City Council
Staff Report
From: City Manager
Report Type: INFORMATION REPORTS
Lead Department: Administrative Services
Meeting Date: August 10, 2026
Report #:2512-5701
TITLE
Sales Tax Digest Summary for Q1 2026 (January - March). CEQA Status - Not a project.
ANALYSIS
This report transmits information regarding the City of Palo Alto’s sales tax receipts for the first quarter (January - March) of 2026. Highlights from the report are included below. Detailed discussion and data can be found in the Sales Tax Digest (Attachment A).
Regional and statewide sales tax - Benchmark Year (Attachment A, pg. 2):
Palo Alto: increased by 0.2%
San Francisco Bay Area: increased by 0.5%
California statewide: decreased by 2.7%
City’s most significant activity – Benchmark Year (Attachment A, pg. 1):
Business Services: increased by $1.8 million, or 422.0%; represents 8.0% of sales tax revenue (excluding county pool).
Miscellaneous Retail: increased by $0.8 million, or 29.7%; represents 11.7% of sales tax revenue (excluding county pool).
Overall, the benchmark year results reflect mixed performance across industry segments rather than broad-based growth. Strong performance in the Business Services and General Retail segments helped offset declines in the Leasing and New Auto Sales segments, resulting in relatively flat overall local sales tax performance. The Business Services segment includes a diverse range of industries, and year-over-year results may fluctuate as the mix of taxable business activity changes.
County Pool – 2026Q1 compared to 2025Q1 (Attachment A, pg. 4) Total County Pool: Increased by 8.8% or $2.4 million, from $27.3 million to $29.7 million Total Jurisdiction Share:
oPercent of County Pool increased by 60 basis points, from 6.1% to 6.7%
oTotal share increased $0.3 million, from $1.7 million to $2.0 million Over the most recent four quarters, the City received approximately $8.1 million from the County Pool, representing about 22% of the City’s total sales tax revenue of $36.6 million during that period. Preliminary review indicates that recent growth may be attributable, in part, to the reallocation of certain large online retailer transactions into the county pool and other allocation adjustments. County Pool details are limited, making it difficult to determine the extent to which these factors contributed to the increase or whether the higher allocation levels represent a one-time occurrence or an ongoing trend. Staff will continue to monitor future allocations and trends.
ENVIRONMENTAL REVIEW
This item is not a project as defined by the California Environmental Quality Act (CEQA) because the sales tax digest summary report is for informational purposes only with no action required by the Council.
ATTACHMENTS
Attachment A: 2026 Q1 Sales Tax Digest Summary
APPROVED BY:
Lauren Lai, Administrative Services Director