Turf Wars: Territoriality and the Allocation of Sales and Use Taxes in California
February 3, 2014
Sales and use tax revenue provides an important source of funding for California’s local governments, particularly its cities. Under the Bradley-Burns Uniform Local Sales and Use Tax Law, local governments may enact sales and use tax ordinances and contract with the state to manage collection and distribution. The current allocation system, known as the situs-based system, provides for distribution to local government based on the physical location of the retailer. Although such a system has logical appeal, in practice it has proven highly problematic, promoting unproductive competition among local governments for scarce revenue.
Reform of the situs-based allocation process has drawn attention from primarily political and policy-focused sources, but there has been little in the way of legal scholarship addressing these problems. This article aims to fill this gap by analyzing the situs-based system from a legal standpoint, as a complement to existing policy analysis of the issue, emphasizing the central role of territoriality in state and local taxation. First, it provides a background to sales and use taxes in California, with emphasis on federal constitutional limits, theoretical issues with sales and use taxes, and an overview of the Bradley-Burns law. Second, it highlights the range of problems associated with the situs rule. Finally, it examines a range of possible reforms of the system to combat some of these problems.
Number of Pages in PDF File: 51
Keywords: sales tax, California, allocation, situs rule
JEL Classification: K34
Date posted: February 5, 2014