Dinuba rejoices after tax-sharing bill dies in State Senate

The flags fly in front of Sacramento's Capital Building

A bill that threatened Dinuba’s sales tax revenue-sharing agreement with Best Buy fails to advance in the legislature, securing Dinuba’s revenue stream for now

SACRAMENTO – Senate Bill 1494, which aimed to ban new online sales tax revenue-sharing agreements between cities and corporations and gradually eliminate existing ones, has been shelved in the California State Legislature.

The bill, authored by District 7 Sen. Steve Glazer, refused passage during a vote on the Senate floor on May 23, receiving 17 aye votes and 11 no votes; it needed at least 21 votes to pass. This comes as a cause for celebration for cities that, like Dinuba, receive a significant amount of revenue from the tax-sharing agreements they hold with major online retailers.

“There’s a sense of relief amongst my colleagues in the city of Dinuba and in many other similar disadvantaged communities throughout the state that participated in a perfectly legal arrangement as an economic incentive,” Dinuba City Councilmember Kuldip Thusu said.

Although SB 1494 was granted reconsideration — meaning the Senate could take another vote on it because it did not explicitly fail — Glazer moved it to the inactive file on May 24, effectively killing it. Inactive bills can be revived, but May 24 was the deadline for each house to pass bills introduced in that house; moving forward, the Senate can only pass Assembly bills.

Thusu said he is thankful to the senators who voted against the bill — among them local Valley Senators Melissa Hurtado, Anna Caballero and Shannon Grove — as well as the work of lobbyist firm Townsend Public Affairs and Fresno Mayor Jerry Dyer’s staff. For the last few months, the city of Dinuba has been fighting against SB 1494 alongside other California cities and interest groups, emphasizing the impact revenue-sharing agreements have had on economic development, particularly in rural areas.

For example, the city of Dinuba has had a revenue-sharing agreement with Best Buy since 2015 that has yielded the city millions of dollars in additional tax revenue that it has been able to spend on capital improvement projects including park renovations, street repairs and city beautification efforts.

Through that agreement, Best Buy designates its Dinuba fulfillment warehouse as its primary point of sale — allowing Dinuba to collect all sales tax revenue generated from online Best Buy purchases — in exchange for Dinuba giving the company 50% of that revenue. This is possible because while revenue generated through sales and use taxes is typically allocated to the local jurisdiction where the transaction takes place, the state’s tax code allows for online sales tax to be allocated differently.

When a transaction occurs online, the sales tax allocation can go to a specified location where the sale “takes place,” such as a company’s designated sales office, or where the order is fulfilled and shipped out from. This makes it so that local jurisdictions may not receive any sales tax revenue from purchases their residents make online, and specific cities may receive all of the revenue.

SB 1494 targeted online sales tax revenue-sharing agreements by prohibiting local jurisdictions from entering into any new agreements after Jan. 1 and requiring all current agreements to end by Jan. 1, 2030. Glazer introduced SB 1494 because he and the bill’s other supporters feel that the current system is unfair to the majority of California cities that do not have these types of agreements in place.

During debate on the floor on May 23, Glazer said that companies have baited cities around the state into making these deals by enticing them with the prospect of the bulk of their online sales tax revenue and then getting cities to provide them with a rebate.

“Both our state auditor, who works for us, and the legislative analysts, have issued a report showing that the use of these agreements do not result in a net benefit to the broader economic region within our state,” Glazer said. “It simply shifts existing sales tax dollars from one jurisdiction to another, and there’s a cost to that.”

While proponents of the bill argued that the tax-sharing agreements benefit large corporations more than they benefit California taxpayers, the bill’s opponents said that argument ignores the good these agreements do for the small communities located within freight corridors that are adversely impacted by the presence of distribution warehouses. Sen. Susan Eggman from Stockton said the bill is “not about the big guys, this bill is about what local governments can do with the resources they have.”

“I’m not saying it’s a perfect system, but I’m saying in the system that we have, it gives some of these smaller communities who breathe the repercussions of this model that we’ve all created and try to get a little bit for our communities too,” Eggman said.

Organizations that opposed SB 1494, such as the League of California Cities (Cal Cities), have acknowledged that the current tax allocation needs to be addressed and amended but have said that they did not agree with the way SB 1494 went about it.

Thusu, who serves as the chair of the Cal Cities Revenue and Tax Committee, said that Cal Cities has been working on policy recommendations that would propose a “fair and equitable solution to this problem … that should be acceptable to all 482 cities in the state.”

Even with the failure of SB 1494, Dinuba and other cities with tax-sharing agreements still face audits conducted by the California Department of Tax and Fee Administration (CDTFA) that determined the amount of sales tax revenue these cities have been receiving is too high. The audits are confidential and city staff and council members cannot comment on them, but Thusu said he is hoping for a “fair and equitable resolution there as well.” 

“Meanwhile, we will make sure that everything in the city of Dinuba runs in a fair, balanced and equitably so that we don’t have to cut any services or staff until the CDTFA audit is behind us as well,” Thusu said.

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