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.

A Long Debate About Where the Sales Tax Should Go

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.”

Glazer Gained Bipartisan Support for the Bill

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.”

The Strategy of Not Voting

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.

Many of the opposing senators have communities that benefit from the tax agreements, or they sided with cities and counties that argue the tax agreements are valuable tools that help disadvantaged communities promote economic development and create jobs.

Gov. Gavin Newsom vetoed a similar Glazer bill in 2019, making the same arguments.

Not surprisingly, Cupertino’s senator, Dave Cortese, a Democrat, voted “no.”

Sen. Susan Talamantes Eggman, a Democratic former Stockton city councilmember, also cast a “no” vote. She told her colleagues that the current tax system doesn’t necessarily benefit just wealthy Silicon Valley communities.

“This bill is about what local governments can do with the resources they have,” she said. “So I’ll tell you some of the winners, and you tell me if they’re the big guys or not. City of Dinuba, city of Fresno, city of Merced … city of Tracy, city of Stockton. You know who those folks are? The little guys that live on that corridor, that breathe that diesel, that smell that gas, that have a lot of our jobs taken.”

She noted that Stockton alone receives about $1.5 million to $2 million a year from such an agreement. She didn’t say which company, and her office didn’t respond to CalMatters’ request for clarification. Stockton officials also didn’t respond to CalMatters’ request.

But Glazer told CalMatters those sorts of arguments are shortsighted since changing the tax system would funnel $1 billion in tax kickbacks that corporations receive from these agreements to communities across the state. It frustrated him that the influential League of California Cities opposed the bill, since the organization’s lobbyists regularly complain to lawmakers that “our cities are struggling and our cities are suffering” from lack of revenue, Glazer said.

“You’ve given more than $1 billion away of public money to these wealthy corporations,” Glazer said. “How can you come up here to Sacramento complaining about not having money?”

League of California Cities Opposed the Bill

The League of California Cities told lawmakers in a letter opposing the bill that the proposed regulations were unnecessary since its members had agreed to place a cap on the corporate kickbacks, “provide enhanced transparency and public review, and make equitable changes” to how the taxes are distributed.

Sen. Kelly Seyarto, a Republican and former Murrieta mayor, said the tax-sharing agreements allow little communities like his to compete with bigger cities to lure in major business developers. He told the Senate’s Local Government Committee in April that if the Glazer’s bill would have passed, they wouldn’t be able to.

“And for smaller communities like the one I came from,” he said, “that’s death.”

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