San Bernardino Offering Sales Tax Springbacks In Bid To Lure Amazon

SAN BERNARDINO—E-commerce gargantuan Amazon is pressuring city of San Bernardino officials to provide it with sales tax springbacks as part of a deal in which the company would locate a 950,000 square foot distribution center at the Alliance California complex near San Bernardino International Airport.
The state of California imposes a 7.25 percent sales tax on all non-edible goods sold in the state. In San Bernardino County, consumers are charged an extra half cent sales tax to pay for road improvements, pursuant to Measure I first passed in 1989 and renewed by voters in 2004. The city of San Bernardino levies a .25 percent sales tax on all goods sold within its city limits. Of each 7.25 cents collected by the state in sales taxes, one cent is returned to the city or jurisdiction at the point of sale.
Amazon for years has fought various state governments over whether sales tax should be levied on its customers, who purchase goods through the company over the internet.  Last year, it relented in its struggle with the state of California, agreeing to obtain a seller’s permit from the Board of Equalization, which allows the company to make sales and collect and remit appropriate sales taxes to the state, effectively resulting in the company having to charge the 7.25 percent duty on in-state customers.
In the same time frame, Assembly Bill 155 was passed by the legislature and signed into law by the governor. Assembly Bill 155 delayed the operative date by which internet retailers had to be collecting sales taxes until federal legislation defining what “a retailer engaged in business” in California was passed.
After on-line retailers begin collecting sales tax in Fall 2012, it is anticipated that the state will realize $316 million per year in additional sales tax revenue. Roughly half of that, it is anticipated, will come from Amazon.
Beginning this fall, Amazon will open two huge distribution centers in California. One is already set to be located in Patterson in Stanislaus County. Amazon is leaning toward locating the other in San Bernardino in a facility approaching one million square feet at the Alliance California Center.
Amazon has already used its size and leverage to broker a deal with Governor Jerry Brown by which Amazon agreed to build its warehousing and distribution centers in California rather than out of state, where the company will employ 10,000 full-time workers and as many as 25,000 seasonal workers by December 2015 in exchange for California delaying by 12 months the requirement that Amazon collect sales tax from its customers.

Patrick Morris

Amazon is using that same leverage in negotiating with San Bernardino officials, including economic development director Emil Marzullo and mayor Patrick Morris. At stake is Amazon’s commitment to locate the distribution center, which will employ at least 1,000 workers initially and as many as 4,000 workers by 2015 in San Bernardino. In return, Amazon is seeking at least 80 percent of the sales tax it is to collect at the San Bernardino operation to be routed back to it, likewise for a set period of time.
Critical in the negotiations is Amazon’s willingness to designate San Benardino as the “point of sale” for all of the merchandize delivered to customers from the San Bernardino warehouse.

Emil Marzullo

No agreement between Amazon and San Bernardino officials has been reached. Depending on how the deal is structured, Amazon could see a greater rate of sales tax returned, that is more tax sprung back, as volumes moved out of the facility increase. In this way the city could incentivize having more workers employed in San Bernardino.
San Bernardino is not new to the concept of or practice of providing sales tax springbacks. The city provides Kohl’s with springbacks pursuant to a 20-year tax-sharing agreement by which the retailer will get progressively more sales tax returned over the life of the contract.
Such arrangements are legal, under California law, but only extend to the portion of the sales tax money provided to the city and does not cover money kept by the state or Measure I funds.
“The city may enter into an agreement with a third party relating to the disposition of those funds after an allocation is made,” Casey Wells with the office of public affairs at the State Board of Equalization told the Sentinel.
Amazon will not be required to collect sales taxes on customers who do not reside in California, Wells said.
“Generally, California companies making sales to out-of-state customers are not required to collect California tax on those transactions,” Wells said. “Whether there is a use tax obligation on the purchaser depends on the state in which they reside.”

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