LB Sues After State Blocks Its Sales Tax Increase

The state has refused to recognize a sales tax increase that Long Beach says should have gone into effect this week, a decision that could cost the city $60 million over the next two years.

Instead of paying 10.75% in taxes on every purchase, shoppers and diners in Long Beach are currently paying 10.50%.

In response, Long Beach has sued, asking a judge to force the California Department of Tax and Fee Administration to start charging the higher rate and remitting the proceeds to the city.

The fight centers not around the increase itself, but when voters wanted it to begin amid a complicated web of overlapping city and county sales taxes.

In past years, Long Beach voters agreed to max out the city’s sales tax rate – raising it to the state-set cap of 10.25%.

Part of that money, however, was going to Los Angeles County – not Long Beach – under a temporary countywide sales tax called Measure H that charged 0.25% to fund homeless services.

Once Measure H expired in October 2027, there would be room to raise Long Beach’s city sales taxes another 0.25%, and in 2020, voters agreed to do just that to help fund public safety and infrastructure projects under Long Beach Measure A. Then – unexpectedly – that timeline was upended.

Last year, LA County voters ended Measure H early and replaced it with a new 0.5% countywide sales tax to fund homeless services that started being collected today. Importantly, the state legislature took the unusual step of specifically exempting this new tax from the state-set cap. This meant there was suddenly room for Long Beach Measure A’s 0.25% increase to take effect two years earlier than originally contemplated.

At a December meeting, Long Beach’s elected officials – including the city attorney, city manager, mayor and City Council members – said voters clearly meant for the tax increase to take effect as soon as possible.

In a 6-0 vote, the council amended the ordinance that codified Long Beach Measure A to remove the October 2027 date, a move they believed would allow the state to begin collecting the tax on April 1.

But the state refused on Dec. 24, saying it would violate the California Constitution, which requires voters to approve local tax increases.

The “plain language of the ordinance” that codified Long Beach voters’ decision pegged the tax increase to a specific date: Oct. 1, 2027, Andrew Miller, with the California Department of Tax and Fee Administration told city officials in an email.

Therefore, he wrote, the state would not yet begin collecting the tax.

In response, Long Beach sued on March 21, arguing voters intended to raise Long Beach Measure A to its full rate upon the conclusion of County Measure H, adding that voter materials in March 2020 sample ballot books back up this logic.

“The only reasonable and consistent interpretation of Measure A, as approved by the voters of Long Beach, is that when Measure H sunsets, the Measure A tax reverts to” its full amount, the lawsuit reads.

The two sides have a court date scheduled for May 15. If a judge refuses to overrule the state, the decision would deal a serious financial blow to Long Beach at a time when the city faces consecutive budget constraints, including an expected $19.8 million deficit in the upcoming fiscal year. Delaying the increase until October 2027 would mean Long Beach could lose out on a combined $60 million in sales taxes, according to the city.

“Millions of dollars in revenue for the city that fund essential government services to preserve the health and safety of the Long Beach community depend on the resolution of this question,” wrote attorney Benjamin Fay, whose firm filed the suit on the city’s behalf, in a Dec. 27 email to the state tax department.

This is not the first legal fight over Long Beach’s sales tax rate. In February, the Long Beach Reform Coalition, a local residents watchdog group, sued the city on similar grounds to the state’s argument, saying that the tax change was illegal because voters had not approved the increase going into effect before 2027.

This comes as consumers in Los Angeles County on Tuesday began paying the new countywide tax to fund homeless services – approved by 58% of L.A. County voters in November – which amounts to an additional quarter-penny in sales tax on each dollar of goods purchased.

At the average cost of $5 a month to families, the money is expected to generate more than $1 billion annually, doubling the available funds for homeless services and affordable housing production countywide.

Long Beach, as a result, has a combined sales tax rate of 10.50%, the same as 38 other cities in California.

Nine other cities approved their own sales tax rate in combination with county Measure A, with the cities of Lancaster and Palmdale now collecting an 11.25% tax rate.

Editor Note: This article was originally published online on April 1 by the Long Beach Post, a non-profit news organization. Contribute to see more stories like this at www.lbpost.com.