California Cities Concerned About Tax Revenue Inequity

Liz Morton
Liz Morton


I was reading an interesting article from GeekWire this morning on growing concerns among some California cities about inequality in the sharing of tax revenues throughout the state.

As Amazon booms in California, cities want state to fix ‘tremendous inequity’ in sharing of tax revenue
Some California cities are calling on the state to return to a more equitable method of sharing tax revenue generated by Amazon’s online sales — warning that a change made earlier this year creates an…

With the focus on fulfillment centers, it's clear the League of California Cities is aiming at Amazon here, but could there be possible implications for eBay as well?

The California League of Cities was also critical of the tax sharing deal eBay hammered out with the city of San Jose in 2019.

Currently, for the purposes of sales tax collection, sales made on the platform to buyers in the state of California are considered as "taking place" at eBay's corporate headquarters in San Jose, allowing San Jose to receive the 1% local tax for all sales within the state.

In turn, San Jose has agreed to give eBay 30% of any tax amounts collected over $5 Million per year.  Reporting at the time estimated the deal could be worth $5 Million - $29.5 Million annually for San Jose and $150 Million over the course of the 15 year agreement for eBay.

No Strings Attached Tax Deal Shows Depth of eBay-San Jose Ties
Online marketplace eBay Inc’s long-term relationship with its hometown of San Jose, Calif., birthed a tax sharing agreement unlike any other—millions of dollars with no strings attached.
San Jose Draws Scrutiny From State Leaders, Other Cities Over Tax-Sharing Pact with eBay | San Jose Inside
Locally, however, the only controversy over the treaty involved how, exactly, to divvy up the money once it starts pouring into city coffers.
Editorial: California sales tax kickback schemes should be banned
Gov. Newsom should sign bill stopping future giveaways of public money like San Jose agreed to with eBay.

In a follow up piece from Bloomberg in 2020, it was noted this tax sharing deal helped San Jose fill in gaps from falling tax revenues due to COVID-19.

EBay Agreement With San Jose Blunts Covid-19 Related Tax Losses
San Jose’s agreement to share some of its local sales-tax revenue with eBay Inc. wouldn’t have happened if some state lawmakers had their way, but now it’s helping the Silicon Valley city close a multimillion-dollar hole in its budget from the coronavirus pandemic.

I'm sure San Jose was glad of the additional revenue during tough times, but other cities in California weren't so lucky, which underscores some of the League of California Cities overall concerns about the inequality of current sharing of tax revenues across the state.

One interesting thing to note from the original agreement between San Jose and eBay is what it has to say about the possibility of future legislation.

2 Future State Legislation.
eBay acknowledges that the State of California may enact legislation in the future which could materially and negatively impact the amount of Local Sales Tax Revenues due to the City and, accordingly, one or more of the City Payments owed by the City to eBay under this Agreement.

The City does not make any representation, warranty, or commitment concerning the future actions of the State of California legislature with respect to the allocation of Local Sales Tax Revenues to the City. eBay agrees that it is undertaking its obligations under this Agreement after having considered the risk of the enactment of such legislation.

Per the resolution from the League of California Cities, they are asking the state to consider legislation to address the issue by using data based on where products are shipped to rather than where the fulfillment center is located for in state purchases.

NOW, THEREFORE, BE IT RESOLVED that Cal Cities calls on the State Legislature to pass legislation that provides for a fair and equitable distribution of the Bradley Burns 1% local sales tax from in-state online purchases, based on data where products are shipped to, and that rightfully takes into consideration the impacts that fulfillment centers have on host cities but also provides a fair share to California cities that do not and/or cannot have a fulfillment center within their jurisdiction.

Again, they may be specifically talking about in state sales from businesses with fulfillment centers, but depending on how any possible legislation may end up being worded, there could be wider potential impacts on how other online sales within the state are handled for tax purposes.

If the League of California Cities gains traction with this resolution, it will be interesting to see what that may mean for eBay and San Jose as well.

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Liz Morton is a seasoned ecommerce pro with 17 years of experience in online sales & marketplaces, providing expert commentary, analysis & news about eBay, Amazon, Etsy & more at Value Added Resource!