Gov signs Hancock’s bill to end sales-tax scheme

Gov. Arnold Schwarzenegger today signed into law a bill aimed at keeping California’s cities from getting soaked for millions of dollars in a kind of sales-tax relocation scheme, as Livermore has.

As I reported last week, the new law — SB 27, which recieved not only bipartisan but unanimous support from both chambers of the Legislature — bars agreements in which consultants and retailers open a “shell” sales office within a given city in order to reap large sales-tax rebates without actually moving their core operations. Bill author state Sen. Loni Hancock, D-Berkeley, said that under this type of agreement most of the local sales taxes paid by residents go into the pocket of the relocating retailer and consultant rather than toward vital public services including police and fire protection.

For example, the cities of Livermore, Industry and San Diego have suffered since Owens & Minor — a Fortune 500 medical-equipment supplier based in Virginia — opened a small sales office in the Ventura County city of Fillmore. Though Owens & Minor still has its distribution centers in the three cities, the local sales taxes are credited to Fillmore, which gives 85 percent of that money to a consulting company that arranged this deal, which in turn kicks at least half back to Owens & Minor.

The losing cities are still left with the burden of providing vital police, fire, and other public services to Owens & Minor’s distribution facilities. Livermore’s $2.5 million loss in this fiscal year equals 3.1 percent of the city’s total General Fund and 13.7 percent of the city’s total sales tax revenue, Hancock said; the city’s loss over the past, current and next fiscal year will total about $6.3 million.

“I’m pleased we are putting an end to these ‘shell’ sales tax scams that cost local taxpayer millions of dollars and deprive cities of their ability to provide vital public services,” Hancock said in an e-mail moments ago. “I believe it makes sense to prohibit these agreements which simply put money into the pockets of unprincipled profiteers when cities all across California are facing large budget deficits.”

Josh Richman

Josh Richman covers state and national politics for the Bay Area News Group. A New York City native, he earned a bachelor’s degree in journalism from the University of Missouri and reported for the Express-Times of Easton, Pa. for five years before coming to the Oakland Tribune and ANG Newspapers in 1997. He is a frequent guest on KQED Channel 9’s “This Week in Northern California;” a proud father; an Eagle Scout; a somewhat skilled player of low-stakes poker; a rather good cook; a firm believer in the use of semicolons; and an unabashed political junkie who will never, EVER seek elected office.