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CITY OF SAN LEANDRO MEMORANDUM DATE: November 4, 2011 TO: Finance Committee FROM: Lianne Marshall, Interim City Manager BY: Jim O'Leary, Interim Finance Director SUBJECT: Discussion Regarding Quarterly Sales Tax Update RECOMMENDATION Staff recommends that the Finance Committee review and accept the attached report on the Quarterly Sales Tax Update. OVERVIEW Sales and Use Tax is the City's largest source of General Fund revenue and represents about 30% of total General Fund revenue. Under the California Sales and Use Tax Law, the sale of tangible property is subject to either sales or use tax unless exempt or otherwise excluded. When sales tax applies, the use tax does not. Sales tax is imposed on all retailers for the privilege of selling tangible personal property in the state and is measured by the retailer's gross receipts. The use tax is imposed on the purchaser of tangible personal property from any retailer not required to pay sales tax to the state, for storage, use, or other consumption in this state and is measured by the sales price of the property purchased. The proceeds of sales and use taxes imposed within the boundaries of San Leandro are distributed by the state to various agencies, with the City receiving the equivalent of 1% of the amount collected (Bradley- Burns), including 0.25% that is backfilled by an equal amount of property tax. The State modified the structure of city sales tax revenues, effective July 1, 2004, when it enacted legislation from a voter - approved deficit financing bond measure. This measure included a reduction of the local Bradley -Burns sales tax share from 1% to 0.75 %, routing the 0.25% to other state funding needs. The 0.25% was fully replaced with property tax revenues (sales tax back -fill) to make cities whole. This shift of revenues is commonly referred to as the "Triple Flip." Effective April 1, 2009, the State sales and use tax rate was increased by 1 %, from 8.75% to 9.75 %. This 1% tax rate increase expired on July 1, 2011. Effective April 1, 2011, the voters of San Leandro approved a quarter cent increase to the City's transaction and use tax (Measure Z). This is a temporary tax is set to sunset in seven years, on March 31, 2018.