It is not locally well publicized yet, however as reported by Timm Herdt on June 26, 2008 in the Ventura County Star, Fillmore is involved in Sales Tax Revenue Sharing Agreements, and at least two California cities, are up in arms.

We all know the definition of Sales Tax; the 7.25% paid above the purchase price on everything except food, medicines and most services. Question: Who collects those millions of sales tax dollars generated by businesses and providers? Answer: The State Board of Equalization (BOE). Question: What happens to those funds? Answer: Generally, the State of California retains all except 1%, returning that portion to the city of origin. So one asks, what’s the problem?

As per City Manager, Tom Ristau, two Illinois firms, specializing in sales and use tax consulting and services, approached City staff in early 2003 with proposals that could benefit Fillmore with increased revenues through the Sales Tax. In January and again in May 2003, agreements with both firms were brought before the City Council and adopted by unanimous vote. Inspired Development and MTS Consulting commenced to bring “newly formed” purchasing and/or sales companies to Fillmore, in exchange for a percentage of the City’s 1% share of sales tax revenues, generated by those businesses only. The agreed upon split of that 1% is, 85% to the consulting firms, who in turn share it with their contracted businesses, and 15% to the City.

Both Inspired Development and MTS Consulting, LLC retain offices downtown. Several “new” enterprises, which the City declined to identify, operate at the consulting firms’ local addresses. Nevertheless, the City concurs that MTS contracted Richmond VA based Owens and Minor, a Fortune 500 company founded in 1882 (the nation’s leading distributor of name brand medical and surgical supplies to hospitals and integrated health care systems), to open a sales office in Fillmore last fall, where according to Ristau, traveling sales personnel often come and go. Previously, four distribution centers located throughout California, handled sales and sales tax collection, with 1% of the generated sales tax rebated to the cities of origin, thus bringing substantial dollars to those cities. At least two of those cities, Livermore, estimating loses of $6.2 million in the next three years, and City of Industry, have filed a complaint with the BOE sparking investigation of sales tax revenue sharing practices in our town. In VC Star interviews, John Marchand, Livermore Councilman, said that the 165,000 sq. foot distribution center in his city has 120 employees. “It’s a big operation. Trucks are going in and out of there all day. It even has a heliport.” James Gross, an attorney for Owens and Minor and Fillmore officials claim that the creation of a central sales office was part of the company’s business plan to increase California sales and efficiency, not to steal sales taxes. (The previously reported estimated annual split is $800,000 to Fillmore and $4.5 million to MTS Consulting to split with Owens and Minor.) A spokesperson for the BOE confirmed the ongoing investigation, declaring that sales tax revenues through 2007 were distributed according to the formula favoring Fillmore; however, future allocations will be withheld until completion of the investigation. Mayor Conaway said the deal was vetted through attorneys, is a way to increase our tax base, and help our citizens. City officials have appealed.

In June, State lawmakers tried to stop the Fillmore deal, but were bested by an Owens and Minor lobbyist, who successfully argued that the Legislature could not invalidate a legal contract retroactively. Nevertheless, a bill by the Senate Local Government Committee has been drawn up to prevent other cities from entering these types of deals.

The City of Fillmore profited $13,932 in fiscal year 03-04, increasing through the years to $1,039,227 in FY 07-08, a total of $1,499,138 from sales tax revenue sharing. Those dollars, deposited in the Reserve General Fund are earmarked this year for law enforcement, including gang and school resource officers. The financial climate including massive state and federal budget issues have prompted creative planning in cities large and small, including in many, cutbacks in staff, salaries and programs. However, Ristau confirms that sales tax revenue sharing is an uncommon practice in California.

The problems relating to this situation have gone largely unreported. The City Council discussed this matter at their regular meeting on August 26, but retired to executive session behind closed doors to do so. Ristau adds, “We are still trying to identify what the recourse will be if the BOE rules against the City of Fillmore. The amount of money, if any, still has yet to be determined.”

The City of Fillmore, along with other cities, is currently operating under its Preliminary Budget, FY 08-09, approved on June 24th despite the fact that the State of California is two months into its fiscal year without an approved spending plan. Still undetermined is the extent the state’s financial problems affect us. It will certainly be a big blow to our little city, if in addition to unexpected State funding cuts, we wind up on the hook for more than $1.5 million dollars!