03a Staff Report - Amicus Participation
DATE: TO: FROM: COUNCIL AGENDA REPORT August 9, 2004 ORRY P. KORB, TOWN ATTPRNEYgV · MEETING DATE: 8/16/04 AGENDA ITEM: A U.a.-. SUBJECT: AUTHORIZE
REQUEST FOR AMICUS PARTICJPATION IN CITY OF SANTA MONICA PETITION BEFORE THE STATE BOARD OF EQUALIZATION, CASE NO. 255567, AT NO COST TO THE TOWN RECOMMENDATION: Approve joining the
amicus briefofthe City ofBrisbane, et aL, in support ofthe petition ofthe City of Santa Monica, Case No. 255567, at no cost to the Town. BACKGROUND: The State Board of Equalization ("SBE")
distributes· local sales taxes ·based on where sales transactions occur. Determining the sales tax situs can be complex and occasionally controversial undertaking, particularlywhere
sales operations involve facilities located in multiple jurisdictions. The recent advent of internet based sales operations has further complicated the question, in part because staff
of the SBE believes that internet based sales do not involve human interaction, a component which has long been considered necessary in detennining where a sales transaction occurs Agreeing
that internet sales do not involve a human component, a SBE hearing officer in the above case determined that the City of Santa Monica should not be credited with sales taxes generated
by internet based sales byE-Toys, a one time SantaMonica based corporation. In that case, the hearing officer determined that the first human involvement occurred at the warehouse where
sales orders were filled. Because E-Toys' warehouse operations were located outside Santa Monica, the hearing officer determined that the City was not entitled to the tax revenues. Also,
because E-Toys did not ./PREPARED BY: ORRYP. KORB, TOWNATTORNEY· Reviewed by: Town Manager -+-''-'''=:7-Assistant Town Manager Finance CommunIty Development Rev: 8/9104 8:15 am Reformatted:
7/19/99 OPK:LMBfwp [N:IATYlSales-Tax..AMI.TCR.wpd] Clerk File#301-05
PAGE 2 SUBJECT: AUTHORIZE REQUEST FOR AMICUS PARTICJPATION IN CITYOFSANTA MONICA PETITION BEFORE THE STATE BOARD OF EQUALIZATION, CASE NO. 255567,
AT NO COST TO THE TOWN August 9,2004 own its warehouse operation, the hearing officer further detennined that the sales taxes should go to a statewide fund. DISCUSSION: The above decision
has been appealed to the full Board. A number ofcities with significant internet based sales tax producers within theirjurisdictions havejoined in a briefsupporting SantaMonica's petition.
Because the Town receives significant sales tax revenues from internet based sales by Netflix, me., it has been invited to join the brief. The Townhas been a leader in arguing that there
is significant human involvement in internet based sales. For example, in recent correspondence with the SBE, the Town asserted that internet transactions do not occur without direct
human involvement in the decisions regarding tenns ofsale for products, software programing programing and system maintenance. It therefore follows that the Town has an interest in the
above matter and should lend its support to an amicus brief. Distribution: Robert Cendejas, Esq., 1725 North Juliet Court, Brea, CA 92821