California Tightens Uniform Local Sales Tax Law

California has enacted legislation that more strictly requires businesses to pay sales tax revenue to the city or county in which they operate. It relates to the Bradley-Burns Uniform Local Sales and Use Tax, and it takes effect January 1, 2016.

Background

Under the Bradley-Burns Uniform Local Sales and Use Tax, which was enacted in 1956:

• Retailers with only one place of business in California must source all retail sales to that one location, unless the retailer delivers (or delivers by common carrier) the product to a destination in another state.
• Retailers with more than one place of business:
  • The sale is sourced to the place of business that participates in the sale if only one place of business is involved.
  • If more than one place of business in involved in a sale, the sale occurs at the place where the principal negotiations take place. For example, the place where the order is taken, not the place where the order is forwarded for approval, billing, or shipment.

As Bradley-Burns is currently written, cities and counties are “prohibited from entering into any form of agreement ... that would involve the payment, transfer, diversion, or rebate of any amount of Bradley-Burns local tax revenues for any purpose if the agreement results in a reduction in the amount of revenue that is received by another local agency from a retailer that is located within the territorial jurisdiction of that other local agency, and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions, including an exception for an agreement to pay or rebate any Bradley-Burns local tax revenue relating to a buying company, as defined.”

New policy

The enactment of SB 533 repeals the above prohibition and instead prohibits “a local agency from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of Bradley-Burns local tax revenues to any person, … for any purpose, if the agreement results in a reduction in the amount of Bradley-Burns local tax revenues that… would [otherwise] be received by another local agency and the retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency, with specified exceptions.”

The new law also imposes “specified notification and reporting requirements on a local agency entering into an agreement that results in a reduction of the amount of Bradley-Burns local tax revenues, that in the absence of the agreement, would be received by another local agency, prior to the ratification of that agreement.”

Finally, it requires “any local agency to post such an agreement on its Internet Web site, including any agreements entered into prior to January 1, 2016, that are still in effect.”

Exclusions

Any “mutual tax revenue sharing agreement between local agencies to pay, transfer, or divert Bradley-Burns local tax revenues to another local agency, and where the agreement would not result, directly or indirectly, in the payment, transfer, diversion, or rebate of those tax revenues to a retailer.”

In short, the new law makes it more difficult for one locality to receive some of another locality's local sales tax revenue.

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