Sales Tax Revenue Sharing

“Sales Tax Revenue Sharing”, the phrase is becoming a common one as things progress concerning the City of Fillmore’s arrangements to split its share of the sales tax revenue rebate with three consultant firms contracted to bring new businesses into town. To recap, California cities are rebated 1% of all sales taxes collected in their cities. MTS Consulting LLC, Inspired Development LLC and Ryan and Co., retain agreements with the City of Fillmore to relocate retail businesses to our town in exchange for 85% of the 1% rebated dollars, generated by those businesses. The consulting firms then share their portion with the individual contracted businesses. Unanimously voted in by a previous City Council including Mayor Evaristo Barajas, Mayor Pro-tem Ernie Villegas, Cecilia Cuevas, Ken Smedley and Patti Walker, the City has benefited from this practice since 2003. It also has the endorsement of the present City Council and Administration officials. Nevertheless, Fillmore is the only city of record in the State to practice Sales Tax Revenue Sharing in this specific manner.

The issue was publicized this summer when the City of Livermore, after researching the cause for a substantial decrease in their sales tax rebates, filed complaints with the State Board of Equalization (BOE), against Fillmore. Livermore is home to one of four warehouse/sales offices in California; of Virginia based Fortune Five Hundred company Owens and Minor, a leading medical/surgical supplier. City of Industry, location of a second warehouse/sales office joined in the complaint. Both cities, declaring that business is going on as usual at their locations, take a position that the agreement between Fillmore, MTS Consulting and Owens and Minor is depriving their cities of their rightful taxes, by diverting sales through Owens and Minor’s office in the Gurolla Building on Sespe Avenue.

On September 8, 2008, the Cities of Livermore and Industry took the issue a step further by filing a claim against the City of Fillmore and all members past and present of the Fillmore City Council beginning in 2000. Various past and present City officials; City Manager Tom Ristau, Finance Director Barbara Smith, Administrative Services Manager Steve McClary, Roy Payne, and others yet to be identified are included as well. The claim accuses the three consultant services and several affiliated businesses registered in Fillmore, of establishing sham sales/purchasing offices in Fillmore with the intention of diverting sales tax revenues from other cities. It should be noted that a claim, though a legal instrument, might or might not be a precursor to a lawsuit.
From its’ inception in 2003 through 2007, the “Sales Tax Revenue Sharing” program alone has grossed $9,994,260 in rebated sales tax. The City’s 15% share of these rebates, nearly $1,500,000, was appropriated to the Reserve General Fund, and earmarked for additional law enforcement services. Additionally, a portion of these funds will offset some construction expenses of the new 22-acre community park.

To date, the BOE has frozen that portion of Fillmore’s 2008 sales tax rebate monies, reported and deposited by Owens and Minor, and six additional “consultant company contracted businesses”, many that operate from consultant company offices where they are provided with on site management, legal, financial and accounting services. They include Twin Med LLC, Southwest Jet Fuel, Walgreen National Corp. (Walgreen Co.), Cal Fuel Purchasing Group, Linen Supply Services, Inc. and Hawaiian Gifts LLC (Hawaiian Air). The City has requested from the BOE, an extension of their decision, for time to respond. At the State level, a second draft of legislation has been introduced in the form of SB 697, designed to prevent future agreements of this type in other cities.
Sales Tax Revenue Sharing programs are not new in other cities or in Fillmore, in an effort to lure additional business into an area, therefore increasing the tax base. However, those agreements have been accomplished directly, and with retail companies that are identifiable, with advertised locations and visible and undeniable local points of sale.

As recently quoted, City Attorney, Ted Schneider said these agreements are “absolutely a legal arrangement”. Ristau and Mayor Conaway as well, defend the legality of Fillmore’s business and cite the substantial benefits to the community. They pledge to continue to defend them vigorously if the need arises, and are confident that Fillmore will prevail. They do not anticipate any effects on city projects and services. To paraphrase Councilmember Scott Lee, it is not unusual for cities to enter into sales tax rebate agreements however, they are mostly done with companies with one location. Councilmember Patti Walker declined to make a statement at this time, and Councilmembers Cecilia Cuevas and Laurie Hernandez, and several Administrative officials failed to respond to statement requests.

Prior to Livermore and Industry’s accusations, Sales Tax Revenue Sharing has had a positive effect on Fillmore. But, some view it as overly innovative in the form it has taken in our town. The City will continue to discuss this issue and its’ direction in Executive Session. In the meantime, one can only wait and see what comes from new legislation if passed, the decisions of the State Board of Equalization and the determination of the Cities of Livermore and Industry.