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HomeMy WebLinkAbout17 TAX LEASED AUTO'S 06-19-95NO. 17 6-19-95 DATE' June 13, 1995 lnt'er-Oom TO: WILLIAM i%. HUSTON, CITY MANAGER FROM: COMMUNITY DEVELOPMENT DEPARTMENT SUBJECT: SALES TAX ON LEASED AUTOMOBILES RECOMMENDATION It is recommended the City Council support the efforts of Cities for Restoring Direct Allocation of Motor Vehicle Leasing Tax revenue (CRDAMVLTR) and authorize the expenditure of $1,000 to assist paying for legislative advocacy to support Senate Bill 602. FISCAL IMPACT The request will result in the expenditure of $1,000 from Account No. 010-300'-000-3330 as a contribution to the cost of advocating a change in State regulations. If the change is approved, the City could receive a significant increase in sales tax from auto leasing transactions in the Auto Center. DISCUSSION Under State Law, cities receive 1% of the 7.75% sales tax for taxable sales in their jurisdiction- One of the major producers of sales tax in the City of Tustin are auto sales generated in the Tustin Auto Center. However, several cities, with auto centers similar to Tustin's, have found their sales tax revenues significantly lower than projected because of the manner in which the State Board of Equalization handles the sales tax paid on vehicles which are acquired through leases. Under a lease contract, the sales tax is paid by the lessee on a monthly basis as part of lease payments rather than as a lump sum at the time of transfer of ownership. The State Board of Equalization does not consider such taxes as "sales" taxes, but rather as "use" taxes. Currently the Board is having the payments from the leasing companies deposited either into the county sales tax pool or the statewide sales tax pool. It is then allocated to all the cities in the county or state under the appropriate formula. The Board is not allocating these revenues back to the city of origin. This creates a significant loss of revenues for cities as the number of leased automobiles increases. It is estimated that, by the year 2000, leasing will represent 50% of all new auto sales. William &. Huston, City Manager Leased Vehicles Sales Tax Reform June 19, 1995 Page 2 In instances, such as with Infinity and BMW dealerships, it already represents 60%-70% of their business. The current system of allocating sales taxes on leased vehicles was established solely by regulation of the Board of Equalization, not by legislation. A group of cities from throughout the State with major auto centers have formed an ad-hoc group called Cities for Restoring Direct Allocation of Motor Vehicle Leasing Tax Revenue (CRDAMVLTR). Staff has attended meetings of the group which have been'held in Southern California. CRDAMVLTR originally tried to work with the Board of Equalization to change its regulations. The Board, however, has balke~ at making changes because they view it as cumbersome, since the sales tax is paid monthly with the lease payments. The Board argues that it is too difficult to track the payments, since the individual leases are sold and resold on the secondary market several times during the course of the lease. Discussions by the group, however, with the larger leasing companies have indicated they see no problem with tracking the payments, since leasing companies track the leases for marketing purposes. It should also be noted the Board receives a higher administration fee for depositing into the statewide or county Pools than it receives for sending sales tax to the city which is the point of sales. CRDAMVLTR and the City of Tustin are 'supporting Senate Bill 602, authored by Senator Cathie Wright, which would require the Board of Equalization to return the sales tax on leased vehicles to the jurisdiction where the point of sale was made. The group has requested a $1,000 contribution from cities with auto centers to assist in the advocacy of the legislation. They estimate the total cost for advocatng the legislation~could be between $40,000 and $50,000. The City of Riverside will hold and disburse these funds. Unspent money will be returned equally to all contributing cities. While Tustin's sales tax base is not as dependent on auto sales as other cities, sales tax from automobiles is a significant portion of the City's general fund revenues. It is therefore important for the City to protect these revenues from the regulatory interpretations promulgated by the State Board of Equalization. ~ed ev~e~o~e~Pr ogr am Manager Staff~o. uld recommend the City Council authorize the expenditure of $1,?O0/in support of CRDAMVLTR's efforts. ' Page 2 S 84131 PRB It is our belief that the officer followed procedure and acted correctly. RESERVE: LPD - Pamela Winemiller - $100. COMMENTS: We await a copy of the City's denial letter should the City decide to deny this claim. However, shoul~ ~.he city wish for us to settle with the claimant in a gesture'of good faith, please advise us of such. Very truly yours, PR:iw !City of Tustin Attn: Ron Nault CARL/TWARREN & COMPANY Patty ~a'mo s CARLWARREN &CO. Insurance Adjm4cr~ Ciairn~, Managcmcn: and Admini~rrati,m 750 Thc (Tm- Drive Suite 400 ()r~nFc. CA 9266S M~ih 1'.(). Box 251g0 S~nta An~. CA 92799-51g0 (714) 7~0-7999 (800) 572-6900 F.~X: (71 ~ ) 740-7992 Pa Jean Winemiller 11~61 Wasco Road rden Grove, CA 92641 RE: City File O/Principal D/Incident Claimant Our File May 10, 1995 : 95-13 : City of Tustin : 4/18/95 : Pamela Winemiller' : S 84131 PRB Dear Ms. Winemiller: As Claims Administrators for the City of Tustin, we are handling a claim you filed against the City. Since the driver of your vehicle was stopped, and a warrant for a person with his name and description was outstanding, the driver of your vehicle was arrested. The vehicle was then towed and stored under authority of the California Vehicle Code. Although this is an unfortunate event, it appears the officers followed procedure properly. Therefore, there would appear to be no liability on the part of the City. 'Accordingly, we have recommended'the City deny your claim. Should the City agree with our recommendation, a formal denial letter will be sent in the mail in the near future. Very truly yours, CARL ?W~REN ~';--'~Olq'PANY PR:iw City of Tustin, Attn: Ron Nault cc: Rourke, Woodruff & Spradlin Attn: Lois Jeffrey, City Attorney