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PUBLIC HEARING TO APPROVE AN OFFICE AND INDUSTRIAL SALES TAX INCENTIVE AGREEMENT BETWEEN THE CITY OF STOCKTON AND HOME DEPOT USA, INC., AND AMEND THE OFFICE AND INDUSTRIAL SALES TAX INCENTIVE PROGRAM GUIDELINES
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Approving the execution of an Office and Industrial Sales Tax Incentive Agreement between the City of Stockton and Home Depot USA, Inc.;
2. Amending the Office and Industrial Sales Tax Incentive program guidelines to better support the City in attracting and retaining businesses and to facilitate easier engagement with enterprises; and
3. Authorizing the City Manager to take necessary and appropriate actions to carry out the purpose and intent of the resolution.
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Summary
On June 24, 2014, City Council approved the Office and Industrial Sales Tax Incentive Program (Attachment A - Resolution 2014-06-24-1505) to support the City’s business attraction/expansion efforts and generate additional revenue for the City. The program provides financial incentives to eligible businesses that are looking to locate or expand in existing or newly constructed office or industrial facilities within Stockton city limits. The Economic Development Department has been working with Ernst & Young LLP, a retail consulting firm, to attract Home Depot USA, Inc., a multinational home improvement business, to expand their e-commerce point of sale distribution center in Stockton. Home Depot USA, Inc. has agreed to establish its distribution center in Stockton for the completion and release of point-of-sales orders for flatbeds and bulk orders to local customers upon the execution of an Office and Industrial Sales Tax Incentive Agreement.
DISCUSSION
Background
Council has identified several key goals for the City, including economic development and fiscal sustainability. Adoption of the Office and Industrial Sales Tax Incentive Program supported this effort by encouraging new investment and allowing Stockton to be more competitive in the attraction of new business/expansion of existing business to generate additional tax revenues. The guidelines of the program were later revised on August 12, 2014 to disqualify businesses already located within San Joaquin County from being eligible, as the intention of the program was not to attract business away from San Joaquin County jurisdictions (Attachment B - Resolution 2014-08-12-1601).
Examples of the types of office and industrial uses that would be eligible under the program include: e-Commerce businesses, fuel distributors, high-tech equipment manufacturers or software developers, medical device manufacturers, and business-to-business sales. In these cases, there must be a physical sales desk located at the office or industrial facility where the transaction occurs. Under the current program guidelines, a business must meet the following criteria to be eligible:
• Generate net new annual gross taxable sales of $25 million or more,
• Generate sales tax to the City of Stockton corresponding with the gross sales tax amount,
• Create a minimum of ten full-time equivalent jobs,
• Make or retain a capital investment within the City of $50,000 or more (aggregate of lease or purchase of facility, tenant improvements, off-site improvements, or other similar investment),
• Must have a physical presence within Stockton city limits, and
• No tax-sharing agreement shall include local measure taxes.
Present Situation
As indicated in the Office and Industrial Sales Tax Incentive program guidelines, each incentive agreement requires Council approval. Further, in accordance with AB 562, effective January 1, 2014, local agencies must provide specified information to the public before approving economic development subsidies of $100,000 or more. AB 562 also requires that a public notice and hearing be held regarding the subsidy to include, among other things, the name of the company receiving the subsidy and the amount of the subsidy. To clarify, the City is not allocating existing funds in the form of a traditional subsidy, with this recommended sales tax agreement, rather the City is sharing future tax income with Home Depot. The 1% Bradley Burns portion of the overall 7.25% state sales tax is due to the local jurisdiction designated as the point of sale (Attachment C - Brief describing Sales Tax). If Stockton is designated as the point of sale, the City is due the full 1%. The Incentive program allows for the City to split the 1% into two 0.5% portions to support business recruitment.
Home Depot USA, Inc., a Delaware corporation (“Home Depot”), currently operates a distribution center in Stockton located at 2055 Industrial Dr. #2. The company has signed a lease to expand its e-Commerce and point-of-sale distribution operations at a new facility between 600,000 and 700,000 square feet at 320 McCloy Ave. The project falls within the Port of Stockton’s jurisdiction, with all entitlements managed by the Port, rather than the City of Stockton. Therefore, Home Depot is proceeding with this expansion independently of City involvement. However, if Home Depot elects to designate Stockton as the point-of-sale and enter into a tax-sharing agreement, the City would directly benefit by receiving a portion of the 1% local Bradley-Burns sales tax revenue generated from sales activity at the new facility. Additionally, securing this agreement could further strengthen Stockton’s position as a hub for logistics and distribution, creating long-term economic benefits.
If no tax-sharing agreement is established and the point of sale is not designated within Stockton, the 1% sales tax revenue could default to San Joaquin County or another jurisdiction where sales are recorded, rather than contributing to Stockton’s local budget and redevelopment endeavors.
The new distribution center is projected to create approximately 80-100 permanent jobs, with additional seasonal positions anticipated. Further job growth could occur during the term of a tax-sharing agreement, though the exact number remains undetermined. Establishing this partnership could not only ensure revenue capture but also encourage long-term business investment and support workforce development in the City of Stockton.
It is estimated that Home Depot will generate annual sales of approximately $50 million to $100 million, which will result in an annual sales tax specific to this agreement of $500,000 to $1,000,000 which will be split evenly (50/50) between each entity. The sales tax to be split is based on net new sales tax revenue received by the City and applies only to the one-percent Bradley-Burns tax and not the entire nine-percent tax rate. No split will be provided on tax revenues received from Measures W and A.
As outlined in the Incentive Agreement, Home Depot has agreed to a 50/50 split with the City of Stockton. The Incentive Agreement will be for a term of 15 years from the date of execution, with two, 5-year options to extend. The public will receive a direct benefit from the execution of the Incentive Agreement in that it will generate net new sales tax revenue for the City of Stockton to further economic growth and create additional job opportunities with the expansion of Home Depot operations.
The previous Tax Incentive program included a tiered tax-sharing vehicle. The proposed, updated program guidelines replace the tiered split of the 1% tax with a 50/50 split regardless of the anticipated net new sales tax amount. This change is reflected as a supporting table in Exhibit 1 to the Resolution and reflects increased revenue share for the City (Attachment D - Redlined Version of Program Guidelines).
Staff is recommending that the City Council approve the execution of an Office and Industrial Sales Tax Incentive Agreement between the City and Home Depot USA, Inc., which is attached as Exhibit 2 to the Resolution.
PUBLIC NOTICE
A notice of this public hearing was published in The Record on March 7, 2025
FINANCIAL SUMMARY
Home Depot estimates annual sales of approximately $50 million to $100 million (or $500,000 to $1.0 million, in sales tax revenue), which will result in an estimated annual return of $250,000 to $500,000 to both the City and Home Depot.
The proposed resolution would direct all proceeds from the agreement between Home Depot and the City into the General Fund. The Agreement proceeds may be used for the City’s redevelopment efforts including acquisition, blight abatement, demolition and other actions that support the City’s redevelopment. Said funds will be reviewed annually during the budget process and will require future Council approval for allocation and use.
Attachment A - Approved Resolution 2014-06-24-1505
Attachment B - Approved Resolution 2014-08-12-1601
Attachment C - Sales and Use Tax Brief
Attachment D - Redline Version of Office and Industrial Sales Tax (OIST) Incentive Program