Riechel Reports - Events In And Around The City of San Bruno CA

City to agree on
$3.625 million in additional annual sales taxes from Walmart.com

Article Source:  City of San Bruno CA

City Council Agenda Item
Staff Report
October 13, 2020

Honorable Mayor and Members of the City Council
Jovan D. Grogan, City Manager
Marc Zafferano, City Attorney


Receive Informational Report on a Revenue Participation Agreement with
Walmart.com to Facilitate Economic Development and Additional Sales Taxes for
the City of San Bruno


Walmart.com, headquartered in San Bruno, is the primary US e-commerce operating subsidiary
of Walmart Inc.  It is one of San Bruno’s largest employers, with over 2,000 employees.
Walmart.com owns the property located at 850 Cherry Avenue and is in the process of
completing substantial tenant improvements at the site to accommodate its employees.

The City Manager and City Attorney have been in negotiations with Walmart.com to finalize an agreement that would result in the City receiving additional sales tax revenue in exchange for revenue participation with Walmart.com. The net result is the potential for an estimated over $3.625 million in additional annual sales taxes to the City, and possibly more in the future.

is presenting an informational report to the City Council tonight and plans to return at the next
meeting on October 27 with a Resolution authorizing the City Manager to execute an agreement
with Walmart.com that would secure these funds. At that meeting, the City Council must also
hold a public hearing to consider an Economic Development Subsidy report that is required by
the State and must be adopted by Resolution.  


Sales Tax in California/Bradley Burns

Under the Bradley Burns law in California, cities receive 1% of taxable sales from within their
boundaries. Like many cities in California, San Bruno relies heavily on sales tax revenue to fund
City services. Sales tax is currently the second largest revenue source, after property taxes, of
the City's $49 million General Fund budget, with $6.5 million budgeted for 2020-21, representing
13% of the General Fund budget. As the City Council is aware, sales taxes have declined
during the COVID recession, and the City is facing additional pressure on its structural deficit
from sales tax, hotel taxes, and other ongoing revenue sources.  
Honorable Mayor and Members of the City Council
October 13, 2020
Page 2 of 4
The Wayfair Decision  

The administration of California sales and use tax to online retail activity has been transformed
in recent years by a series of significant legal developments.  These developments began in
2018 with the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. Historically, only
businesses with a physical presence in a state could be required to collect and remit sales
tax.  The Court overruled this longstanding requirement, holding instead that a state may
mandate a business with more than 200 transactions or $100,000 in in-state sales to collect and
remit sales and/or use tax on transactions in the state regardless of whether the business has
physical presence in the state.  Following the Supreme Court’s decision, California passed the
Marketplace Facilitator Act (AB 147) in 2019, requiring a marketplace facilitator to collect and
remit any California sales or use tax applicable to retail sales made through its marketplace by
remote sellers.    


Wal-Mart.com USA, LLC (“WM.com”) is an affiliate of Walmart Inc. (collectively,
“Walmart”).  WM.com operates the retail business operations conducted on the
www.walmart.com website.  Through the website, WM.com sells inventory owned by Walmart
as well as merchandise owned and sold by third-party marketplace vendors.  WM.com
maintains operations at various locations in California, including San Bruno.  

Under the new tax rules, WM.com is deemed a marketplace facilitator.  The substantial sales
tax obligations that come with this new designation caused WM.com to reevaluate its California
operations and e-commerce sales in conjunction with the applicable law for sourcing and
reporting its sales for California sales tax purposes under the Bradley-Burns Uniform Local
Sales and Use Tax Law. As a result, Walmart and San Bruno are able to enter into this mutually
beneficial Participation Agreement.  

Proposed Agreement

A table showing the projected tax sharing allocation is provided on the following page. The City
would receive 65% of the first $3.5 million in sales taxes generated by the sales team in San
Bruno, with 50% of all sales above that. The term would be for 25 years. The initial estimate of
annual sales taxes in total are $6.2 million, which is expected to grow over time. The split is
shown below, resulting in San Bruno receiving an estimated total of $3.625 million initially. The
proposed agreement would not apply to Measure G funds, which will continue to be allocated
directly to the City.
Honorable Mayor and Members of the City Council
October 13, 2020
Page 3 of 4


Staff have analyzed 16 similar arrangements between cities and retailers from across the state.
On average, cities have agreed to share total sales tax revenue in an approximate 50/50 split.
This proposed agreement would exceed that benchmark. The term of the agreements ranged
from 5 to 41 years, with the average length being 19 years, and the median length 15. The
proposed agreement would be for 25 years.

If approved on October 27, this participation agreement would have a significant impact on the
City’s General Fund budget, helping to close a portion of the City’s operating deficit as well as
accomplish key capital improvement and other priorities, as determined by the City Council.


The City of San Bruno stands to earn approximately $3.625 million annually in new sales tax
receipts, based on current sales.


Receive Informational Report on a Revenue Participation Agreement with Walmart.com to  
Facilitate Economic Development and Additional Sales Taxes for the City of San Bruno


1. Take no action, risking the City losing this economic development opportunity


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