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Daily Tax Report: State

California Tax-Sharing Deals Like Apple’s To Need New Disclosure

Oct. 13, 2019, 5:49 PM

California Gov. Gavin Newsom (D) will allow cities to continue crafting deals that give a portion of their sales-tax revenue to companies like Apple Inc., and eBay Inc., with more robust disclosures.

Newsom signed A.B. 485 by Assemblyman Jose Medina (D), targeting a practice in which some cities 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. The governor, though, vetoed another bill that would have gone farther and banned new agreements.

Under the new law, the deals must describe the number of permanent or temporary jobs the companies plan to create under new deals, what benefits and job training workers would receive, and the amount of other state and federal subsidies the company is applying for or has received. The California Labor Federation backed the measure.

“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,” Newsom said in a message accompanying his veto of S.B. 531 by Sen. Steve Glazer (D). “Therefore, completely removing these tax options from local decision makers is the wrong approach.”

Newsom’s office announced his actions after 11 p.m., Oct. 12.

Dozens of Deals

A Bloomberg Tax investigation found that dozens of cities in California have struck deals lasting decades to give companies about half of the 1 percentage point share of the 7.25% statewide sales tax rate they collect on their e-commerce sales in the state. About 10% of California’s 482 cities use the deals as a tool to attract jobs and boost tax revenue, but their neighbors view the deals as a tool that only benefits the companies.

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. San Jose cut a deal in September with eBay that could give the online auction platform $150 million over 15 years.

Ontario, a hub for warehouses and goods movement 40 miles east of Los Angeles, has paid out $28 million since 2013 to companies including Staples Inc. and QVC Inc., Bloomberg Tax found.

The California Chamber of Commerce, California Retailers Association, and the city of Fresno removed their opposition to Medina’s bill after he deleted a requirement that companies disclose their plans for automation in the future. The groups opposed Glazer’s vetoed bill to ban the agreements.

The California League of Cities opposed Medina’s bill, but supported Glazer’s bill.

Former Gov. Jerry Brown (D) vetoed a similar bill from Medina in 2018, saying he favored transparency with economic incentives but the measure would be too burdensome.

In his veto message of Glazer’s bill, Newsom said greater oversight through Medina’s bill will help the state understand the nature of the agreements and economic outcomes under them.

The new law will apply to new tax sharing deals after Jan. 1, 2020.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com

To contact the editor responsible for this story: Jeff Harrington at jharrington@bloombergtax.com