Guidance for Prospective Special Taxing Jurisdictions

  1. What assistance can the Board of Equalization (BOE) provide jurisdictions considering a new or extended transactions and use tax (district tax)?
  2. Who may impose a district tax?
  3. Can a district tax be levied in only a section of a city or county?
  4. What section of the law allows for the imposition of district taxes?
  5. What tax rates may be imposed?
  6. When is the operative date of the newly imposed district tax?
  7. Can a jurisdiction put a district tax measure on the ballot by means other than by approval from the City Council or Board of Supervisors?
  8. Can a jurisdiction conduct a mail-in election?
  9. Will there be any costs to the jurisdiction for implementing a district tax?
  10. What are the ongoing administration costs to a jurisdiction imposing a district tax?
  11. What happens after the election takes place and the tax is approved by the voters?
  12. How is the district tax applied?
  13. What are some differences between local sales and use tax and district taxes?
  14. Are there any other special requirements for city-imposed district taxes?

  1. What assistance can the Board of Equalization (BOE) provide jurisdictions considering a new or extended transactions and use tax (district tax)?

    The BOE’s Local Revenue Allocation Unit (LRAU) can:

    • Answer questions and assist districts in the process.
    • Provide sample ordinances for a city, county, or special purpose entity (including a Transportation Authority).
    • Review the proposed ordinances from the jurisdictions prior to their approval by the local governing legislative bodies to ensure that all the statutory requirements have been met.

    Please contact us at 916-324-3000 for assistance or to obtain sample ordinances.

  2. Who may impose a district tax?

    A county or a city can impose a district tax for general or specific purposes. These can be imposed either directly or through a special purpose entity. A county can also create a transportation authority to impose district taxes.

    Additional information is available in sections 7285 through 7290 of the Revenue and Taxation Code. Information on transportation authorities is available in the Public Utilities Code (PUC), starting with section 24501. The BOE staff can provide assistance at 916-324-3000.

  3. Can a district tax be levied in only a section of a city or county?

    No. Current law only provides for an entire county (which includes incorporated and unincorporated territory) or an incorporated city. Refer to Revenue and Taxation code sections 7285 and 7285.5 for laws applicable to counties and sections 7285.9 and 7285.91 for cities.

  4. What section of the law allows for the imposition of district taxes?
    Entity Purpose Adoption Rules Legislation
    County General Purpose tax 2/3 vote of Board of Supervisors and majority of voters 7285
    Specific Purpose tax (expenditure plan required) 2/3 vote of Board of Supervisors and 2/3 majority of voters 7285.5
    City General Purpose tax 2/3 vote of City Council and majority of voters 7285.9
    Specific Purpose tax (expenditure plan required) 2/3 vote of City Council and 2/3 majority of voters 7285.91
    County Authority Transportation Authority 2/3 vote of Board of Supervisors and 2/3 majority of voters PUC Divisions 10-25

    Special jurisdictions can also be created when authorized by special and specific legislation.

  5. What tax rates may be imposed?

    The combined rate of all district taxes imposed in any county shall not exceed 2%. Generally, tax rates may be imposed at a minimum rate of 0.25% and in 0.25% increments up to the 2% cap in a county. Special legislation may vary this format. For example, the City of Clovis Transactions and Use Tax is levied at a rate of 0.30%.

    The following is an example of how the 2% cap applies. There are two district taxes within the county of San Bernardino (San Bernardino County and City of Montclair)

      Current Rate   Available Rate to any city  
    (A) 031 - San Bernardino County (SBER) 0.50% + 1.50%  = 2% cap
      107 - City of Montclair (MTGR) 0.25%        
      Available Rate to county  
    (B) 107 - City of Montclair (MTGR) 0.75% +  1.25% = 2% cap
    1. Any incorporated city within the county of San Bernardino may impose a tax up to 1.50%.
    2. However, the county of San Bernardino is limited to an additional tax up to 1.25%.

    NOTE: Any tax increase by the county would raise the tax rate in all the cities within that county.

  6. When is the operative date of the newly imposed district tax?

    "Operative Date" means the first day of the first calendar quarter commencing more than 110 days after the adoption of the ordinance by the voters.

    For example, a tax approved by the voters on November 8, 2005, would have an operative date of April 1, 2006, where retailers engaged in business in the district would be required to collect the tax. In this case, April 1st is the first day of the calendar quarter more than 110 days after the election.

  7. Can a jurisdiction put a district tax measure on the ballot by means other than by approval from the City Council or Board of Supervisors?

    No. As previously stated in question #4, the Revenue and Taxation Code sets forth the procedural requirements by which a jurisdiction may levy a district tax.

    If a district tax measure is placed on a ballot by any other process and is approved by the voters, the BOE cannot enforce the tax nor administer the funds.

  8. Can a jurisdiction conduct a mail-in election?

    Yes, if all the provisions of Elections Code sections 4000-4004 are met. Currently, a jurisdiction with less than 5,000 registered voters as last reported to the Secretary of State can conduct a mail-in election. See Elections Code section 1500 for mail election dates.

  9. Will there be any costs to the jurisdiction for implementing a district tax?

    Yes. Under Revenue and Taxation Code section 7272, the BOE will bill a new special taxing jurisdiction for preparatory charges to administer the new district tax based on actual costs after the tax has been approved by the voters. As a result, we are unable to provide the specific costs until all of the charges have been submitted by the various BOE units and other state agencies. Actual charges to be billed include updating returns, programming for data processing, developing and adopting regulations, developing procedures, updating publications, notifying taxpayers, and other necessary costs which include the BOE’s direct and indirect costs as specified under section 11256 of the Government Code.

    The statutory maximum amount of preparatory costs shall not exceed $175,000.

  10. What are the ongoing administration costs to a jurisdiction imposing a district tax?

    Ongoing costs are calculated by a costing model which uses various workload factors. However, the amount charged a jurisdiction is capped at a percentage of revenue, based on the following table:

    District Tax Rate Administrative Cost Limits
    Less than 0.25% 5% of gross collections
    0.25% up to but less than 0.50% 3% of gross collections
    0.50% or greater 1.5% of gross collections

    For questions about specific jurisdictions or estimates, contact the BOE’s Budget Section at 916-445-3811.

  11. What happens after the election takes place and the tax is approved by the voters?

    Representatives from the jurisdiction should contact us immediately. We will review the election results to ensure it meets statutory requirements. Notification by the jurisdiction as early as possible after the election will insure a timely implementation of the new district tax.

    We will mail two contracts that must be signed and returned to us by the jurisdiction for approval prior to the operative date of the tax. The contracts include:

    1. Agreement for preparation to administer and operate the tax, and
    2. Agreement for State administration of the tax

    The jurisdiction must return the following:

    • Four original preparation to administer contracts signed by an authorized official,
    • Four original on-going administration contracts signed by an authorized official,
    • Four certified ordinances,
    • Four certified resolutions authorizing the official to sign the contracts, and
    • Mailing address form for legal, finance and warrant correspondence.

    When the executed contracts and other documents are received by us, an acknowledgement letter is issued by the Executive Director of the Board of Equalization and the contracts are forwarded to the Department of General Services (DGS) for final approval.

    Once the contracts are approved by DGS, an approved original packet is returned to the jurisdiction for their records. The jurisdiction will be given the opportunity to adopt a resolution authorizing city/county officials to examine district tax records and to submit an agreement (BOE-555-LJ EFT Authorization Agreement) authorizing payment by Electronic Funds Transfer.

  12. How is the district tax applied?

    Please see publication 44, Tax Tips for District Taxes and publication 105, District Taxes and Delivered Sales for a full discussion and examples. In general, the district tax follows the merchandise. The tax is distributed to the district where goods are delivered and presumably used. However, there is an exception for sales or leases of vehicles, vessels and aircraft. Generally, the district tax for these sales is distributed to the district based on the address where the vehicle, vessel, or aircraft is registered.

  13. What are some differences between local sales and use tax and district taxes?

    Please see publication 28, Tax Information for City and County Officials for more information. There is no direct correlation between local sales and use tax and district taxes. In general, local sales tax is allocated to the retailer’s place of business in California where the sale occurs even though the property may never be at the place of business. If a retailer has multiple locations in California, local sales tax is allocated to the place where the principal negotiations are conducted, whether or not the property sold is ever in the jurisdiction where the retailer’s place of business is located. Local use tax is allocated to the place where merchandise is first functionally used, generally through countywide pools.

    As stated previously in question #12, the district tax is distributed to the district where goods are delivered or presumably used. In some cases, a retailer may allocate local tax but report no district tax to a jurisdiction if the merchandise was delivered to a location outside of the district where it was sold. On the other hand, if the merchandise is delivered into a district, a retailer may report district tax and not allocate any local tax to a jurisdiction.

  14. Are there any other special requirements for city-imposed district taxes?

    Yes. Cities wishing to impose a district tax are strongly urged to establish and maintain a current street listing on their websites for use by retailers. Many cities have boundary lines that are difficult for a taxpayer to identify in order to collect a district tax. Some retailers have resorted to using zip codes which do not observe city boundary lines. This results in customers who live outside of the city boundaries but within the city’s zip code to be overcharged by the retailers.

    Comments or suggesting about this information can be directed to Local Revenue Allocation Unit at 916-324-3000.