CC SR 20221115 E - Business License Tax
CITY COUNCIL MEETING DATE: 11/15/2022
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action regarding the annual business license tax.
RECOMMENDED COUNCIL ACTION:
1) Direct Staff not to increase the City’s business license tax (BLT) rate for 2023;
2) Direct Staff to continue setting the annual BLT for home occupancy businesses at
zero ($0) for 2023; and
3) Direct Staff to continue the Small Business Financial Assistance Program.
FISCAL IMPACT: None
Amount Budgeted: $680,000
Additional Appropriation: N/A
Account Number(s): 101-300-0000-3210
ORIGINATED BY: Jason Loya, Senior Administrative Analyst
REVIEWED BY: Trang Nguyen, Director of Finance
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS: None
BACKGROUND
According to Section 5.04.050 of the Rancho Palos Verdes Municipal Code (RPVMC),
the City’s business license tax (BLT) may automatically increase on January 1 of each
year based on the current Consumer Price Index (CPI). As an alternative, the City Council
determined that as of January 17, 2017, Staff is to present an annual report considering
a possible increase to the BLT based on CPI. The City Council has chosen to forego a
CPI adjusted increase to the BLT each year since then and, instead, has set the rate at
zero.
In 2019, the City Council instituted the same approach for home occupancy businesses.
Doing so supports residents with in-city home occupancy businesses by decreasing the
taxes to zero ($0). A Small Business Assistance Program was later established by the
City Council in 2020 to respond to the financial challenges faced by small businesses
throughout the pandemic. This program waives the BLT for small businesses operating
in Rancho Palos Verdes that generate less than $1.5 million annually in gross receipts.
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Since its inception, the pro-business initiatives referenced above, which include a CPI
rate of zero, zero tax for home occupancy businesses, and zero tax for the Small Business
Assistance Program, have helped to sustain the local economy. More specifically, the
2019 initiative resulted in approximately $153,000 of fiscal relief for home occupancy
businesses within the City, while the 2020 program accounts for nearly $132,000 in
support of the small business community.
The following discussion provides an overview of BLT revenues and additional details for
consideration regarding the annual opportunity for review for 2023.
DISCUSSION:
Business License Tax Rate for 2023
According to Section 5.04.050 of the RPVMC, all business activity performed within the
City of Rancho Palos Verdes requires the business owner to obtain a business license
and pay the related BLT. The primary features of the annual BLT are as follows:
• A minimum tax is based on the location in which a business operates (i.e., located
inside/outside the City and/or physical presence within the City) and the t ype of
work or service performed.
• BLT is effective from January through December (calendar year).
• The BLT is based on a flat rate tied to a business’s gross receipts from the prior
year. In addition to the minimum tax, 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, developers, and operators of
commercial vehicles (i.e., taxis) are exempt.
The City has 16 types of BLT and contributes to approximately 2% of General Fund
revenues. As of October 2022, the City issued 1,949 licenses, an increase of 117
licenses, for a total amount of $738,522. This total represents an increase in BLT revenue
of 10% or $65,000 from the prior year. The chart below illustrates the total BLT revenue
and percentages allocated by category.
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The CPI rate for September is 7.8%. If applied to the current BLT rates, Staff estimates
an increase of approximately $57,500 in revenue. While BLT collected provides support
for general operations, the City’s main sources of revenues come from property tax,
transient occupancy tax, and sales tax. More notably, Rancho Palos Verdes has retained
its strong financial position year-over-year as a result of a fiscally conservative approach
endorsed by the City Council. For this reason, and in line with the City’s historical practice,
Staff does not recommend a CPI adjusted increase to the BLT in 2023. There is no fiscal
impact if approved since this revenue is not included in the adopted budget, and the
ongoing support of local businesses would continue.
Business License Tax for Home Occupancy for 2023
On June 4, 2019, the City Council approved setting the annual BLT for home occupancy
businesses to zero, effective September 6, 2019. The City Council has upheld this
decision for three consecutive years, beginning in 2020. Since 2019, the City has assisted
over 395 home businesses, totaling approximately $153,000.
The tax reduction was made as part of the City Council’s continued efforts to decrease
taxes and fees for the residents of Rancho Palos Verdes. Thus, Staff recommends that
the 2023 BLT remains unchanged from the 2022 rate. Since this revenue is not included
in the adopted budget, if approved, there is no change to the budget.
Small Business Financial Assistance Program
In 2022, the City Council extended the Small Business Financial Assistance Program for
the third consecutive year since its implementation in 2020. The City reduced the
business license tax to zero for small businesses within the City that generated less than
$1.5 million in gross receipts. In the last three years, the City provided temporary relief of
approximately $132,000 for over 190 small businesses in the community.
The goal of this program was to provide temporary relief to small businesses during the
pandemic-related shutdowns and period of economic recovery. Despite recent recovery
efforts, inflation has remained a major issue of concern for businesses and consumers
alike. To combat inflation, the Federal Reserve continues to adjust its stance on monetary
policy in order to slow down economic growth. Therefore, Staff recommends upholding
the program in 2023 due to contractionary policy efforts and economic uncertainty.
ADDITIONAL INFORMATION:
The State mandated fee for Disability Access will remain at $4 in 2023 for all businesses
even if the tax due is zero. This fee is used to increase certified access specialist (CASP)
training and to facilitate compliance with construction-related accessibility requirements.
According to the law, as amended in September 2022, the City shall retain 90 % of the
fees collected, of which 5% of the retained amount may be used for related administrative
costs incurred by the State. The remaining 10% of fees collected shall be remitted on a
quarterly basis to the State.
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CONCLUSION:
In summary, Staff recommends not adjusting the BLT for CPI, thereby maintaining the
current rates with no increases. Additional recommendations include continuing the
annual BLT for home occupancy businesses and the Small Business Assistance Program
at zero ($0) for 2023. The positive outcomes in support of the local economy and residents
of Rancho Palos Verdes each year outweighs the nominal impact of approximately
$171,000 per year or 0.5% to the City’s general tax revenues. Moreover, continuing with
these initiatives in advance of an impending economic slowdown would preserve vital
support during uncertain times.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative action s are available for
the City Council’s consideration:
1. Direct Staff to increase the City’s business license tax rate for 2023 based on the
September CPI index of 7.8%.
2. Direct Staff to sunset the zero-tax program for business license tax for home
occupancy businesses for 2023.
3. Direct Staff to discontinue the Small Business Financial Assistance Program for
2023.
4. Take other action, as deemed appropriate.
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