I. Summary
Starting January 1, 2016, Senate Bill 533 (“SB 533”) prohibits cities from entering into agreements with businesses that involve the city making payments or rebates of Bradly-Burns Uniform Local Sales and Use Tax (“sales tax”) revenues to the business when doing so would result in the reduction of sales tax revenue received by another local agency and the business maintains a physical presence in the other local agency’s jurisdiction. Under prior law, cities could offer this type of financial assistance so long as the business maintained a comparable operation in both jurisdictions. SB 533 changes this by removing this exception, and this type of financial assistance agreement should not be entered into whenever it would reduce the amount of sales tax revenue received by another agency. If the city nonetheless enters into such an agreement, it must notify the other agency and post the agreement on its website prior to adoption of the agreement. Finally, agreements that result in the reduction of sales tax revenue received by another local agency that were entered into prior to January 1, 2016 must be posted on the city’s website if they are still in effect after that date.
II. Discussion
Prior to January 1, 2016, Government Code § 53084.5 prohibited cities from entering into agreements with businesses that involved the city paying or rebating sales tax revenue to the business if the agreement had the effect of lowering the amount of sales tax revenue received by another local agency and the business maintained a physical presence within the other local agency. The purpose was to prohibit cities from inducing businesses to expand into their jurisdiction while the original site, now producing less sales tax revenue for the other jurisdiction, still requires the same level of city services. Subdivision (a)(2) of the prior version of § 53084.5 provided an exception to this prohibition when the business conducted a comparable operation in both locations, but SB 533 eliminated this exception from the text of the statute. Now, cities are prohibited from using their sales tax revenues to provide financial assistance to a business when doing so would result in the reduction of another local agency’s sales tax revenues, notwithstanding the comparable nature of the operations in both jurisdictions.
SB 533 also added a disclosure requirement to § 53084.5 that applies if a city nevertheless enters into an agreement that results in a reduction in the amount of sales tax revenue received by another local agency. The city entering into the agreement must post the agreement on its website for 30 days prior to approval or ratification and mail notice to the chief executive of the other local agency at least 60 days prior to approval or ratification.[1] Additionally, cities must post any such agreement on its website that was entered into before January 1, 2016 that is still in effect after that date.[2]
SB 533 expressly provides that it does not apply to any “mutual tax revenue sharing agreement between local agencies” and where the agreement would not result in the payment or rebate of sales tax revenues to a retailer,[3] so these types of agreements between agencies are still permissible under the new law.
III. Conclusion
Cities must be aware that it can no longer offer financial assistance in the form of sales tax revenue to a business when doing so would reduce the amount of sale tax revenue that the business generates for another jurisdiction. Cities should also immediately review any existing agreements they have with businesses within their jurisdictions to determine whether the agreements result in the reduction in the amount of sales tax revenue received by another local agency and post these agreements on the city’s website.
The above information is for general use and is not legal advice. This J&M Legal Alert is not intended to create, and receipt of it does not constitute an attorney – client relationship.Should you have any questions or require further clarification of the above, please contact Keith F. Collins at (714) 446-1400 or kfc@jones-mayer.com.