California Cities and the Local Sales Tax
Paul G. Lewis and Elisa Barbour

July 1999

In California, local sales tax revenues accrue to the jurisdiction in which the sale occurs. This gives cities an incentive to promote the location of retail businesses within their boundaries. Although sales taxes account for only a modest portion of total city revenues, cities regard them highly because they represent a major share of their discretionary income. This study focuses on two crucial questions related to cities' pursuit of these revenues.  First, how does the sales tax affect land-use decisions?  If cities are systematically favoring retail development over other types of growth, this may negatively affect overall economic development in the state. Second, which types of communities are doing better or worse in the quest for these revenues?