California Senate preserves big corporate tax breaks that benefit some cities (2024)

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Some of the most liberal and conservative members of the state Senate agreed recently that if you buy an iPhone in Los Angeles it shouldn’t help pay for police in Cupertino.

But the bipartisanship wasn’t enough to pass a bill that would change the rules allowing corporations wide discretion to choose who gets their online sales taxes, forcing cities to compete by offering companies huge tax kickbacks to win their favor.

“When we’re talking about how much you’re losing in tax dollars, let me tell you, it’s over $1 billion … given back to companies,” Sen. Steve Glazer, the bill’s author, told his colleagues on the Senate floor late last month. “One billion dollars that would go to public services in all of our jurisdictions.”

The opposition to Glazer’s Senate Bill 1494 was also bipartisan, some of it from senators who represent cities that benefit from the current rules. Cupertino, for example, gives 35% of the taxes it collects from Apple – about $4.5 million per year – back to the company. Still, nearly three quarters of the city’s sales tax revenue comes from Apple, according to Bloomberg Tax, which has extensively covered the issue.

As shoppers have switched to buying goods on their smartphones and computers, officials have debated for years about where sales tax revenue should go for purchases made online. Should it be the location of the buyer or the seller? Currently, it’s the seller. And companies have significant discretion about choosing their “point of sale” for tax purposes. This gives the companies that promise local jobs and municipal revenue boosts from warehouses, offices or retail centers tremendous bargaining power over local governments as they negotiate agreements that funnel sales tax money the cities collect back to the corporations.

For Glazer, a Democrat from Orinda, the agreements with local governments that kick back sales taxes to the firms are fundamentally unfair. He believes that if Californians buy something online, they expect taxes to go to the local government where the transaction took place – not to some city that could be hundreds of miles away. He told his Senate colleagues it creates a perverse system of “winners and losers.”

“Ninety-three percent of the cities are losers,” he said. “I can tell you that if you live in cities like Los Angeles, you’re a loser; San Francisco, Oakland, you’re a loser; San Diego, you’re a loser.”

A bipartisan group of 17 lawmakers, some of whose districts include cities that were in Glazer’s “loser” category, voted to support his bill on May 23. The supporters included liberal Sen. Scott Wiener, a Democrat from San Francisco who has a 100% rating from the Sierra Club and 0% from the California Chamber of Commerce, and conservative Sen. Brian Dahle, a Republican from the state’s rural northeast corner with a 100% rating from the chamber and 0% from the Sierra Club.

Dahle, who lost a bid for governor in 2022, split with the California Taxpayers Association on this vote even though he sides with the anti-tax group’s position on bills nearly 90% of the time, according to the CalMatters Digital Democracy database.

“We hear every day on this floor about disadvantaged communities and people not getting a fair break in California and the rich getting richer and the poor getting poorer,” he said on the Senate floor. “Think about this: This is not a tax increase or decrease. This is about distribution. These multibillion dollar companies in California are robbing your community and putting in that tax base that I pay in (Lassen County) in their pockets, getting even more rich off the backs of a tax.”But the arguments from the likes of Glazer and Dahle weren’t enough for the bill to pass the 40-member chamber. It got 17 votes in support and just 11 votes against, but 12 senators did not vote, which counts as a “no.”

As CalMatters has reported, lawmakers regularly avoid voting on controversial bills to avoid angering colleagues or to eliminate a record of their opposition on sensitive matters. There is no distinction for legislators who abstain or are absent.