Tuesday, January 4, 2005
Court Orders City to Share Tax Revenue Under ‘Big Box’ Law
By KENNETH OFGANG, Staff Writer/Appellate Courts
A company that repackages and sells taxable merchandise from a large warehouse-type facility is a “big box retailer” for purposes of a law designed to prevent cities from offering inducements to relocate such enterprises, the Court of Appeal for this district has ruled.
In what appears to be the first published case interpreting the law, which was adopted in 1999 and amended in 2003, Div. Three Thursday reversed a Los Angeles Superior Court judge and ruled that the City of La Mirada and its redevelopment agency must share with Carson a portion of the tax revenues the city receives from Corporate Express, Inc.
Corporate Express claimed that its facility was not a “store” and that it was thus not a big box retailer under AB 178.
Carson sued after Corporate Express, a seller of office products, furniture, and “computer consumable” supplies, agreed to relocate to La Mirada in December 2000. Corporate Express said it had outgrown its Carson facility after acquiring two of its competitors.
The company accepted La Mirada’s offer to assist in acquiring land and constructing a new and larger facility, and to rebate a portion of the company’s sales taxes for 15 years. The agreement acknowledged the possibility of a claim by Carson under AB 178, and provided that the amount of the rebate would be adjusted if La Mirada had to share tax money with Carson.
Corporate Express accepted La Mirada’s offer over a competing proposal by Carson, which offered to build the company a new facility or to acquire and retrofit an existing building, which the city would then lease to the company.
Carson brought its action in April 2001, seeking an invalidation of the agreement between La Mirada and Corporate Express, a share of sales tax revenue paid by the company to La Mirada, and a writ of mandate barring La Mirada from entering into similar agreements in the future.
La Mirada responded that the statute did not apply. It argued that it did not accept orders from the general public, selling its products exclusively through a sales force, primarily to companies with at least 35 white-collar workers; did not standardize its prices, but rather adjusted them based on volume; and delivered 99 percent of its orders.
Those customers who preferred to pick up their products could do so at a window, but only if they had an account with the company and had placed the order in advance. Outside of that “will call” area, only employees and invited guests may enter the building, which includes a warehouse with loading docks for shipping and receiving, administrative and sales departments, a working showroom used by the sales force, and a small display area.
As originally enacted, AB 178 barred financial assistance to a relocating big box retailer unless the city seeking the business “offers the contract to the local agency...from which the relocation is occurring.” As amended, the law—which applies to vehicle dealers as well as big box retailers—prohibits financial assistance if the relocation is to take place from one community to another within the same market area.
A big box retailer is defined as “a store of greater than 75,000 square feet of gross buildable area that will generate sales or use tax.”
Los Angeles Superior Court Judge Emilie Elias sided with Corporate Express, holding that its building in La Mirada is a “warehouse/distribution facility” rather than a store.
But Justice Richard Aldrich, writing for the Court of Appeal, said the trial judge’s interpretation was inconsistent with the Legislature’s intended goal of preventing cities from engaging in “bidding wars” for large sources of sales tax revenue.
Corporate Express, Aldrich noted, was one of Carson’s largest producers of sales tax, and marketed itself to La Mirada and to Santa Fe Springs—where one of the competitors it acquired had a business location—as a potential source of well over $1 million in annual sales tax revenue.
Aldrich cited dictionaries defining “store” as “a business establishment where usu[ally] diversified goods are kept for retail sale,” “a place of deposit for goods esp[ecially] in large quantities,” and [a]ny place where goods are deposited and sold by one engaged in buying and selling them.”
The jurist wrote:
“Based on these definitions, Corporate Express is a store. The company buys large quantities of office and computer supplies and furniture, which products are kept in the warehouse and then repackaged and sold to customers. No one disputes that Corporate Express’s customers are the end-users of the products the company sells....Thus, regardless of the fact its customers are by account only and are businesses, Corporate Express’s sales are retail sales.... The company’s building contains a showroom and display area. Its competitors are Staples, Office Depot, and others who are in the business of retail sale of office supplies. Although the warehouse and mezzanine are not customer-friendly atmospheres, the La Mirada building is where the company sells its products to the ultimate consumer.”
The justice also rejected the argument that the company did not “relocate” from one city to another, but rather consolidated four separate facilities into one. The argument fails, Aldrich said, because all four were Corporate Express facilities and because the company was moving the sales tax hub of its operation from one city to another.
Attorneys on appeal were Steven J. Dawson and Darren C. Kameya of Burke, Williams & Sorensen for Carson and byDouglas J. Evertz and Allison E. Burns of Stradling Yocca Carlson & Rauth for La Mirada.
The case is City of Carson v. City of La Mirada, 05 S.O.S. 25.
Copyright 2005, Metropolitan News Company