California Cities Call on Amazon to Fix ‘Tremendous Inequity’ in 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 unfair system of "winners and losers" in the disbursement of millions of dollars used for critical public services.
The stakes are high: Amazon is bigger in California than in any other state, with 60 fulfillment and sortation centers, 50 delivery stations, and 153,000 employees. That's according to its official count as of the end of 2020. The numbers are even higher now, given the rapid expansion of Amazon's fulfillment and delivery network.
In theory, California's cities should be benefitting from that growth. Amazon has been collecting sales tax from online purchases in California since 2012.
Until this year, that tax revenue was disbursed based on the customer's location, going to the local municipality where the product was delivered. But as of earlier this year, the practice changed to give the tax revenue to the municipality from which the item was shipped, the location of the Amazon fulfillment center.
City officials from across the state will consider the issue at the upcoming League of California Cities annual conference. A proposal submitted to the group by the City of Rancho Cucamonga, Calif., would call on the state to enact "a fair and equitable distribution" of the 1% percent sales tax from in-state online purchases.
"This change has created a situation where most cities in California – more than 90%, in fact – are experiencing a sales tax revenue loss that began in the fourth quarter of calendar year 2021," reads a report from Rancho Cucamonga accompanying its proposal to the group, known as Cal Cities.
The report adds, "Many cities may not be aware of this impact, as the fluctuations in sales tax following the pandemic shutdowns have masked the issue. But this change will have long-term impacts on revenues for all California cities as all these revenues benefiting all cities have shifted to just a handful of cities and counties that are home to this retailer's fulfillment centers."
The change has resulted in Amazon's sales tax revenue "being entirely allocated to the specific city where the warehouse fulfillment center is located as opposed to going into a countywide pool that is shared with all jurisdictions," according to Rancho Cucamonga's proposal.
The proposal attributes the shift to a change by Amazon in the ownership of its fulfillment centers from a third-party vendor to the company itself, which alters how its sales are treated under California's tax policy.
Amazon disputes this explanation, and says it is simply following guidance from the California Department of Tax and Fee Administration (CDTFA), which determines how sales tax revenue for Amazon online purchases should be treated.
"As a company with operations in California, we are obligated to follow the tax collecting guidance set by the state and have adjusted our tax collection process to ensure we remain compliant with the law," an Amazon spokesperson said in a statement to GeekWire this week. "We are committed to investing in the communities in which we operate and helping local economies grow."
California cities rely heavily on sales tax as a revenue source, due the limitations put on property taxes by Proposition 13 starting in 1978. A 1% local sales tax, known as the Bradley Burns tax, has been in place across the state since the 1950s.
The change in tax revenue distribution from Amazon sales "has created a tremendous inequity amongst cities, in particular for cities that are built out, do not have space for siting a 1 million square foot fulfillment center, are not located along a major travel corridor, or otherwise not ideally suited to host a fulfillment center," the Rancho Cucamonga proposal says.
It adds, "These policies especially favor retailers who may leverage current policy in order to negotiate favorable sales tax sharing agreements, providing more money back to the retailer at the expense of funding critical public services."
The proposal acknowledges "that those cities that have fulfillment centers experience impacts from these activities and deserve equitable supplementary compensation." However, it adds, "the neighboring cities whose residents are ordering product from that center now receive no revenue from the center's sales activity despite also experiencing the impacts created by the center, such as increased traffic and air pollution."
Rancho Cucamonga's proposal received initial endorsements from cities including Placentia, Sacramento, Moorpark, Lakewood, La Verne, and El Cerrito. Leaders in other cities across the state have since signaled their support, as well.
The proposal will be considered at the Cal Cities annual conference, Sept. 22-24 in Sacramento. Approval would enable the group to pursue legislative changes.
This story originally appeared on GeekWire.
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Pejman Nozad, a founding managing partner at Pear VC, joins this episode of LA Venture to discuss Pear VC's current initiatives, including its accelerator and fellowships. He's seen as one of the most successful angel investors in the area, and for good reason: he has made more than 300 investments in his lifetime.
"I'm a child of revolution and war and difficult times," said Nozad of his upbringing in Iran during the revolution.
Nozad went to college before dropping out. That's when his brother told him about his dream to go to America. After his brother was denied a visa multiple times, Nozad went himself to the embassy and got lucky; the woman in charge of the process liked him enough to approve him.
"When you're in [your] early twenties, you don't analyze much of the future. And then your risk-takers. I came to America in 1992 with $700 and I didn't speak any word of English," said Nozad.
Nozad went from working at a carwash, then a yogurt shop, to a (now famous) Persian rug store in Palo Alto. Many of his clients happened to be CEOs and venture capitalists; Nozad wanted to be part of that community.
"I was very lucky because I had access to people who normally nobody can see them, but I was hanging out with them at Sunday barbecues while selling carpets," said Nozad.
In his early days as an investor, Nozad bet on companies that included Dropbox and DoorDash. He said he took inspiration as a venture capitalist in lessons he learned from his time playing professional soccer in Iran.
"In soccer, you can score minute one, or you can score at minute 90. Both of them [are] one goal and you can win the game. So, when you go to fundraise, don't get disappointed if you hear a lot of nos, because the yes could be the last meeting after the whole two months," he said.
dot.LA Engagement Intern Joshua Letona contributed to this post.
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In this episode of LA Venture, Julie Wroblewski talks about starting Magnify Ventures and helping modern families.
Wroblewski worked with Melinda French Gates to start Pivotal Ventures. For Wroblewski, it was her dream job as she got to lead venture capital investment strategy for five years. One of the focus areas at Pivotal was around caregiving innovation and American family homes.
Wroblewski cites a report from one of Magnify's partners that estimates the care economy at $648 billion in the United States, already larger than the pharmaceutical market. Wroblewski's fund is writing up to $2.5 million checks into companies that will transform life, work and care for modern families.
"I started to see what I thought was a very exciting and still overlooked category of investment in venture capital around the care economy, and family-focused technology and was also seeing a lot of flow and founders," said Wroblewski.
As an investor, she is particularly interested in tools like household optimization that help families be both more efficient and joyful. She also wants to let parents know they don't have to be experts. Technology can help give them access to what they need, when they need it.
"Technology is moving closer into our lives all the time and solving increasingly human, complex, difficult problems, including, how we care for and manage care for children and our loved ones--the things that are most personal to us," said Wroblewski.
"We've seen such a wave of technology innovation in the workplace. You know, we now use so many different tools to help increase our productivity at work, to improve our health and well being in some cases in the workplace," she added. "And I think we haven't yet seen the same sort of investment in innovation move into some areas of family life and household management. And so I think that that's going to change."
dot.LA Audience Engagement Intern Joshua Letona contributed to this post.