Pacific Grove’s new sales tax halted by the state

Peninsula Premier Admin

PACIFIC GROVE — A state agency has told Pacific Grove officials that it will not implement a half-cent sales tax increase that voters approved on Nov. 3 because of a mistake in a resolution the City Council adopted that formalized the increase, according to a report that will be presented to elected officials Wednesday.

A state agency is suggesting a remedy that would involve holding a special election at a cost to taxpayers to re-approve the sales-tax increase measure — Measure L. There is also the specter of Pacific Grove filing legal action against the state.

The action will be costly to the city’s coffers. The tax increase would add anywhere from $700,000 to $1 million in badly needed revenue for the city. Officials say without that revenue there would need to be a pullback on services the city provides to residents.

The increase was scheduled to take effect April 1, if the state and the city can work out the differences. But for now, the state is telling City Attorney David Laredo that the increase is a no-go.

“The California Department of Tax and Fee Administration has indicated it will not administer the tax as approved by the voters due to ambiguous language,” Laredo wrote in the report to the council. Monday was a government holiday and Laredo was not available to comment.

Neither was the Department of Tax and Fee Administration, which responded to an email sent Friday requesting comment by saying it wouldn’t be able to comment until sometime this week. It also cited the Presidents Day holiday as the reason.

The city has been in communication with Tax and Fee Administration Chief Counsel Robert Tucker and Karen Hughes, the supervising tax auditor. Laredo said Tucker is arranging a discussion with Nicolas Maduros, the executive director of the agency. There is no indication when that meeting will occur.

The ambiguity was not in the language of the measure, rather in a council resolution that referred to the wrong municipal code — Chapter 6.08 rather than Chapter 6.07, Laredo wrote.

The city caught the error and in December 2020 the council adopted a resolution correcting the mistake. That, apparently, was not good enough for the state agency.

“The City remains firm in its position that the ballot language complies with legal requirements, and Council’s subsequent corrective action cured all harmless clerical errors,” Laredo wrote. “(The California Department of Tax and Fee Administration’s) narrow interpretation that Measure L attempted to amend the City’s Uniform Sales and Use Tax under PGMC Chapter 6.08 is nonsensical because such effect would be unlawful and not capable of implementation.”

There is also a possible problem in terminology that was used in either the Measure L description or the resolution supporting the tax increase. Laredo notes in his report that “sales tax” and “transaction tax” are one and the same as defined in another chapter of the municipal code.

This is not the first time the city and state were at loggerheads over the tax measure. After passing, the city believed the measure would take effect Jan. 1. But the Department of Tax and Fee Administration put the brakes on implementation, saying that a measure passed in November did not allow the agency enough lead time to begin collection.

Sales tax increases in the area proportionally affect tourists and visitors more than residents. An analysis conducted by Pacific Grove in the past year indicated that 70% of sales-tax revenue is generated by visitors, not residents.

Pacific Grove only gets a fraction of sales tax collected — roughly 1%. The rest goes to the state except for small amounts that come back to local county transportation funds. Cities’ sales tax is capped at 2% on top of the state’s 7.25% bringing the total to 9.25%. All cities along the Monterey Peninsula, except Sand City, are maxed out on the amount of sales tax they can generate unless the state adjusts its portion.

Contributed by local news sources

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