HomeMy WebLinkAbout2011-03-22 - AGENDA REPORTS - USE TAX INCENTIVE (2)Agenda Item: 3
CITY OF SANTA CLARITA
AGENDA REPORT
CONSENT CALENDAR City Manager Approval
Item to be presented by:
Jason Crawford
DATE: March 22, 2011
SUBJECT: USE TAX INCENTIVE PROGRAM WITH AEROSPACE
DYNAMICS INTERNATIONAL AS PART OF THE ECONOMIC
DEVELOPMENT 21 -POINT BUSINESS PLAN FOR PROGRESS
DEPARTMENT: City Manager's Office' -
RECOMMENDED ACTION
City Council approve the participation in the Use Tax Incentive Program by Aerospace
Dynamics International (ADI) to receive business expansion credits in an amount equal to 50%
of the net new use tax allocated to the City by ADI, which will exceed the $50,000 threshold.
BACKGROUND
The City of Santa Clarita's 21 -Point Business Plan for Progress was adopted by the City Council
in April 2009. The programs of the 21 -Point Business Plan for Progress were developed as a
way to enhance the economy, build upon Santa Clarita's current successes, improve the
infrastructure of the City, and develop the local workforce. The Use Tax Incentive Program was
designed to increase the partnership opportunities between the City and local businesses by
incentivizing business expansion and generating increased use tax revenue to the City. The
current Use Tax Incentive Program requires City Council consent for participation in excess of
$50,000. Staff is requesting City Council consent to approve participation in the program by
ADI to receive business expansion credits in an amount equal to 50% of the net new use tax
allocated to the City by ADI, which will exceed the $50,000 threshold.
Many individuals and businesses in California buy items from out-of-state retailers that are not
Iuired or authorized to collect California tax. If a business makes such a purchase and then
-Is, gives away, stores, or otherwise consumes the item in California, they may owe California
tax. This is true whether the item is ordered over the Internet, by telephone, or by mail. The
use tax rate for any California location is the same as the sales tax rate.
California law requires a "qualified purchaser" to register with the Board of Equalization (BOE)
and annually report and pay use tax directly to the BOE through their e -filing system. A
"qualified purchaser" includes businesses with at least $100,000 in annual gross receipts from
business operations.
Normally, the City would receive 3% of the I% of use tax paid by a business through the
standard allocation from the State. Through the Use Tax Incentive Program, qualifying
businesses can apply for a Direct Pay Permit that allows the full I% of use tax paid by a business
to be directed to the City of Santa Clarita creating an increase in revenue for the City. To qualify
for a direct pay permit, a business must have at least $500,000 in use tax purchases in the prior
year. Once a direct pay permit is secured, the business is able to execute a contract with the City
of Santa Clarita to qualify for the Use Tax Incentive Program.
The City offers two options for the incentives for local businesses participating in the program:
1) Cash Rebate - A cash rebate equal to 30% of the net new use tax generated as a result of
participation in the program. Should the company choose this method, the City will issue a
check in the amount of the accrued rebate upon request.
2) Business Expansion Credit - A rebate equal to 50% of the net new use tax generated as a result
of the participation in the program. Business Expansion Credits may be used for any permit or
development fees for an approved project located within the City of Santa.Clarita.
ADI is in the process of expanding their current 245,000 square foot facility by adding an
additional 100,000 square feet of planned expansion. The expansion would add 200 jobs paying
an average of approximately $65,000 each.
ADI has selected the Business Expansion Credit option. They have generated more than
$200,000 in Use Tax revenue for the City of which $100,000 would be directed to business
expansion credits and the remaining $100,000 in new revenue to the City of Santa Clarita
through the Direct Pay Permit of the Use Tax Program.
ALTERNATIVE ACTIONS
Other action as determined by Council.
FISCAL IMPACT
An increase in Use Tax revenue that the City would not normally receive.
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