Amazon warehouse brings Oxnard extra $17M a year in sales tax, at other cities' expense

The Amazon building visible from Highway 101 in Oxnard has 2.3 million square feet of indoor space, the equivalent of 40 football fields. It can process about 2 million packages per week, most of them destined for homes and businesses in Ventura, Santa Barbara and San Luis Obispo counties.

For most of those packages, the city of Oxnard gets a 1% cut of the sale, and the city where the item is delivered gets nothing at all. One percent is the share of California sales tax that goes to the city or county where the “point of sale” occurs in an online transaction, and for Amazon, the point of sale is typically its major fulfillment centers, like the one in Oxnard.

Oxnard collects about $17 million a year in extra sales tax revenue due to its Amazon fulfillment center, according to city officials. Other cities in Ventura County say they’re losing revenue ranging from a few hundred thousand to a few million dollars a year, compared to what they would have gotten under an older state practice of splitting that tax revenue among the county’s cities.

City officials say there haven’t been any services or programs cut due to this lost revenue, but they warn cuts will be coming someday if California’s system for allocating sales taxes doesn’t change.

“Everyone is moving toward more online sales, so this will get bigger and bigger,” said Moorpark City Manager Troy Brown. “It will degrade our ability to provide services in our community, because sales tax is one of our largest sources of income.”

“It’s going to be a big hit to cities that live off of sales taxes,” said Bill Frank, the chair of the Ventura County Taxpayers Foundation, a nonprofit associated with the Ventura County Taxpayers Association. “That’s money that can’t be put into public safety, money that can’t be put into road repair. … People are going to notice when the pothole in front of their house isn’t fixed, when they call 911 and the response time is slower than it used to be.”

A change could come

There’s a movement afoot to change this system to one that would direct some of the tax revenue back to cities that don’t host giant warehouses.

Two years ago, the League of California Cities put together a task force of about 40 city managers to study tax issues, and recently that group arrived at a recommendation: Sales tax revenue should be split evenly between the point of sale and the delivery destination.

So, if a Camarillo resident were to order something from Amazon that is processed through the warehouse in Oxnard, Camarillo would get half of the city-level sales tax revenue, and Oxnard would get half.

It would take years to make that change, though. First, the task force’s recommendations must be approved by the League of Cities as a whole, including its committee on revenue and taxation and its board of directors. Then, a state senator or assembly member would have to introduce legislation to change the tax system.

Because the legislation would be a constitutional amendment, it would require a two-thirds vote in the Legislature, and would then have to approved by a majority California voters in a statewide election.

“2026 seems like the best case, unless the stars really align,” said Ben Triffo, a League of Cities lobbyist.

Oxnard will not fight to hang on to its sales tax windfall, said City Manager Alex Nguyen. The city will lobby to keep 60% of the sales tax revenue from warehouses, he said, rather than the 50% recommended by the city managers’ task force, but it’s not going to insist on its current 100% share.

“I understand where they landed, but I think 60/40 is fair,” Nguyen said. “We do bear the burden of hosting this rather large warehouse in our borders. There’s intense traffic with the large trucks, and there’s some air pollution that comes with that, and impact on our road infrastructure.”

Nguyen said Oxnard is treating the $17 million annual boost from Amazon sales as temporary and has been careful not to use it to justify new spending programs.

“We aren’t using that money for anything new,” he said. “We’re doing a lot of the work the city needs, roads and parks and all that, but we’re not adding anything banking on Amazon money.”

How we got here

California’s system for allocating sales tax revenue when an item is purchased at a traditional brick-and-mortar store is simple. The city where the store is located — or the county, if the store is not within any city’s boundaries — gets the local share of the state sales tax, which is 1% of the purchase price. The rest of the sales tax, which starts at 7.25% and goes higher in many cities, is split between the state general fund and special county funds for transportation, public safety and other purposes.

When an item is purchased online, things get more complicated. The amount of the tax is dictated by the tax rate where the customer lives, but that doesn’t mean the customer’s city gets the money.

In the old days, when e-commerce was new, it was essentially tax-free. Online retailers that didn’t have a physical presence in California didn’t have to charge their customers the state’s sales taxes — though technically customers were supposed to keep track of their purchases and write a check to the state if they owed more than a certain amount in sales tax.

That changed for Amazon in 2012, when the company agreed to collect sales taxes on sales to buyers in California and a few other states.

Many online retailers kept selling tax-free until 2018. That year, the U.S. Supreme Court decided in South Dakota v. Wayfair that states could charge sales tax on purchases from out of state, and all 45 states that have a sales tax started applying it to all online purchases.

Until 2021, cities in California didn’t need an Amazon warehouse to get their share of tax revenue from Amazon purchases.

Amazon’s warehouses were owned by a separate limited liability company, so the point of sale was out of state, when the item left Amazon’s possession. The 1% local tax share for those sales went into what’s known as the “county pool” for the county where the order was delivered. The money in that pool is divided among all cities in the county, in proportion to their overall sales tax revenue.

The county pool still exists, and tax revenue for some online sales are still divided among all 10 cities. But that’s not true for sales by Amazon, by far the biggest online retailer, when they go through the Oxnard warehouse.

In the late 2010s, Amazon moved away from the LLC model and took direct ownership of its warehouses. At the end of 2020, responding to that change, state authorities told Amazon that its warehouses would now be treated as the point of sale for tax purposes.

The Oxnard warehouse opened a little more than a year later. If an Amazon item comes from a warehouse outside of California and is delivered to someone’s porch in Ventura, the local share of sales tax money still goes into the Ventura County pool. But if it comes from the Oxnard warehouse, the tax money goes straight into Oxnard’s general fund. If it comes from a warehouse in Riverside or Bakersfield or elsewhere in California, the money goes to the city that hosts that warehouse.

Amazon did not make a representative available for an interview. The company provided a statement that said it will follow whatever guidance it receives from the California Department of Tax and Fee Administration for collecting and paying sales taxes.

'Far more losers than winners'

Nine of Ventura County’s 10 cities don’t have a massive Amazon facility, and those nine cities aren’t happy about losing out on the tax revenue. They don’t have as much truck traffic from Amazon as Oxnard does, but their streets are still full of Amazon vans making deliveries to homes and business.

Simi Valley and Camarillo also have smaller Amazon distribution centers, with trucks coming and going, but those “last-mile facilities” are not considered the point of sale for tax purposes.

“There are far more losers than there are winners in this deal that the state made with Amazon,” said Brian Gabler, in an interview conducted shortly before his recent retirement as Simi Valley’s city manager.

Gabler said that after Oxnard’s Amazon warehouse opened, Simi Valley immediately saw its sales tax revenue drop about $300,000 in the first six months. He estimates Simi Valley is now out about $1 million a year.

Other city managers did not provide figures that were so precise, but those who run the county’s smaller cities said the impact has been in the six-figure range per year. Thousand Oaks, which has the biggest sales tax revenue in the county after Oxnard, is down “several million dollars” a year due to the change, said Jaime Boscarino, Thousand Oaks’ finance director.

Thousand Oaks City Manager Andrew Powers is Ventura County’s representative on the League of Cities task force.

“We’re trying to work around the edges of a tax code that has not been modernized in a long time,” he said of the group’s mission.

Other recommendations by the city manager group include limiting the tax-sharing agreements that some cities have with major retailers and logistics companies. In those arrangements, the city essentially gives the company a refund on some of its sales taxes. Amazon and Oxnard do not have any such agreement.

The new Amazon warehouse is the biggest single reason that Oxnard has its first budget surplus in decades. The current city budget predicts about $35 million in surplus funds this year, which the city will use to pay down its long-term debt and shore up its reserve funds.

But Nguyen said tax revenue isn’t the reason Oxnard wanted the Amazon warehouse in its borders. The tax situation never came up when the city was negotiating with Amazon, and if it had, Nguyen said, “that wouldn’t have been my interest. My interest is about jobs.”

The Amazon warehouse in Oxnard employs more than 1,500 people on a year-round, full-time basis, with more employees around the holidays. All the full-time jobs pay above the minimum wage and offer health insurance and other benefits, and about 70% of the employees live in Oxnard, Nguyen said.

“The only thing we wanted from Amazon when we negotiated with them was to let us do the recruitment for them, so that we can go into our neighborhoods and recruit our residents, before they do their standard universal recruitment,” he said. “If we lose that revenue, but we still get all of those jobs, our families are still employed and they have medical benefits, that’s fine with us.”

Note: This article was updated to correct the explanation of how taxes are allocated for purchases that originate in warehouses outside of Ventura County and are delivered to addresses in Ventura County.

Breaking News Editor Gretchen Wenner contributed to this story.

Tony Biasotti is an investigative and watchdog reporter for the Ventura County Star. Reach him at tbiasotti@vcstar.com . This story was made possible by a grant from the Ventura County Community Foundation's Fund to Support Local Journalism.

This article originally appeared on Ventura County Star: Amazon warehouse brings Oxnard extra $17M a year in sales tax, at other cities' expense