The online tax jungle

The U.S. Supreme Court ruled last month that online retailers such as Amazon have to pony up sales taxes to cities and states, creating a question of how much the Sacramento region can expect. The answer, according to local tax experts, is not all that much.

Michael Coleman, a policy adviser for the League of California Cities, told SN&R that while the U.S. General Accounting Office recently estimated that as much as $1.7 billion in online sales tax goes uncollected in California annually, only $120 million to $220 million of this goes directly to cities. Thus, in a state with roughly 40 million people, Coleman’s figures suggest the city of Sacramento could likely expect an extra $1.5 million to $2.75 million annually from the new ruling.

“It’s not the huge amount of money that some people might think,” Coleman said.

Local governments seem to agree and at least two are staying focused on raising money through new tax hikes. The Roseville City Council voted unanimously June 6 to place a half-cent sales tax measure on its November ballot. The following morning, Sacramento Mayor Darrell Steinberg launched a campaign to place a 1-cent sales tax on the November ballot in hopes of generating some $92 million a year for his city’s general fund. Sacramento’s current half-cent sales tax, Measure U, generates $46 million annually and is scheduled to expire March 31, 2019, said the city’s finance director and budget manager Leyne Milstein.

“We can’t afford to have that expire,” Milstein stressed.

In a June 7 speech to kick off the new campaign, Steinberg suggested a permanent 1-cent tax could help fund any number of city services, including expanded library hours, improved emergency response times and more police officers.

“We need a true game-changer in Sacramento, one that enables us to move beyond our current limits of doing well but just kind of getting by as a city,” Steinberg said in his speech.

The city’s Budget Audit Committee voted unanimously to refer the 1-cent sales tax to City Council, which is expected to hold a July 31 workshop and vote to place the measure on the November ballot.

Steinberg’s push hasn’t been without controversy, with Craig Powell of fiscal watchdog group Eye on Sacramento writing in June, “Neither the mayor nor The [Sacramento] Bee bothers to point out that city revenues have fully recovered from the recession. City revenues have risen 16 percent over the past two years and were up 6 percent last year.”

But to Milstein, even extending the existing half-cent tax might not avert looming financial catastrophe for Sacramento. Milstein estimates that without the 1-cent tax, the city could face a $30 million annual deficit from unfunded pension liabilities by 2023. The high court’s recent decision about online sales tax, incidentally, doesn’t change the calculus much for Milstein.

“Think about the exponentiality of it,” Milstein said. “I believe our residents are shopping online but they are not shopping online twice as much as they’re shopping right now in the city of Sacramento.”