued that distribution cut into much-needed tax revenue while Fresno was expected to invest in infrastructure and provide services.

Meanwhile, a majority of the City Council – Garry Bredefeld, Luis Chavez, Paul Caprioglio, and Mike Karbassi – signed a letter with Brand opposing Glazer’s bill.

While Glazer’s bill navigated the state legislature, Brand said in an Op-Ed that Fresno’s tax rebate agreements with the companies would sunset after 30 years or when they reached a negotiated cap, whichever came first.

In the Op-Ed, Brand estimated the City of Fresno to net $99 million over the life of the agreements after rebating sales tax to the three companies, or roughly $3.3 million annually.

On Sunday, Arias said that, if cities don’t see tangible benefits from the rebate deals, a similar bill to Glazer’s could easily resurface.

“Cities should take this as a warning and ensure future tax sharing agreements hire local residents and benefit the residents providing the subsidy,” Arias said on Sunday. “Or they risk the Governor signing a ban in the next cycle of bills.”

Brand, on the other hand, applauded local initiatives to see the ban vetoed.

“This was a great corrective effort driven by the entire team here at the City along with the [Economic Development Corporation], and the Chamber,” Brand said on Sunday.

“It speaks a lot to the Governor’s commitment to Fresno and the San Joaquin Valley,” he added. “He walks the walk and talks the talk.”

While the ban on sales tax rebates was vetoed, Newsom did give opponents a minor victory on Saturday, signing Assembly Bill 485 by Asm. Jose Medina (D–Riverside).

The bill requires municipalities to publish tax rebate agreements with companies prior to a City Council or other governing body approving them. 

Medina’s bill also requires cities publish an annual reports during the life of the rebate agreement detailing a variety of statistics including, among others, net tax revenue earned by the city to jobs created by the company to the number of disadvantaged workers employed, and job losses created by automation.

Alex Tavlian
Alex Tavlian is the Executive Editor of The San Joaquin Valley Sun and Executive Director of Valley Future Foundation. You can reach Alex at alex.tavlian@sjvsun.com.