HomeMy WebLinkAbout- - Possible Business License Tax Increase - 7/17/2012CITY COUNCIL AGENDA REPORT
MEETING DATE: July 17, 2012
ITEM NUMBER:
SUBJECT: DISCUSSION REGARDING POSSIBLE BUSINESS LICENSE TAX INCREASE
DATE: JULY 12, 2012
FROM: FINANCE DEPARTMENT/FINANCE ADMINISTRATION
PRESENTATION BY: BOBBY YOUNG, FINANCE & I.T. DIRECTOR
FOR FURTHER INFORMATION CONTACT: BOBBY YOUNG, FINANCE & I.T. DIRECTOR
(714) 754-5243
RECOMMENDED ACTION:
Provide direction to staff regarding Council's desire to establish and propose a Business
License Tax Ballot Measure for the November 6, 2012 general election at a July 24,
2012 Special Meeting.
BACKGROUND:
The City last amended the Business License Tax (Section 9-1 of the Municipal Code) in
April 1985. The code section states:
"For the purpose of raising revenue for the city, every person conducting, carrying on, or
engaging in any business shall pay a business tax to the city as hereinafter set forth,
and any person who conducts, carries on, or engages in any business for which
payment of a business tax is required under the provisions of this title, without having
paid the required tax, is guilty of a misdemeanor or infraction. Each day of operation in
violation of this section shall constitute a new and separate offense. "
Given that the payment associated with the issuance of a business license is imposed
for the purpose of raising revenue, it is determined the payment is a tax not a fee.
Since Proposition 62 (1986), all taxes must be approved by two-thirds of the governing
body (4 of 5), and a simple majority of the voters at a general election.
The following is the anticipated timeline should the City Council elect to submit a
resolution to voters for approval of the ordinance on the November 6, 2012 general
election.
July 24 — City Council adopts resolution to put measure on ballot
July 25 — Resolution submitted to County to place measure on ballot
Aug 7 — Direct arguments and impartial analysis due
August 17 — Rebuttals due
1
ANALYSIS:
Section 9-25 of the City's Municipal Code establishes the tax structure based upon the
annual gross receipts of a business. This structure is widely used by cities for the
business license tax because of its ease of use and understanding. Businesses
required to file tax returns must report total gross receipts. Using tax filings allows for
ease of auditing businesses to ensure the proper tax is paid.
When using the gross receipts method, most cities have adopted either a tier structure
or a millage rate. A mill rate establishes an amount, usually per $1,000 of gross receipts
to determine the tax, sometimes without a cap. Section 9-25 established a tier format
used to calculate the applicable tax as seen below.
Current
Annual Gross Receipts
Tax Due
Under $1,000
$0
$1,000.01 - $25,000
$25
$25,000.01 - $40,000
$35
$40,000.01 - $75,000
$45
$75,000.01 - $200,000
$60
$200,000.01 - $500,000
$100
Over $500,000
$200
The projected revenue from Business License Tax in FY 12-13 is $850,000.
The City has contracted with MuniServices to conduct a study to provide staff with
information about different tax structures and comparative analysis with surrounding
cities for perspective. The report compiled by MuniServices can be seen as Attachment
A.
At the July 10, 2012 City Council Study Session, staff presented some comparative
analysis and an initial recommendation to retain a tier structure but a change to gross
receipt tiers and the tax due. With a minimum tax of $50 due to staff time and other
resources used for issuing the license, and a maximum of $10,000, the potential
increase in revenue is $2.7 million.
As seen on pages 9-11 of Attachment A, a summary of other options provided by
MuniServices shows additional alternatives and information. These options range from
keeping the same tier structure and just doubling the current tax, to altering the tier
structure and increasing the tax in different amounts.
At the Study Session, City Council also requested information about a per employee
structure. Unfortunately, neither MuniServices nor City staff could compile information
on the City's business community to determine a recommendation and what the
financial impacts of that recommendation would be. Should the City Council desire a
per employee structure, staff may suggest to not place any measure on the ballot for
November 2012, and direct staff to alter the current business license tax application to
retrieve that information so that the City will have data available for a future potential
ballot measure.
E
Staff has also been conducting research into upgrading the current license system to
one with an online business license tax feature. This will allow businesses to apply,
renew and pay for the license online. It could also provide online renewal noticing and
enhance audit features by linking with other business data provided to the City. The
potential cost of providing these features to the City and business community could be
offset by the increase in tax revenue. Staff will also work toward enhancing our
enforcement capabilities in an effort to ensure businesses are in full compliance with
current ordinances.
ALTERNATIVES:
City Council can choose to alter the above tier amounts either by doubling the current
amounts or by using some other factor and staff will provide the estimated financial
impacts of any changes. Another alternative is to amend the current tier structure to
reduce the number of tiers from seven to three or four, thus simplifying the process
altogether. City Council could also choose to direct staff to begin gathering number of
employee data from businesses to enlarge our database for future potential business
license tax ballot measures.
CONCLUSION:
During FY 2011-12 City Council stated a desire to have staff provide information
regarding a potential business license tax ballot measure for the purposes of increasing
the current tax. Attached is a report provided to the City from MuniServices, whom the
City contracted to gather data and provide analysis of the current business license tax
as well as alternatives.
BOBBY YOUNG
Finance and I.T. Director
Attachment A — Business License Tax Classification and Tax Rate Structure Report —
MuniServices
3
&MUNISERVICES
Preliminary Draft
Business Tax Classification
& Tax Rate Structure Report
Prepared in partnership with:
The City of Costa Mesa, California
Project #: 2012_BL CMTAXFD1, Draft v1.63B
July 12, 2012
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Preliminary Draft
Project Summary
The City of Costa Mesa intends to explore the option of implementing a modified business tax program with the
objective of raising revenue for the City while minimizing the administrative cost and maintaining the public's
support.
The goal of this project is to develop a concise, simplified, and customer -friendly business tax, while achieving the
City's revenue goals. To accomplish the City's business tax goals, the agreed upon scope of work for the project
includes the following components:
• Perform a comparative analysis and survey of the business tax fees and classification used by
surrounding and / or similar taxing agencies.
• Create sample business tax fee structures
The approach was to divide this project into two distinct phases, including Phase 1- Business Tax Structure &
Revenue Models Analysis, and Phase 2 - Business Tax Comparative Study. A synopsis of each Phase is as follows:
Phase 1 - Business Tax Structure & Revenue
In order to establish tax structures and develop revenue estimates, MuniServices brought together key elements
of the first phase of the project. MuniServices will create a number of potential tax structures based on gross
receipts that the city may choose from when implementing their tax.
Of the all the methods identified, MuniServices recommends the continued use of a Gross Receipts tax structure
as the primary method to calculate business taxes in the City of Costa Mesa. The goal is to maximize revenues
and create equity among the tax base while remaining competitive with the surrounding jurisdictions.
MuniServices was able to approximate the averages of gross sales for many of the primary businesses when this
information was absent from the business tax registry data provided by the City. Inputting these variables into
the aforementioned recommended tax structure, MuniServices estimates the City's business tax base will consist
of approximately 11,700 (9,027 Gross Receipt Category) businesses generating $1.4 to $3.4 million in net tax
revenues.
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Preliminary Draft
Phase 2 - Business Tax Comparative Study
MuniServices surveyed and analyzed the business taxes utilized by other similar and /or surrounding local
agencies to identify the common tax structures assessed. MuniServices selected cities based on proximity to the
City and those with a comparable population and other taxation variables such as economic make-up of the
business base. The process is designed to glean two key pieces of information. The first is the statistical data
necessary to ensure the marginal accuracy of the data compiled. The second is to provide the City the ability to
evaluate proposed taxation structures with those of neighboring cities.
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Preliminary Draft
Costa Mesa - Current Tax Structure
Overview
MuniServices utilized the Business Tax Registry data and a Business Distributive Subset (BDS) to estimate revenues
and classification structures. This subset was developed by extrapolating the record sets with the most reliable
data, comparing them with averages developed during Phase 2 - Business Tax Comparative Study and adjusting
the subset to be reflective of the City's own business base.
This process combined many variables, such as population, sales tax permits, SIC codes, and commercial space
available, to estimate the averages for Costa Mesa. This subset, while not an exact composition of the businesses
subject to taxation, reflects the most likely breakdown of businesses activities and average calculation details such
as gross receipts.
TABLE (A) City of Costa Mesa - Current Business Tax Classification Summary
Category
General Business
Business Tax Rate
$0-$200
Number of Businesses
9,027
Total Business Tax Revenue
$736,900.00
Contractors
$50
2,318
$115,800.00
Temporary/ Special Event
$25-$7,240
17
$16,732.00
Taxi Cab
$50
17
$850.00
Vehicles
$25-$350
212
$8,635.00
Special Permit (Firearm)
$25-$200
9
$1,035.00
Tax Exempt
$0
112
$0.00
Total Business Tax Revenue >
11,712
$879,952.00
TABLE (B) City of Costa Mesa - Current General Business Category with a $200 Maximum Tax
Gross Receipt Range•..
Business Tax Rate Number of Businesses � Percentage of Total
$0 to $1,000
$0.00
605
6.7%
$199.00
$1,000.01 to $25,000.00
$25.00
2,057
22.8%
$15,945.00
$25,000.01 to $40,000.00
$35.00
701
7.8%
$30,301.00
$40,000.01 to $75,000.00
$45.00
1,092
12.1%
53,827.00
$75,000.01 to $200,000.00
$60.00
1,381
15.3%
$124,642.00
$200,000.01 to $500,000.00
$100.00
1,094
12.1%
$323,590.00
Over $500,000.00
$200.00
2,097
23.2%
$13,464,080.00
General Business/ Gross Receipts Totals >
9,027
100.0%
$2,001,798.00
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Preliminary Draft
Revenue by Tax Type
83.7%
0.1% 1.9%
1.0% a.1'%
■ General Business ■Contractors ■Temporary /Special Event ❑Taxi Cab ❑ Vehicles ❑ Special Permit ( Firearm )
22.8%
12.1%
15.3%
■ $0 to $1,000
$75,000.01 to $200,000.00
6.7%
0 $1,000.01 to $25,000.00
$200,000.01 to $500,000.00
0 $25,000.01 to $40,000.00
Over $500,000.00
General Business Category by Gross Receipts Range
12.1%
0 $40,000.01 to $75,000.00
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Preliminary Draft
Tax Classification System
The Tax Classification System separates businesses into categories based on business activities. Businesses may
fall in to one or many classification depending on their business types and the activities they conduct in the City of
Costa Mesa. Some taxation methodologies such as gross receipts are better suited to handle multiple tax
classifications. Typically 75%-85% of businesses fall into one primary "General Business" classification. In many
cases, for the purpose of taxation, classifications may be grouped together, especially when tax rates are similar.
1. Retail Sales
The Retail Sales classification includes the City's basic retail establishments. This classification typically
includes any business activity where the business sells goods, wares, merchandise, etc. at retail.
Number of Businesses 2,242
Number of Businesses at the Maximum Tax (Cap) 885 39.5%
Average Gross Receipts / Average Business Tax $2,074,468 $110.24
2. Wholesale/ Manufacturing
Wholesale activity classification is typically a business to business activity where the goods, merchandise,
wares, etc. are sold to those who intend to resell. This category is typically treated similarly to retail.
Manufacturers are typically defined as those businesses that manufacture, produce, package goods, etc.
Number of Businesses 379
Number of Businesses at the Maximum Tax (Cap) 176 46.4%
Average Gross Receipts / Average Business Tax $5,223,122 $123.75
3. Service
The Service classification covers personal services, repairs, rentals, etc. This category covers all service
related business not otherwise classified by the City. For example, a doctor or accounting firm would fall
under the service category if the City chose not to have a classification for Professionals.
Number of Businesses 4,824
Number of Businesses at the Maximum Tax (Cap) 703
Average Gross Receipts / Average Business Tax $1,220,024 $63.46
4. Professionals
The Professionals classification includes those businesses providing professional type services such as doctors,
lawyers, and accountants. This classification typically includes any business where a professional license is
issued and regulated by the state.
Number of Businesses 525
Number of Businesses at the Maximum Tax (Cap) 171 32.6%
Average Gross Receipts / Average Business Tax $2,163,763 $107.71
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Preliminary Draft
5. Property Rental
The Property Rental classification are those that rent, lease, sublet, etc. residential and commercial based
property including raw land, buildings, office space, billboards, parking lots, or any part thereof. Except in the
case of subletting, this classification usually only includes the owner of the real property.
Number of Businesses 953
Number of Businesses at the Maximum Tax (Cap) 13113.7%
Average Gross Receipts / Average Business Tax $372,310 1 $73.91
6. Miscellaneous / General Business
While almost all business activities will fall under one of the above classifications, it is important to have this
"catch all" classification. Businesses structures and activities change over time and tax codes typically do not.
This classification provides a safety net for cities when businesses change or when a unique business activity is
conducted by a newly established business.
Number of Businesses 104
Number of Businesses at the Maximum Tax (Cap) 31 29.8%
Average Gross Receipts / Average Business Tax $831,745 $93.65
General Business Category by Activity
24.8%
4.2%
10.6% 5.8%
■ Retail Sales ■ Wholesale/ Manufacturing
■ Professionals ■ Property Rental
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1.4%
Service
■ Miscellaneous /Other
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Preliminary Draft
Common Methods of Business License Taxation
There are four (3) primary taxation methods used by the municipalities throughout California including the Cities
surveyed for this report. The primary business tax structures commonly used are Gross Receipts, Number of
Employees, and Flat Fee. These methods can be used exclusively, or may be combined to form more of a hybrid
approach to taxation. The four methods are outlined below:
Gross Receipts
Taxation of gross receipts is one of the most common methods of business taxation in California. Since it is a
widely used taxation method, there are many clearly established guidelines for what constitutes gross receipts
and it is a familiar method to businesses. While more complex in some ways than other methods, Gross Receipts
taxation does provide a simple and easy means to define an apportionment strategy which is required for all local
business taxes. This is also helpful when allocating gross receipts between different classifications.
While revenues from a gross receipts tax can fluctuate more than other models, the potential for growth is a
benefit for the City and businesses receive a reprieve when sales are down. Gross Receipts can be calculated
based on a percentage or a flat fee with a sliding scale. MuniServices recommends this taxation method be the
primary method used due to its ease to facilitate both from the City perspective and the business community.
Gross receipts are typically defined as the total revenue generated by a business before any deductions,
allowances, and discounts. For a retail establishment, gross receipts are the total of all sales. Gross receipts for a
service or professional based business are the total amount charged and received for services performed.
Number of Employees
In lieu of Gross Receipts, municipalities will often utilize employee counts as a basis for taxation. It is simple to
calculate and administer. However, this method does prove difficult when attempting to do apportionment or
allocation. In some cases Cities and businesses are faced with the challenge of breaking down number of hours
per employee, per project, and per jurisdiction. This complicates the tracking on the business side and proves
difficult to audit from the administration side. Employee count taxation methods also can be viewed in a negative
light when considering economic development and business attraction strategies that tend to focus on appealing
to large employers.
Employee counts typically fluctuate less than gross receipts and therefore, while not as stable as a flat fee, can
provide for an easier budgeting process than gross receipts. There are a number of methods available to
determine annual employees count. One example is to use the total number of hours worked during the year for
all employees and dividing that number by 2,080 (40 hours per week x 52 weeks). The final number is rounded to
the nearest whole number to produce the total number of employees for a business in a given year.
Flat Fee
Flat fees are the simplest and easiest to administer of all the fee structures. This method prevents fluctuations in
revenues and can be easier to forecast. However, Flat Fee structures can be regressive in nature, forcing
businesses to pay the same fixed amount regardless of their size or income. As with other fixed rate methods, it
does provide challenges when apportioning and allocating between classifications.
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Preliminary Draft
Costa Mesa - Recommended Tax Structure
The gross receipts based tax structure is the primary method recommended by MuniServices for the City of Costa
Mesa. This structure provides the most efficient administration methods weighed against the needs to generate
revenue while ensuring the tax does not approach a regressive state.
The current gross receipts scale method has been preserved to make the conversion process straightforward for
the City and maintain continuity for a business community already familiar with the current table driven structure.
The business tax rates established for specific scale of gross receipts range from less than % of one mill to 1 mill.
The rates set forth are less than the Cities in the comparative study that utilized this method of taxation.
These rates can also be applied to different classifications based upon industry standards. Retail, for example, can
have a lower business tax rate than professionals due to lower profit margins and their abilities to generate sales
tax revenues to the City.
Sample Taxation Structures
Using the methodologies outline above, MuniServices created sample rate tables that emulate the current gross
receipts scale utilized by the City of Costa Mesa. The tables below are samples of how a tax structure would be
organized and are not intended to reflect an actual approach.
TABLE (A-1) City of Costa Mesa — Revised General Business Category with a $400 Maximum Tax — 1St Method
$0-$1,000
$0.00
.000
605
0.0%
$0
$1,000.01- $25,000.00
$50.00
.002
2,057
7.0%
$102,850
$25,000.01- $40,000.00
$70.00
.00175
701
3.3%
$49,070
$40,000.01 - $75,000.00
$90.00
.0012
1,092
6.7%
$98,280
$75,000.01- $200,000.00
$120.00
.0006
1,381
11.2%
$165,720
$200,000.01- $500,000.00
$200.00
.0004
1,094
14.8%
$218,800
$500,000.01 +
$400.00
-
2,097
56.9%
$838,800
Total General Business Category > 9,207 100% $1,473,520
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Preliminary Draft
TABLE (A-2) City of Costa Mesa — Revised General Business Category with a $400 Maximum Tax — 2nd Method
$0 - $25,000.00
$25.00
.001
2662
4.2%
$66,550
$25,000.01 - $50,000.00
$50.00
.001
1,256
4.0%
$62,800
$50,000.01- $100,000.00
$100.00
.001
1,130
7.2%
$113,000
$100,000.01- $200,000.00
$200.00
.001
788
10.1%
$157,600
$200,000.01- $500,000.00
$300.00
.0006
1,094
20.9%
$328,200
$500,000.01 +
$400.00
-
2,097
53.5%
$838,800
Total General Business Category > 9,207 100% $1,566,950
TABLE (B) City of Costa Mesa — Revised General Business Category with a $2,000 Maximum Tax
$0-$50,000
$50.00
.001
3,918
7.4%
$195,900
$50,000.01- $100,000.00
$100.00
.001
1,130
4.2%
$113,000
$100,000.01- $500,000.00
$250.00
.0005
1,882
17.7%
$470,500
$500,000.01- $1,000,000.00
$500.00
.0005
1,019
19.1%
$509,500
$1,000,000.01- $5,000,000.00
$1,000.00
.0002
781
29.3%
$781,000
$5,000,000.01 +
$2,000.00
-
297
22.3%
$594,000
Total General Business Category > 9,207 100% $2,663,900
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Preliminary Draft
TABLE (C) City of Costa Mesa - Revised General Business Category with a $5,000 Maximum Tax
$0-$50,000
$50.00
.001
3,918
5.7%
$195,900
$50,000.01 - $100,000.00
$100.00
.001
1,130
3.3%
$113,000
$100,000.01- $500,000.00
$350.00
.0007
1,882
13.7%
$470,500
$500,000.01- $1,000,000.00
$600.00
.0006
1,019
14.8%
$509,500
$1,000,000.01- $5,000,000.00
$1,500.00
.0003
781
22.7%
$781,000
$5,000,000.01- $10,000,000.00
$2,500.00
.00025
152
8.8%
$304,000
$10,000,000.01 - $25,000,000.00
$4,000.00
.00016
77
11.2%
$308,000
$25,000,000.01 +
$5,000.00
-
68
19.8%
$340,000
Total General Business Category > 9,207 100% $3,021,900
TABLE (D) City of Costa Mesa - Revised General Business Category with a $10k Maximum Tax
$0-$50,000
$50.00
.001
3,918
5.7%
$195,900
$50,000.01 - $100,000.00
$100.00
.001
1,130
3.3%
$113,000
$100,000.01- $500,000.00
$250.00
.0005
1,882
13.7%
$470,500
$500,000.01- $1,000,000.00
$500.00
.0005
1,019
14.8%
$509,500
$1,000,000.01- $5,000,000.00
$1,000.00
.0002
781
22.7%
$781,000
$5,000,000.01- $10,000,000.00
$2,000.00
.0002
152
8.8%
$304,000
$10,000,000.01- $25,000,000.00
$5,000.00
.0002
77
11.2%
$385,000
$25,000,000.01 +
$10,000.00
-
68
19.8%
$680,000
Total General Business Category > 9,207 100% $3,438,900
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Preliminary Draft
Business Tax Survey
Background
The City of Costa Mesa is interested in identifying the "best practices" utilized by other local agencies that
administer and collect a business tax. MuniServices also examined the business tax programs established in
surrounding municipalities. The selection criteria exclusively focused on Cities with a business tax established for
revenue generation. MuniServices assembled information on tax rates and general practices employed in the
following cities:
■ Huntington Beach
■ Irvine
■ Newport Beach
■ Orange
■ Santa Ana
Data Procurement Process
To obtain the information necessary to generate this report, MuniServices makes use of a variety of resources and
data. This included a series of telephone interviews with the City's business tax department, ordinance reviews,
and examination of business tax data contained in MuniServices' data warehouse.
Data Validation
To the extent possible, MuniServices validated the data it used to create this report. In some instances,
MuniServices used information supplied by third parties or obtained the information directly from the City by
conducting a telephone interview.
Study Background
Simply stated, at this phase of the project MuniServices surveyed and analyzed the business taxes utilized by
other local agencies to identify "best practices." The City of Costa Mesa selected cities based on proximity and
those with a comparable population. MuniServices surveyed these taxation authorities in an attempt to
understand their current processes and taxation methods.
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Preliminary Draft
Data Procurement
Data Validation
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Preliminary Draft
Business Tax by Municipality
Method of Taxation
Business Tax: Yearly Averages
Costa Mesa
GROSS
RECEIPTS
EMPLOYEE
NUMBE
OF UNITS
I
F LAT MAXIMUM TAX
X Yes = $200
I X
11,712
Costa Mesa
Huntington Beach
I
X
I X
X No
Irvine
I
0.69%
I
X Yes = $50
Newport Beach
I
X
I X
X Yes = $777 -or- $1,555
Orange
I X
1.36%
I
X N
Santa Ana
X
4.69%
I
X N
Business Tax: Yearly Averages
Costa Mesa
ANNUAL REVENUE
$879,952
% OF •A
01
ACCOUNTSFUND
AVERAGE
0.75%
11,712
$75.13
Huntington Beach
$2,241,246
1.23%
21,118
$106.13
Irvine
$965,696
0.69%
18,432
$52.39
Newport Beach
$4,056,034
2.68%
16,773
$241.82
Orange
$2,177,936
1.36%
21,848
$99.69
Santa Ana
$9,848,692
4.69%
28,114
$350.31
City Demographics: Average Population
Costa Mesa
Huntington Beach
Irvine
I 110,150 I
$7.99
190.380
$11.77
219,160
$4.41
Newport Beach
85,380
$47.51
Orange
136,990
$15.90
Santa Ana
I 325,230 I
$30.28
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Preliminary Draft
Sales Tax Comparison 1 (Revenue Generated by Economic Category)
Sales Tax Comparison 2 (Total Number of Accounts by Economic Category)
FCpatego
Costa Mesa
Huntington
lrv*nt-
Newport
F6"�
Santa Ana
General Retail
Costa Mesa
Beach
Irvine
Beach
OrangeECate.gory
3,146
General Retail
49.4%
23.2%
24.9%
29.2%
18.8%
24.9%
Food Products
13.9%
20.7%
15.5%
26.0%
14.8%
16.4%
Transportation
22.8%
27.2%
20.6%
27.6%
22.7%
25.7%
Construction
3.8%
7.1%
5.4%
0.9%
8.9%
11.2%
Business to
9.1%
21.1%
32.2%
15.4%
33.9%
20.7%
Business
12,121
81440
8,365
4,917
6,062
9,140
Miscellaneous
1.1%
0.6%
1.5%
1.0%
0.9%
1.1%
Sales Tax Comparison 2 (Total Number of Accounts by Economic Category)
FCpatego
Costa Mesa
tington
Beach
lrv*nt-
wport
Rp;;rh
F6"�
Santa Ana
General Retail
6,586
3,933
3,178
2,566
2,249
3,146
Food Products
831
963
1,097
652
910
1,509
Transportation
798
622
345
169
606
1,002
Construction
271
238
235
91
262
388
Business to
Business
2,029
1,831
2,935
1,001
1,592
2,186
Miscellaneous
1,606
853
575
438
443
909
TOTAL >
12,121
81440
8,365
4,917
6,062
9,140
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Preliminary Draft
Quick Summary (city comparison)
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MPM
P
Gross Receipts
• • Gross
Employee
Employee Gross Receipts
Receipts
Flat Fee
Flat Fee
Flat Fee Flat Fee
Flat Fee
Flat Fee
$879,952
$2,241,246
$965,696
$4,056,034
$2,177,936
$9,848,692
11,712
21,118
18,432
16,773
21,848
28,114
110,150
190,380
219,160
85,380
136,990
325,230
Flat Rate of
10% per
10% of the
$25 for each
10% Per
25% per month
25% per month
month Not to
Quarter Late
Total Tax Due
year the Tax
Max. 100%
Max. 100%
exceed 50%
Max. 100%
is Past Due
Employee
Gross
Residential
Businesses
rates vary for
Non-compliance
Receipts with
with Gross
In / Out of
fee of $50 is
Mill Rate Gross
Rental Based
a Maximum
Receipts
Town and if
added after 3+
Receipt
$200 Business
on 3 or More
under $4000
the business
months
Business Tax
Rental Units
Tax
pay only $25
has a resale
delinquent
permit
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$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
$2,241,246
Huntington Beach
■ Costa Mesa: $879,952
30,000
25,000
20,000
15,000
10,000
5,000
0
21,118
Preliminary Draft
City Comparison - Business Tax Revenue: Yearly Average
$9,848,692
$4,056,034
$2,177,936
65,696
Irvine Newport Beach Orange Santa Ana
City Comparison - Number of Business Tax Accounts: Yearly Average
Huntington Beach
■ Costa Mesa: 11,712
www.MuniServices.com
18,432
16,773
Irvine Newport Beach
6
Orange Santa Ana
Page 17
$400 -
$350
$300 -
$250
$200
$150
$100
$50
$0
$50
$40
$30
$20
$10
$0
City Comparison - Average Business Tax Paid
Preliminary Draft
$350
Huntington Beach Irvine Newport Beach Orange Santa Ana
■ Costa Mesa: $75
$12
Huntington Beach
■ Costa Mesa: $8
City Comparison - Average Business Tax Per Capita
$48
$16
Irvine Newport Beach Orange
$30
Santa Ana
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Municipality Overview
The City of Huntington Beach
Preliminary Draft
Located in Orange County, the City of Huntington Beach is approximately 7 miles from the City of Costa
and was incorporated in 1909. On average there are 21,000 business tax accounts issued by the City
with approximately $2.2 million in total annual revenue. The City collects a business license tax for
doing business within the city limits and is solely to raise revenue for municipal purposes. The annual
business tax renewal period is based on the start date of the individual business. For example, a
business that begins operations in 10/01/2008 would expire on 09/30/2009. A penalty rate of 10% of
the tax is applied to any business that operates without first obtaining a Business License or which fails
to pay their renewal fee by the due date.
The primary two methods of taxation used in the City of Huntington Beach are the flat or minimum
business tax with a variable rate that is based on the average number of employees. Typically, for
businesses that operate with 3 or less employees would only pay the base or minimum $75 business tax.
For this reason, Huntington Beach often refers to their business tax as a "flat tax."
Flat rate rates also apply to businesses without a fixed location in the City and special event or
temporary activities conducted in the City like swap meets and auctions. General contractors without a
fixed place of business within the City pay a slightly higher flat rate than the businesses that operate
within the jurisdiction.
The following types of businesses are exempt from obtaining a business tax license in the City of
Huntington Beach:
• Charitable, Non -Profit, and Religious Organizations
• Businesses that are regulated by the Interstate Commerce Commission
• Disabled Veterans
• Real Estate Agents (where a Broker holds their license issued by the California
Department of Real Estate)
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Preliminary Draft
The primary business tax rate schedule for the City of Huntington Beach is shown in the table below.
GENERAL BUSINESS
Includes - Abstractor of Titles, Accountant, Accounting Service,
Advertising Agent, Agricultural Advisor or Counselor, Appraiser,
Architect, Assayer, Attorney, Auctioneer, Auditor, Bacteriologist, Bail
Bond Broker, Barber Shop, Beauty Shop, Business Management
Consultant, Certified Public Accountant, Chemical Engineer, Chemical
Engineer, Chemist, Child Nurseries (9 children or more), Chiropodist,
Chiropractor, Civil Engineer, Claim Adjuster, Construction Engineer,
Consulting Engineer, Dancing Academy, Dealers in Stocks and other
Securities, Dental Laboratory, Dentist, Designer, Detective Agency,
Draftsman, Drugless Practitioner, Electrical Engineer, Electrologist,
Employment Agency, Fine Arts or Music School, Geologist, Herbalist,
Industrial Relations Consultant, Insurance Adjuster, Interior Decorator,
Investment Counselor, Labor Relations Consultant, Landscape Architect,
Lapidary, Mechanical Engineer, Mortician, Naturopath, Oculist, Optician,
Optometrist, Oral Surgeon, Orchard Care, Osteopath Physician,
Physician, Private Home for the Aged (7 persons or more), Real Estate
Broker, Real Estate Office, Surgeon, Surveyor, Taxidermist, Trade or
Business School, Tree Remover, Tree Trimming, and Veterinarian.
OUT OF CITY CONTRACTORS
General Engineering and/or General Building Contractor
Specialty, Subcontractor, or Other
$75.00
First (
+$4.0
+ $3.00 per employee (13 to 52 employees)
+ $2.00 per employee (53 or more employees)
- 7
$142.50 Annual Fee
$90.00 Annual Fee
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Preliminary Draft
The City of Irvine
Located in Orange County, the City of Irvine is approximately 10 miles from the City of Costa and was
incorporated in 1971. On average there are 18,000 business tax accounts issued by the City with
approximately $970,000 in total annual revenue. The annual business tax renewal period take place on
a calendar year basis. The business tax license or certificate is valid from January 1St and expires on
December 31St of that same year.
All home and commercial based businesses are taxed on a flat $50 rate; however, businesses with
annual gross receipts of less than $4,000 pay a flat $25 tax. Irvine has the lowest average business tax of
all the Cities surveyed followed by Costa Mesa
Over 75 large corporations are headquartered in the City of Irvine and each pay a $50 flat business tax
rate. These include well-known companies like Broadcom, In -N -Out Burgers, Gateway, Mazda Motor
Company of North American, Taco Bell, Verizon Wireless, and Western Digital.
The primary business tax rate schedule for the City of Irvine is shown in the table below.
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Preliminary Draft
SWPO
v > "4Z
IFUVIL
The City of Newport Beach
The City of Newport Beach is approximately 3 miles from the City of Costa and was incorporated in
1906. On average there are 16,700 business tax accounts issued by the City with approximately $4.0
million in total annual revenue. The City collects a business license tax solely to raise revenue for
municipal purposes. The annual business tax renewal period is based on the start date or "anniversary
date" from when the license was first issued. A penalty rate of 25% of the tax is applied to any business
that operates without first obtaining a Business License or which fails to pay their renewal fee by the
due date. Penalties are not to exceed 100% of the taxes due.
The City of Newport Beach requires a base tax for all businesses operating in the City. Depending on
where the business operates the base rates will vary. The base tax is adjusted annually by use of the
Consumer Price Index (CPI).
In addition to the base rate, In -Town businesses operating at a commercial location will also pay a
variable rate that is based on the total number of W2 employees. Newport Beach has a two-tiered "per
employee" rate that is coupled with the collection of sales tax within the City limits. Businesses that do
not collect and remit sales tax in Newport Beach pay a higher per employee rate than businesses that
have an active sales tax permit with the State.
There is a maximum tax or cap for all business operating at a commercial location within the City limits.
The maximum tax is also dependent on the business collecting and remitting sales tax within the
jurisdiction. Businesses that hold a sellers (resale) permit with the State Board of Equalization and
operate from a commercial location within the City pay a maximum business tax of $777, compared to
$1,555 for those businesses with no sales tax activity.
Out of Town and residential (home based) businesses pay only the base tax. In addition, the City
charges a base tax for any business using a City of Newport Beach address or Post Office box to receive
business related mail.
The primary business tax rate schedule for the City of Newport Beach is shown in the table below.
Residential (Home Based) $144.00 N/A N/A
Out -of -Town Based $233.00 N/A N/A
Post Office Box / Mail Receiving Agency $155.00 N/A N/A
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Preliminary Draft
The City of Orange
The City of Orange is approximately 12 miles from the City of Costa and was incorporated in 1888. On
average there are 21,800 business tax accounts issued by the City with approximately $2.2 million in
total annual revenue. The City collects a business license tax solely to raise revenue for municipal
purposes. The annual business tax renewal period is based on the start date of the individual business.
The City of Orange requires all businesses conducting business within the City limits to obtain an annual
business license. The business tax in the City of Orange is primarily based on gross receipts; however,
there are some businesses taxed at a flat rate. Gross Receipt business tax rates are based on a
predefined scale or table, where tax rates are defined in a tiered range of gross receipts. The table
driven "stepped gross receipts" calculations utilized by Orange is one of the more common methods
used to perform receipts calculations.
If a business or person engages in the same activity in two or more locations in the City of Orange, each
location or entity is taxed separately. Every person or businesses conducting business from a fixed place
of business is taxed under the general business gross receipts rate unless a separate category or
classification has been established for that business. There is a $46 non-refundable processing fee for
every new license issued by the City.
The primary business tax rate schedule for the City of Orange is shown in the table below.
Retail Sales / General Business
Defined as any person conducting, managing or
carrying on the business consisting mainly of
selling at retail any goods or conducting and
maintaining a recreation park or amusement
center under one general management, or
conducting, managing or carrying on any trade,
occupation, calling or business not otherwise
specifically taxed by other sections.
$35.00
VariableTax
First $30,000 of Gross Receipts (Minimum Tax)
$50.00
Over $30,000, less than $50,000 of Gross Receipts
$75.00
Over $50,000, less than $75,000 of Gross Receipts
$100.00
Over $75,000, less than $100,000 of Gross Receipts
$125.00
Over $100,000, less than $150,000 of Gross Receipts
$135.00
Over $150,000, less than $200,000 of Gross Receipts
$155.00
Over $200,000, less than $300,000 of Gross Receipts
$175.00
Over $300,000, less than $400,000 of Gross Receipts
$195.00
Over $400,000, less than $500,000 of Gross Receipts
+$20.00
For each additional $100,000 or fraction over $500,000
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Preliminary Draft
Professionals
Defined as any every person who engages in any
business of a professional nature within the City,
where the principal business activity is the
furnishing of services.
$35.00
First $20,000 of Gross Receipts (Minimum Tax)
$50.00
Over $20,000, less than $40,000 of Gross Receipts
$65.00
Over $40,000, less than $60,000 of Gross Receipts
$80.00
Over $60,000, less than $100,000 of Gross Receipts
+$15.00
For each additional $25,000 or fraction over $100,000
Wholesale Business
Defined as any business conducting, managing or
carrying on the business consisting mainly of
manufacturing, packing, processing, storing,
warehousing, or selling at wholesale any goods,
wares, merchandise or produce.
$25.00
First $25,000 of Gross Receipts (Minimum Tax)
$60.00
$25,001 to $100,000 of Gross Receipts
$75.00
$100,001 to $200,000 of Gross Receipts
$100.00
$200,001 to $300,000 of Gross Receipts
$125.00
$300,001 to $400,000 of Gross Receipts
$150.00
$400,001 to $500,000 of Gross Receipts
$200.00
$500,001 to $1,000,000 of Gross Receipts
$250.00
$1,000,001 to $2,000,000 of Gross Receipts
$300.00
$2,000,001 to $3,000,000 of Gross Receipts
+$50.00
For each additional $100,000 or fraction over $5,000,000
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Preliminary Draft
N
The City of Santa Ana
The City of Santa Ana is approximately 15 miles northeast of Coast Mesa and was incorporated in 1886.
Santa Ana is the largest of the Cities surveyed in terms of the number of registered businesses and
population. On average there are 28,000 business tax accounts issued by the City with approximately
$9.8 million in total annual revenue. Business taxes in Santa Ana are solely to raise revenues for
municipal purposes. The annual business tax renewal period takes place on a calendar year basis. The
business tax license or certificate is valid from January 1st and expires on December 31St of that same
year.
The business tax in Santa Ana is primarily based on gross receipts. Gross Receipt business tax rates are
calculated on a standard mill rate or percentage approach. Gross Receipt tax rates are established in a
predefined scale, where the tax mill rates are defined in a tiered range of gross receipts. Gross receipts
are simply multiplied by the determined tax rate in order to arrive at the tax amount due. The mill rate
or percentage decreases as Gross Receipts increase. There is no cap on business tax once the lowest
mill rate is reached.
Flat rate rates apply to businesses without a fixed location in the City and special event or temporary
activities conducted in the City like swap meets and auctions. There is a $29 non-refundable registration
fee for every new license issued by the City.
The primary business tax rate schedule for the City of Santa Ana is shown in the table below.
Category 2
Defined as Manufacturing, Processing Wholesale
Business, Sales at Wholesale, Sales of Gasoline and
Motor Fuels, and Telephone Company Services
$117.00
+ $0.59 per $1,000 up to $195,000 in Gross
$117.00
+ $0.49 per $1,000 up to $585,000 in Gross
$117.00
+ $0.39 per $1,000 up to $1,170,000 in Gross
$117.00
+ $0.29 per $1,000 up to $1,950,000 + in Gross
$117.00
+ $0.20 per $1,000 up to $1,950,000 + in Gross
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