City Council

B. BUSINESS LICENSE TAX STUDY RESULTS AND TAX CHANGE\nRECOMMENDATIONS\nIn August of 2023, the City contracted with HDL Companies to perform a study\nof the City’s business license tax code and to provide recommendations to\nimprove the code. The City’s business license code has not been updated for\ndecades and includes outdated fee structures and classifications. The HDL\nCompanies was tasked with analyzing the City’s business license tax code and\nproviding options to the City to help create a fee structure that is fair equitable,\nand keeps pace with inflation.\nThe proposed recommendation, model 1 with a 20% increase to flat rates and\nadministrative modifications, will generate an estimated additional $329,600 in\nlocally derived revenue which will be critical to enhance City services.\nAlternative recommendation no. 1, a 10% increase to flat rates versus a 20%\nincrease will generate an additional $251,900 in locally derived revenue.\nModel 2A, a single classification gross receipts tax of $1.25 per $1,000 in gross\nreceipts will generate an estimated $730,500 in additional tax revenue.\nModel 2B, a single classification gross receipts tax of $1.50 per $1,000 in gross\nreceipts will generate an estimated $985,500 in additional revenue.\nModel 3A, five classification gross receipts tax that ranges from $1.00 to $3.00\nper $1,000 in gross receipts will generate an estimated $1,126,000 in additional\nrevenue.\nModel 3B, five classification gross receipts tax that ranges from $1.50 to $3.50\nper $1,000 in gross receipts will generate an estimated $1,635,000 in additional\nrevenue.\nCalifornia Environmental Quality Act (CEQA) Determination: Not a Project as\ndefined in Section 15378 of the State CEQA Guidelines.\nRecommended Action:\nStaff recommends that the City Council direct staff to bring back a resolution\nto place Model 1 changes to the business license tax code on the November\n2024 ballot which will enhance the City services and increase fairness within the\ntax code:\nModel 1 Changes\n► Implement 20% increase to the flat rates.\n► Add a commercial rental category - assessed at $.75 per $1,000 in gross\nreceipts.\n► Add a catch-all miscellaneous category - assessed at $.50 per $1,000 in gross\nreceipts.\n► For residential rentals:\no Remove the four units or more requirement. All residential rentals will be\nsubject to a tax.\no Eliminate the $450 cap on the tax.\n► Cap the penalty for unpaid taxes to 150% of the tax amount.\n► Add a provision to annually increase the flat rate taxes by the October 2024\nconsumer price index.\n► Replace the coin-operated machines/vending machines with the catch-all\nmiscellaneous category.\n► Remove the $1,050 not-to-exceed provision in the tax code.\nAlternative Recommendation No. 1:\n► Implement model 1 as noted in the recommendation except implement a 10%\nincrease to flat rates instead of a 20% increase.\nAlternative Recommendation No. 2:\n► Implement a gross receipts single classification model (model 2) or\nmulticlassification model (model 3).\nAlternative Recommendation No. 3:\n► Maintain the current tax code and do not take a tax increase measure to voters\nin November 2024.