California Passes Bill to Ban City Tax Deals Like Apple’s (1)

A bill to ban California cities from giving a portion of their sales-tax revenue to companies like Apple Inc. and Best Buy Co., to entice them to locate in their boundaries, is on its way to Gov. Gavin Newsom.

S.B. 531 by Sen. Steve Glazer (D) passed the Assembly 43-16 Sept. 5, six days after members voted it down with a 35-21 vote. Eleven Democrats who didn’t cast votes Aug. 30 voted in favor on the second try. The bill passed the Senate in May.

“We want to prevent right now a race to the bottom where billions are given away to corporations when other cities are deprived of that revenue,” Assemblyman Bill Quirk (D) said as he presented the bill on the Assembly floor.

Newsom (D) hasn’t taken a position on the bill. His office didn’t respond immediately to a request for comment. He will have until Oct. 13 to sign or veto it.

The California League of Cities supports the bill. The California Association of Retailers—as well as the cities of San Bernardino, Fresno, and Riverside—are opposed.

The bill targets a practice among some California cities to redirect a portion of local sales taxes they collect from consumers on e-commerce purchases to major companies that have distribution centers or headquarters in their boundaries. It would allow cities to keep existing deals in place, but bar them from entering into new ones.

Apple’s $70 Million Windfall

A Bloomberg Tax investigation found that a number of cities in California have struck deals lasting decades to give companies half the 1 percentage point share of the 7.25% statewide sales tax rate they collected on their e-commerce sales in the state. About 10% of the state’s 482 cities are using the deals as a tool to attract or retain headquarters or distribution centers.

Apple has received about $70 million from its hometown of Cupertino over the past 20 years, according to payment ledger information obtained by Bloomberg Tax. Best Buy has received or is owed $9.5 million from Dinuba, a small city in the economically struggling Central Valley. Staples Inc. and QVC Inc. have similar deals with the city of Ontario, which is a hub for warehouses and goods movement.

Another bill that would allow the agreements to continue but impose more disclosure requirements about jobs and benefits to cities and companies is one step from also reaching the governor.

—With assistance from Joyce Cutler