CC SR 20231205 I - Business License Tax FINAL
CITY COUNCIL MEETING DATE: 12/05/2023
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action regarding the annual Business License Tax (BLT) for
calendar year 2024.
RECOMMENDED COUNCIL ACTION:
1) Affirm continuing the BLT rates without applying a Consumer Price Index (CPI)
increase of 3.2%;
2) Affirm continuing the BLT for home occupancy businesses at zero ($0); and
3) Affirm continuing the Small Business Financial Assistance Program.
FISCAL IMPACT: If approved, the recommended action items are already factored into
the FY 2023-24 Adopted Budget, with BLT revenues set at $700,000.
Amount Budgeted: $700,000
Additional Appropriation: N/A
Account Number(s): 101-300-0000-3210
ORIGINATED BY: Jason Loya, Senior Administrative Analyst
REVIEWED BY: Vina Ramos, Interim Director of Finance VR
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS: None
BACKGROUND
In accordance with Section 5.04.440 of the Rancho Palos Verdes Municipal Code
(RPVMC), changes to the BLT may occur on January 1 of each year. In August 2019,
Ordinance No. 623 amended this section, specifying that the tax may be increased
annually by an amount not exceeding the CPI and is subject to approval from the City
Council. The amendment to this section was made in response to the City Council’s
previous request to discontinue the practice of applying automatic annual increases.
Consequently, the City Council has withheld from adjusting the BLT for inflation each year
since 2017, setting the annual rate at zero.
In addition to the 2019 amendments, the City Council also instituted a similar approach
for home occupancy businesses. This decision benefitted residents with in-city home
occupancy businesses by decreasing the tax to zero ($0). Also, the City Council later
established a Small Business Assistance Program in 2020 in response to the economic
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RANCHO PALOS VERDES
challenges arising from the Covid-19 pandemic. This program waived the BLT for small
businesses within the City generating less than $1.5 million in annual gross receipts.
These pro-business initiatives have limited CPI-adjusted BLT increases and reduced
taxes for home occupancy and eligible small businesses, thereby supporting businesses
and the local economy.
DISCUSSION:
The following provides information for the City Council’s consideration on BLT-related
revenues and programs based on Staff’s recommendations.
Business License Tax Overview
In accordance with Chapter 5.04 of the RPVMC, all business activity performed within the
City requires the obtaining of a business license and the payment of the tax as specified.
The annual taxable amount is determined based on the location and type of work or
service performed by the business. This requirement is applied to businesses with a
physical presence within the city, or those entering the city to conduct business at any
point in time.
There are 17 business license categories that collectively generate approximately 2% of
General Fund revenues annually. Year to date, the City has issued 2,058 business
licenses for 2023, an increase of 109 over last calendar year. This amounts to roughly
$892,000 in BLT revenue, an increase of almost $154,000 , or 20%. Revenue growth is
attributed to additional licenses obtained by local businesses particularly by contractors
and subcontractors. Chart 1 below illustrates total revenues based on the major
application types.
Chart 1. Revenues by Application Type
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• Businesses Outside the City
$68,966
8%
• Residential Rentals & Other
Vehicle Based
Businesses
$14,101
2%
Annual Change in CPI
Pursuant to Chapter 5.04.440 of the RPVMC, the City Council may consider adjusting the
BLT rate as part of their annual review provided that it does not exceed CPI. Staff has
traditionally used the 12-month change in CPI as of September, which marks the last
completed quarter prior to the City Council’s review of this report. If applying the CPI rate
of 3.2% for September 2023, tax revenues are estimated to increase by up to $29,000.
As previously noted, the annual rate of change has been set to zero ($0) since 2017.
Cumulatively, since 2017, the estimated total revenue forgone is estimated at $183,000.
While this can be interpreted as a scenario where revenues have not kept pace with
inflation, it is important to note that this has not negatively impacted the City’s current
service levels to the community. This is primarily due to the City consistently maintaining
year-end results where revenue exceeds expenditures.
Considering BLT’s year-to-date revenues of $894,000 and the prior year’s actual
revenues of $919,000, Staff anticipates this source of revenue to exceed the adopted
budget of $700,000 by $200,000. Additionally, as described in Chapter 5.04.015 of the
RPVMC, the intent of BLT is to “contribute to the general fund and will thereby partially
offset the cost of providing city services, such as public roads and other public
infrastructure and utilities”. As presented at the FY 2023-24 budget adoption, the General
Fund is projected to maintain revenues exceeding expenditures by approximately
$700,000. As such, this also indicates that in FY 2023-24, the General Fund’s current
budget for revenue sources is enough to offset the City’s adopted expenditures.
Therefore, based on the year-end projections from BLT and the overall General Fund
revenues exceeding expenditures, the City Council may wish to continue the BLT rates
without applying the 3.2% CPI as recommended. This also aligns with the City Council’s
longstanding tradition of keeping taxes lower whenever possible.
Business License Tax for Home Occupancy for 2024
On June 4, 2019, the City Council approved waiving the BLT for in-City home occupancy
businesses by setting the license tax to zero ($0), effective September 6, 2019. The City
Council has upheld this decision each year beginning in 2020 to continue their effort to
help reduce taxes and fees for residents. This determination has financially supported
over 423 businesses for an estimated value of $225,000 since implementation. If
reinstated, the City would generate roughly $60,000 per annum based on current
estimates.
Similar to the CPI adjustment, based on year-end projections of BLT revenues along with
projected positive year-end results for the General Fund in FY 2023-24, the City Council
may consider continuing the BLT for Home Occupancy at $0 (zero).
Small Business Financial Assistance Program
In 2023, the City Council extended the Small Business Financial Assistance Program for
the third consecutive year since its implementation to support local businesses and the
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economy. Effective in 2021, this action reduced the business license tax to zero ($0) for
small businesses within the City that generate less than $1.5 million in annual gross
receipts. As a result, this program has provided financial relief to more than 190 small
businesses for an estimated value of $207,000 since implementation.
The program’s objective was to provide temporary relief to small businesses during the
Covid-19 pandemic-related shutdowns and period of economic recovery. Based on the
results to date, this program has successfully achieved its intended objective in light of
the economic uncertainties that came to follow. If reinstated, the City would generate
roughly $70,000 per annum based on current estimates.
For the same reasons outlined for forgoing the CPI adjustment and continuing Home
Occupancy at zero ($0), the City Council may wish to continue the Small Business
Financial Assistance Program.
ADDITIONAL INFORMATION:
Senate Bill 1186
As introduced, Senate Bill 1186 created Government Code Section 4467 , establishing a
one-dollar ($1) additional fee to be paid by any applicant for a local business license when
issued or renewed from January 1, 2013 through December 31, 2017. The purpose of the
fee is to increase disability access and compliance with construction -related accessibility
requirements. This statute was later amended by Assembly Bill 1379 and again more
recently by Assembly Bill 2164. From January 1, 2018 through December 31, 2023,
Assembly Bill 1379 increased the state fee to four dollars ($4) and included a provision
that reduced the fee back to $1 commencing January 1, 2024. As chaptered, Assembly
Bill 2164 repealed this provision, thereby extending the operation of this fee at the amount
of $4 indefinitely. The City shall continue to administer the fees collected in accordance
with Section 4467 of the Government Code as currently amended.
CONCLUSION:
In summary, Staff recommends that the City Council consider affirming the BLT rates for
2024 without applying the 3.2% CPI increase, thereby maintaining the current rates with
no increases. Additional recommendations include continuing the annual BLT of zero ($0)
for home occupancy businesses and the Small Business Assistance Program for small
businesses within the City that generate less than $1.5 million in annual gross receipts.
The positive outcomes of these programs have benefited over 600 local businesses and
residents of Rancho Palos Verdes since implementation.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available for
the City Council’s consideration:
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1. Direct Staff to increase the 2024 BLT rate based on September’s CPI of 3.2%, with
an estimated increase in revenues by $29,000.
2. Direct Staff to sunset the zero-tax program for home occupancy businesses
effective as of January 1, 2024, with an estimated increase in revenues by
$60,000.
3. Direct Staff to discontinue the Small Business Financial Assistance Program
effective as of January 1, 2024, with an estimated increase of revenues by
$70,000.
4. Take other action, as deemed appropriate, including any combination of the above
alternatives.
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