TO:
Honorable Mayor and Members of the City Council
THROUGH:
John Jalili, Interim City Manager
FROM:
Bruce Moe, Finance Director
SUBJECT:Title
Letter of Opposition to Senate Bill (SB983 - Hernandez) Regarding Reallocation of Sales Tax from Card Lock Fuel Systems (Finance Director Moe).
AUTHORIZE LETTER OF OPPOSITION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council authorize the Mayor to sign a letter of opposition to SB983 (Hernandez).
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FISCAL IMPLICATIONS:
If the bill becomes law the City of Manhattan Beach would lose $350,000 annually in sales tax revenues. This represents approximately 4% of the City's sales tax, and .6% of General Fund revenues.
BACKGROUND:
Card lock systems are fleet fueling locations where members (customers operating fleets) purchase fuel at a network of non-retail fueling stations using a fleet (credit) card. The stations service members only and are not open to the general public.
Under existing state law, the credit for fuel sales (and the tax) generated by card lock systems is credited to the jurisdiction in which the sales office is located. If it becomes law, SB983 would reallocate the sales tax revenues to the points of distribution (e.g., the locations where the fuel is dispensed).
DISCUSSION:
In 2010, the City entered into a location agreement with DeWitt Petroleum (Attachment #2). DeWitt Petroleum operates card lock fueling systems in eleven cities, while their main sales office is located in Manhattan Beach (there are no DeWitt fueling locations in Manhattan Beach). The agreement provides for a sharing of the sales tax revenue generated by DeWitt Petroleum in exchange for a long term commitment to maintain a sales office in Manhattan Beach. The initial term is twenty years with renewal options. Other cities have entered into similar arrangements with other card lock fueling system operators, including Lancaster, Orange, and Auburn.
The current method of sales tax allocation is established by a 1990 State Board of Equalization legal annotation. According to the 1990 statement, the place of sale for Bradley-Burns local tax purposes is the place where the member negotiates with its customer, regardless of the fact that the actual delivery takes place in another jurisdiction. SB983 would change the credit to the location the fuel is dispensed.
The point of sale issue is being raised by the City of South El Monte (they are sponsoring the bill), which was the location of DeWitt Petroleum's main sales office until DeWitt voluntarily moved their offices to Manhattan Beach. Subsequent to their move, the City was approached regarding a location agreement, which was authorized by City Council in October 2010.
A coalition of cities and card lock fuel system operators have been working together to oppose SB983. Additionally, the City has retained Rice/Englander and Associates for legislative advocacy on this issue. The bill is scheduled to be reviewed by the Senate Governance and Finance Committee on April 9th. If the City Council authorizes the letter, copies will also be sent to the members of that Committee as well as Senator Ted Lieu and Assembly Member Al Muratsuchi.
CONCLUSION:
Staff recommends that the City Council authorize the Mayor to sign a letter of opposition to SB983 (Hernandez).
Attachments:
1. Draft letter of opposition to SB983
2. DeWitt Petroleum Location Agreement