Local sales tax oddity - CA cities and Amazon

"Apricot capital of the world" located 90 miles SE of San Francisco, future home of an Amazon fulfillment center

A May 19, 2012 article in the Los Angeles Times by Mark Lifsher, "Amazon poised to get a cut of California sales taxes," is a reminder of a tax oddity in California and perhaps other states as well. In California (and some other states), when you purchase a taxable item at a store, the store charges you the sales tax rate for the city in which the store is located, even if you live elsewhere. This is an origin basis (or destination with the presumption that the customer will consume the item on the premises).  An alternative would be to ask customers where they reside and charge that rate (destination basis).

California cities love to have big box retailers within their borders because they generate revenue from all of the sales tax charged at the store even if the customers do not live in the city.  But, big box stores do pose costs for the city - traffic, for example.  A better deal is to have a corporate sales office in the city where goods are shipped from but there are not a lot of customers causing traffic. The sales tax goes to that city, but there are fewer costs.

Some California cities seemed to have planned ahead and enticed Amazon to set up fulfillment centers in their cities.  For sales from these centers to California customers, the local sales tax goes to the city with the center.

The LA Times article notes the two cities - San Bernardino and Patterson.  These cities will generate so much revenue, that they are considering sharing a portion of it with Amazon, sort of a reward.  Per the article: "It's a windfall so lucrative — about $8 million a year initially for each city — that local officials are preparing to give Amazon the lion's share of their take as a reward for setting up shop there."

The article notes that the legislature may reintroduce a proposal from the past to prevent cities from returning sales tax collections to companies.

When you think about it, it is just odd.  When you pay tax, you believe it is for government operations. But if the Amazon deal with the cities goes through, the revenue will go to a big corporation to do what they please.  While you might think this is not different from a tax law providing a special deduction, exclusion or credit, it is different. The special tax rule has requirements to be met (including doing something in the state) and usually is only of benefit when the company is profitable.  The sales tax rebate is a sharing of government revenues that are only to be used directly by the government.  And, what is to keep other businesses in the city asking for the same deal?

What do you think?