Central Valley cities with online retail fulfillment centers could be at risk of losing out on some tax revenue if a new push manages to convince state lawmakers.
The League of California Cities – a nonprofit that lobbies on behalf of cities throughout the Golden State – will consider supporting two resolutions during its annual conference in late September, one of which would promote the change of online retail tax revenue distribution.
If the group decides in support at the September meeting, the League of California Cities would call on the California Legislature to modify the distribution of the Bradley-Burns one-percent local sales tax distribution for in-state online purchases.
As the law presently stands, cities collect one percent sales and use tax from online purchases, depending on where the item ships from.
For example, tax revenue on items that are shipped from the Amazon Fulfillment Center in Fresno will be directed to the City of Fresno.
Some cities across the state, including Sacramento, are pushing the League of California Cities to lobby for a change in that law.
The proposed change would shift some of the tax distribution to be based on where the products are being delivered.
That means cities like Fresno and Visalia, which have the highly-coveted Amazon Fulfillment Centers, would lose out on some amount of tax revenue.
The City of Rancho Cucamonga initially sponsored the idea and has the backing of the following cities: Apple Valley, El Cerrito, La Canada Flintridge, La Verne, Lakewood, Moorpark, Placenta and Sacramento.
The cities sent a letter of support to the League of California Cities urging the organization to call on the Legislature to change the law.
They argued that the “all-or-nothing practice” of tax revenue distribution only benefits the cities “fortunate enough to host a fulfillment center.”
“This has created a growing inequity amongst California cities, which only benefits some and is particularly unfair to cities who have no chance of ever obtaining a fulfillment center, such as those that are built out or are not situated along major travel corridors,” the letter reads.
Ultimately, online retailers like Amazon are the real winners with the current situation, the cities argued.
“The current online sales tax distribution policies unfairly divide local agencies, exacerbate already difficult municipal finances, and in the end, result in a net loss of local government sales tax proceeds that simply serve to make private sector businesses even more profitable at the expense of everyone’s residents,” the letter reads.
The situation generally reads as follows: The cities with a large number of online fulfillment centers will oppose the resolution in order to keep raking in tax dollars. On the other hand, cities that do not have any distribution centers would seek a change to start benefiting from online purchases.
It starts to get complicated for cities like Visalia, which has fulfillment centers but also sees goods shipped to residents from warehouses in other cities.
Visalia City Manager Randy Groom had been involved with a statewide group of city managers discussing this issue a couple years ago.
Since the state Legislature has not approached the topic yet and discussed the exact details of a resolution, it’s simply too early for Visalia to take a stand either way on the issue, he said.
But based on his previous discussions with other city officials from around the state, Groom sees a middle of the road shared approach as a possible solution.
Under a shared approach, both the cities with the fulfillment centers and the cities whose residents are making the purchases would receive part of the sales tax distribution.
“It struck me as common sense that there is a way to balance,” Groom said. “There’s a way for part of the sales tax to be generated there, and part of it to be generated from wherever that product is going. That’s kind of a personal opinion, but I think because of the mix of players we have, I think that’s kind of fair for us.”