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Proposed bill that would redistribute online sales taxes could negatively impact Signal Hill, city manager says

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A potential constitutional amendment could negatively impact the quality of life of all Signal Hill residents, according to City Manager Charlie Honeycutt. The proposal of State Constitutional Amendment 20 (SCA 20) would change the way sales taxes from online purchases are distributed throughout the state, a change that could decrease Signal Hill’s tax revenue by 15 percent, Honeycutt said.

Currently, sales taxes are distributed to where an online order was made. SCA 20, authored by 7th District California Senator Steven Glazer, suggests reallocating the taxes from the point of sale to the point of delivery.

“So, somebody, let’s just say from Long Beach, they place an order through Amazon,” Honeycutt explained in a phone interview Tuesday with the Signal Tribune. “[…] So, they call Amazon, and Amazon happens to be in Signal Hill. Under the current rules, the customer would pay sales tax, the sales tax would go to Signal Hill. Under what’s being proposed, the sales tax would go to Long Beach [where the delivery is being made].”

Honeycutt said the sales-tax change would also negatively affect the City’s budget. Nearly 70 percent of the City’s revenue that pays for services such as public safety, street and park maintenance and school programs, comes from sales tax, of which a significant portion is derived from online sales.

“So, obviously, Signal Hill being only 2.2 square miles, and we only have about 12,600 residents, you have to make the assumption that most of the online sales being made in Signal Hill are not from Signal Hill,” he said. “What I estimated is that about 15 percent of our sales-tax revenue could be taken away from us and given to other cities.”

Honeycutt is part of a statewide working group– a team with the League of California Cities– that is tasked with developing policy recommendations to address the increase in online sales and how the sales taxes garnered from those purchases should be distributed to cities in the state.

The League of California Cities is an association of California city officials who research and exchange information to influence policy decisions that affect cities in the state.

The policy team was formed to learn more about the trends of online sales and SCA 20, the city manager said. The group will meet for a little more than a month on a weekly basis and then come up with a recommendation to present to the State Legislature. Honeycutt’s first meeting will be Thursday, Aug. 2.

SCA 20 is co-authored by California senators Benjamin Allen, John Moorlach and Scott Wiener, who represent the 26th, 37th and 11th districts, respectively. The constitutional amendment was proposed on March 22 and recently amended in the Senate on April 23, according to the California Legislative Information website at bit.ly/2v46i7d.

Glazer agreed to give the League of California Cities more time to analyze the effects of the proposal. As a result, SCA 20 is currently on hold.

In a phone interview Tuesday, a representative with Glazer’s Sacramento office, who chose to not publicly disclose his name, said a majority of the cities that are opposed to the amendment are those who have sales-tax rebate deals with warehouses or retailers who ship products. The retailers could have the option to attribute a certain amount of sales taxes to a specific location, he said.

“If the city doesn’t have that, chances are they would actually benefit from the bill, because the cities that only have people who are ordering online products and are receiving them now see that sales tax being diverted elsewhere,” Glazer’s representative said. “Since there’s only a handful of these warehouses, and the sales tax that’s collected gets concentrated in those cities, most of the cities in the state would benefit from the bill, because the sales tax would be distributed more evenly and equitably.”

The representative cited information from the League of California Cities and said 10 percent of the cities in California– 40 incorporated cities out of a total of 400– have sales-tax rebate deals with warehouses or retailers.

In an emailed response to the Signal Tribune about whether the City has any sales-tax rebate deals with retailers, Honeycutt said Signal Hill has had a partnership with Office Depot since 1996.

“At that time, Office Depot was needing to expand and looking to relocate to another county,” he wrote. “The agreement was necessary to retain Office Depot in Signal Hill and enable them to expand their facilities. During this period, the Long Beach-Signal Hill area was suffering from job losses created by the closure of the Long Beach Naval Base and the McDonnell Douglas MD-80 airplane plant. The agreement retained 700 existing jobs plus added 125 jobs as part of the Office Depot expansion.”

Glazer’s representative confirmed that the League of California Cities is on-record as saying that it intends to reform the way SCA 20 works, because officials think the online sales-tax distribution will not be equitable.

The results of a state audit a year ago motivated Glazer to introduce SCA 20 with his Senate colleagues. In analyzing last year’s information, he received a recommendation from a nonpartisan independent auditor to pitch the idea to the State Legislature of redistributing internet sales taxes in an attempt to balance revenue evenly.

The Constitution establishes the way sales tax is allocated, and it would be the responsibility of California voters to choose whether or not to finalize SCA 20 if it makes onto a ballot.

Glazer’s representative said the soonest SCA 20 would be on the California ballot is 2020 because of time constraints.

“More than likely is that the bill will die when the current session ends in September,” he said, “and then we’ll have to bring a new version of it next year.”

Honeycutt explained that SCA 20 would require a two-thirds approval of the State Legislature to be placed on the California ballot, and then it would require a two-thirds voter approval because the bill is a constitutional amendment.

“The law, I believe, is well intended,” he said. “It’s trying to catch up with the current marketplace. […] It’s kind of this big, messy, complicated thing– sales tax. They’re trying to clean it up and, again, I think that’s well intended, but I believe that it needs a more in-depth analysis before any real law is passed by the Legislature.”

Glazer’s representative affirmed that the senator is brainstorming solutions for his proposal with his colleagues that could benefit everybody, such as a potential 10-year phase-in of the law for cities, perhaps like Signal Hill, that would need time to adjust to the new system.

“The senator is working very closely with the League of Cities and his colleagues to try to find a way to do this,” he said. “A way that kind of puts the state on a new path without pulling the rug out from the handful of cities that currently rely on this revenue.”

1 Comment

One Response to “From buyer to receiver”

  1. Thomas Busse on August 1st, 2018 11:06 pm

    Having grown up in Bixby Knolls, Signal Hill seems like the Lichetenstein of California. Municipalities shouldn’t become the Panama Papers of local government.

    A greater Long Beach – formed by merging Signal Hill, Lakewood, and a few others, could become a truly world-class city, and the occasional boundary and governance reform is also a civil rights measure. Too often, cities are both ghettos and havens – a legal form of segregation. Certainly, the city of Bell and Bell gardens and cudahay, etc. are legacies that should be revisited. We shouldn’t ossify our institutions.

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