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Consultant: San Rafael’s sales tax base strong but concentrated; e-commerce and fulfillment rules complicate growth
Summary
Consultant Ken Nordhoff told the Economic Development Subcommittee that San Rafael’s 9.25% sales-tax rate and local measures produce substantial revenue but leave the city dependent on autos, construction and a handful of large taxpayers; e-commerce allocations and state rules limit local control and suggest different strategic trade-offs.
Ken Nordhoff, a consultant with HDL, told the San Rafael Economic Development Subcommittee on Dec. 1, 2025, that the city’s sales-tax position is solid on a per-capita basis but exposed to sector concentration and the complexities of online sales allocation.
Nordhoff opened with a simple baseline: “Your tax rate down here is 9.25%,” pointing out that the total combines the 7.25% statewide base with locally voter-approved measures such as Measure E and Measure R. He said the city is at the statutory cap for local rate increases absent new state authority.
Why that matters: a large share of San Rafael’s receipts come from a few sectors—Nordhoff said the auto group accounted for about 30% of Bradley-Burns revenue in the most recent fiscal year, while building- and construction-related accounts are also major contributors. He warned that reliance on a small set of categories raises volatility risk if spending patterns shift.
Nordhoff explained two ways sales and use taxes reach the city: direct allocations (point-of-sale Byrne/Bradley revenue when a local store sells to a customer) and county ‘pool’ distributions that capture some online and out-of-jurisdiction activity. He noted that San Rafael received roughly 38–39% of Marin’s county pool in the year he analyzed—the equivalent of about $5.1 million from those pool dollars in that year.
On e-commerce, Nordhoff said allocation depends on fulfillment and transaction structure. If an online order is fulfilled from an in-state fulfillment center, the fulfillment jurisdiction receives the allocation; if fulfilled out of state, those receipts tend to go into the county pool and are then distributed by formula. He highlighted one clear local implication: an online order that is picked up at a downtown store counts as a local sale and yields the full local share, while many shipped orders do not.
Members asked practical questions about consumer education and whether residents can be persuaded to ‘buy local, pick up local.’ Nordhoff and council members agreed that store pickup is one tangible way to keep local share, but Nordhoff cautioned that platform logistics and fulfillment networks limit how much consumers can steer the allocation.
He summarized long-term trends that could affect strategy—growth of non-taxable services, shifts to e-commerce, potential impacts from tariffs and fuel-price volatility—and said the city should weigh realistic opportunities for large tax generators (fulfillment centers, big-box retailers) against the constraints of a built-out urban environment and environmental/transportation trade-offs.
The presentation concluded with an invitation to use the analysis as a foundation for a multi-step strategy: maintain existing strong generators, pursue limited local diversification where feasible, and coordinate regionally (including Marin County’s economic-vitality planning) on larger structural issues.
What’s next: staff and the subcommittee agreed to digest the data and bring follow-up items—sector prompts, downtown-business outreach and coordination with the county plan—to future agendas.
