CC 20170117 06 Business LicenseRANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 01/17/2017
AGENDA REPORT AGENDA HEADING: Regular Business
AGENDA DESCRIPTION:
Consideration and possible action on annual Business License Tax.
RECOMMENDED COUNCIL ACTION:
(1) Discontinue automatic annual increases to the Business License Tax using the
Consumer Price Index (CPI) and direct Staff to bring the option back to the City
Council annually for direction; and,
(2) Update the language in the Municipal Code to reflect using the CPI inflation index
if an increase is approved by the City Council.
FISCAL IMPACT: If the recommendation noted above was adopted and the City
Council did not approve a CPI increase, the potential fiscal impact would begin in FY17-
18. Based on a CPI range of 0.5% to 2.0%, the potential impact to revenues in FY17-18
would be approximately $4,100 to $16,200.
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Allan Kaufman, Senior Administrative Analyst
REVIEWED BY: Deborah Cullen, Director of Finance —
APPROVED BY: Doug Willmore, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. Business License Tables (page A-1)
BACKGROUND AND DISCUSSION:
As required by the City's Municipal Code, Section 5.04.050, all business activity
performed within the City of Rancho Palos Verdes requires the business owner to
obtain a business license and to pay the related business license tax (BLT).
Included in the City's Municipal Code is a methodology for an annual adjustment to
the business license tax is specified in Section 5.04.440 of the Municipal Code as
follows:
"All business license taxes and other fees or charges specified in this
chapter shall be changed on January 1, 1979, and on January 1st of each
year thereafter, as follows:
1
On January 1st of each year thereafter, all such taxes and other fees or
charges shall be equal to an amount to be determined by adding to the
amount of the tax or other fee or charge in the previous calendar year the
product obtained by multiplying the average Gross National Product
deflator factor, for goods and services purchased by state and local
government, as published by the United States Department of Commerce,
for the four calendar quarters available prior thereto by such tax or other
fee or charge in the previous calendar year."
Currently, each calendar year the City's BLT is automatically increased by the CPI
inflation index, if there is a positive CPI. Recently, City Council has asked Staff to bring
this item back for consideration.
Additionally, the BLT contributes approximately 2.81 % of the General Fund Revenues.
Based on the recent positive City financial results it would not be detrimental to the
fiscal health of the City to review the financial need each year before increasing the tax.
Staff would also recommend updating the language in the Municipal Code to reflect
current terminology and practice. The references in the Municipal Code to the Gross
National Product should be updated. In the 1980s, the Bureau of Economic Analysis
(Department of Commerce), which was formally charged with compiling and reporting
the Gross National Product (GNP) deflator factor, discontinued publishing this inflation
measure and at that time the City began using the Consumer Price Index (CPI), which
is the most -recognized and widely -used inflation index in the country. Municipal Code
Section 5.04.440 should be updated to reflect the City's long-standing practice of using
CPI as its inflation index.
In the past 10 years, the average BLT increase annually to the General Fund tax base
has been $32,412. This translates to approximately $324,121 over the last ten years.
In 2017, the change in the BLT based on the CPI index will be 2.2%. Based on this
figure, estimated revenues are expected to increase from 2016 by $17,900.
Below are the two primary components of the business license tax along with examples
of changes in the tax rate for 2017 based on the 2.2% CPI increase.
1) A minimum tax (adjusted for inflation) based on the location a business operates
(i.e., located inside/outside the City or home -occupied) and the type of work or
service performed.
Cxampie
General Contractor
Description
2016
2017
Variance
Minimum Tax
$376.00
$384.00
$8.00
State fee for Certified Disability Access Specialist Program
$1.00
$1.00
$0.00
Total
K $377.00 0
$385.00
$8.00
2
2) A flat rate (adjusted for inflation) tied to a business's gross receipts. This rate
also is multiplied for every $1,000 in gross receipts in excess of $50,000. This
rate applies to businesses physically located inside or outside the City.
Contractors, itinerant vendors, builders and developers, operators of commercial
vehicles (i.e., taxis) are exempt.
NC.Te1111WJ131
Home -Occupied Business that earned $55,00 in gross receipts
Business
Description
2016
2017
Variance
Minimum Tax
$74.00
$76.00
$2.00
Add: $1 for each $1,000 of gross receipts over $50,000
$5.00
$5.00
$0.00
Home Occupancy Fee
$17.00
$17.00
$0.00
State fee for Certified Disability Access Specialist Program
$1.00
$1.00
$0.00
Total
$97.00
$99.00
$2.00
c:xdniule
Out of City Business that earned $55,00 in gross receipts
Business
Description
2016
2017
Variance
Minimum Tax
$149.00
$152.00
$3.00
Add: $2 for each $1,000 of gross receipts over $50,000
$10.00
$10.00
$0.00
State fee for Certified Disability Access Specialist Program
$1.00
$1.00
$0.00
Total
$1 006 0$136.00
46%
$3.00
It's important to note the tax rate for a business exceeding the $50,000 threshold has
not increased for the last 10 years.
For the City Council's information, Staff has included a breakdown of major business
license types in 2016 by number of issuances. Residents who operated a home-based
business made up 23% of the 2,012 total business licenses issued.
2016 Breakdown of Business License Types
Major Categories
Business
percentage
Licenses Issued
Inside the City
(Home -Occupied)
465
23%
Inside the City
238
12%
(Other)
Contractors
921
46%
Outside the City
341
17%
Other
47
2%
(i.e., Itinerant Vendors, Taxicabs)
TOTAL
2,012
100%
3
ADDITIONAL INFORMATION:
Table 1 in Attachment A provides a 10 -year history of CPI changes, changes to the
maximum and minimum business license rates, and the rate for applicable businesses
generating in excess of $50,000 in gross receipts.
Table 2 in Attachment A offers a 10 -year history of business license issuances and
revenues. Staff has determined that there is not a strong correlation between the
number of business licenses issued and tax collected. Having said that, there appears
to be a stronger link between revenues and the following factors: the license type;
whether the businesses are subjected to the gross receipt tax; and how much in gross
receipts they are generating annually.
Staff researched five neighboring cities to determine what inflation measure they use
and whether they charge a gross receipt tax once a specific dollar threshold is met. The
results are presented below:
City
Inflation Metric
Gross Receipt Tax Applied
Rolling Hills *
N/A
N/A
Yes - Different variations are
No metric used and no
Rolling Hills Estates
applied depending on the
annual rate increase.
business type.
Optional in replacement of a
No metric used and no
minimum tax. Gross receipt
Palos Verdes Estates
annual rate increase.
tax amount cannot be less
than $30.00
CPI
Hermosa Beach
Yes
(not to exceed 3%)
Manhattan Beach
CPI
Yes
All residential *
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available
for the City Council's consideration:
1. Discontinue the use of any inflator related to business license tax.
2. Take no action.
El
Table 1: 10 -Year Inflation and Business License Rate History
Description
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
10 -Year
10 Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
Change (increase)
CPI Change (%)
2.25%
4.50%
0.00%
0.40%
3.10%
2.20%
0.60%
1.70%
0.70%
2.20%
1.765%
2,012
9.53%
175
Business License Revenue Collected
$487,296
$499,014
$531,982
$609,176
$581,141
$700,156
$737,481
Average
Maximum Business License Rate
$494.00
$516.00
$516.00
$518.00
$534.00
$546.00
$549.00
$558.00
$562.00
$574.00
$80
(Itinerant Vendor)
Total Increase
Minimum Business License Rate
$65.00
$68.00
$68.00
$68.00
$70.00
$72.00
$72.00
$73.00
$74.00
$76.00
$11
(Business Located in the City)
Total Increase
Business Located In the City:
$0
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
Rate for every $1,000 over $50,000 in Gross Receipts
Total Increase
Business Located Outside the City:
$0
$2.00
$2.00
$2.00
$2.00
$2.00
$2.00
$2.00
$2.00
$2.00
$2.00
Rate for every $1,000 over $50,000 in Gross Receipts
Total Increase
Table 2: 10 -Year History of Business License Issuances and Revenues
A-1
10 -Year
10 Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Average Change d%)
Total Change
Business Licenses Issued
1,837
1,709
1,819
1,629
1,891
2,031
1,868
1,997
2,134
2,012
9.53%
175
Business License Revenue Collected
$487,296
$499,014
$531,982
$609,176
$581,141
$700,156
$737,481
$764,494
$808,668
$811,417
66.51%
$324,121
A-1