As local governments across Mendocino County grapple with budget shortfalls, state data shows a major factor is being overlooked: the way California allocates sales tax from online purchases.
In Ukiah, Bradley Burns sales tax revenue from brick- and-mortar locations has declined by 1% over the last five years, according to records kept by the California Department of Tax and Fee Administration. In Willits, it’s down 17%. Mendocino County is faring better — down 5% since a pandemic-era peak in 2021, but still up 18% over the full five-year span.
However, these figures don’t reflect one critical issue: only a portion of the sales tax collected on e-commerce purchases — particularly from giants like Amazon — is returned to the local jurisdiction where the buyer lives. The reason: California regulations.
Depending on how a sale is classified, the local share of sales tax will instead be credited to the location of an Amazon fulfillment center, such as in Tracy, Patterson or Stockton. That’s because California’s rules often tie tax allocation to the location of the seller or shipper, not the buyer.
Local jurisdictions that don’t host a fulfillment center are forfeiting 40 to 50% of the local tax portion on e-commerce transactions, according three sales tax experts interviewed by KZYX News and a legislative hearing on the subject.
Loew explained that if a customer buys something from a physical store, the local tax goes to the city where the store is located. But for online sales, the rules are more complicated. “It depends on where the shipment originates and where the transaction is negotiated,” he said.
This has become a pressing issue for Mendocino County, where Amazon is exploring the possibility of opening a delivery center on North State Street, in the area targeted for annexation by the city of Ukiah.
But even if Amazon opens a facility, experts say it’s unlikely to produce a meaningful bump in local sales tax revenue.
“Typically, last-mile warehouse distribution centers for Amazon do not increase local sales tax,” said Thomas Adams, director of sales and use tax audits at Avenu Insights, a firm that contracts with local governments. Adam is also a consultant to the City of Fort Bragg. “Sales tax is generally allocated to the location where the order is placed and the item is stored, not where it’s delivered from.”
In other states, sales tax is distributed based on the buyer’s location, simplifying the process. “In most states, the tax rate and allocation are entirely destination-based,” Loew said. For example, if someone in Boise, Idaho orders from Amazon, the tax goes to Boise.
In California, the system is widely seen by city and county officials who are knowledgeable about sales tax allocation as inequitable. A bill introduced by State Senator Steve Glazer aimed to change that by shifting tax allocation from fulfillment centers to the buyer’s location. The legislation failed last year but remains a topic of discussion in Sacramento.
For now, however, cities like Ukiah and counties like Mendocino will likely continue to lose out on a significant share of e-commerce sales tax — even as online shopping becomes an ever-larger part of the economy.
