SR-8-A (41)
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APR :! J1 199t,
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City council Meeting 4-24-90
Santa Monica, California
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SUPPLEMENTAL STAFF REPORT
TO:
Mayor and city council
FROM:
City Attorney
SUBJECT:
Ordinance Repealing Various sections of Chapters
1 and 2 of Article VI of the Santa Monica Municipal
Code and Adding Subchapters lA, 1B, Ie, and 10 to
Article VI of the Santa Monica Municipal Code
Relating to Business License Taxes
This Supplemental staff Report transmits to the city
Council revisions to the Business License Tax Ordinance
transmitted to the City Council last week.
The principal revision involves a substantive change
recommended by the ci ty Manager concerning auto dealers. Auto
dealers were covered under Tax Rate Group I in the previously
transmitted ordinance.
In the accompanying ordinance, a new
Section 6060 (b) has been added to create a Tax Rate Group II
specifically for auto dealers. Auto dealers will pay $75.00 for
the first $60,000 of gross receipts, plus the sum of $1.25 for
each $1,000 or fraction thereof of gross receipts in excess of
$60,000 (the same tax rate as required for Tax Rate Group I).
However, a substantive change has been made in that the amount of
the tax paid by auto dealers will be capped at Twenty Thousand
Dollars
($20,000.00)
in Fiscal Year 1990-1991; Twenty-Two
Thousand Five Hundred Dollars ($22,500.00) in Fiscal Year
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1991-1992; and Twenty-Five Thousand Dollars ($25,000.00) in
Fiscal Year 1992-1993, and each year thereafter.
In addition, the following technical changes have been
made:
L The word "federal" and "state" have been capitalized
wherever they appear in order to be consistent throughout the
Ordinance.
2.
The
word
"hereinbelow"
has
been
changed
to
"hereinafter" throughout for clarification purposes.
3 . Several sections which were referenced throughout the
Ordinance were incorrect and the correct section numbers have
been inserted.
4. In the discussion of Tax Rate Groups, the term
rrbusiness licensee" has been replaced with "person or entity" in
each instance for clarification purposes.
5. The Tax Rate Group change noted above has necessitated
renumbering all of the remaining Tax Rate Groups, as well as
renumbering the specific paragraphs which follow the new section
6060(b) .
All revisions to the ordinance have been underlined.
PREPARED BY: Robert M. Myers, City Attorney
Linda A. Moxon, Deputy City Attorney
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Santa Monica, California
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council Meeting: March 13, 1990
STUDY SESSION REPORT
TO: Mayor and city council
FROM: City staff
SUBJECT: REVISED BUSINESS LICENSE TAX ORDINANCE AND TAX RATES
Introduction
Approximately six months ago, city staff in conjunction with a
consultant, Ralph Anderson and Associates (RAA), began a thorough
review of the cityJs Business License Tax Ordinance. This is to
transmit to the City Council the results of this review and to
summarize key findings and recommendations of the consultant.
The modified business license structure proposed by the City of
santa Monica improves the overall fairness of the tax, improves
administrative efficiency and understandability by the business
community, and enhances revenue generation capabilities while
remaining competitive with the practices and tax rates found in
Beverly Hills, Culver city and Los Angeles.
Implementation of the proposed changes for FY1990-91 is projected
to increase Business License Tax revenues by approximately $3.2
million.
Backqround
In August 1989, staff retained RAA to assist in performing a
comprehensive review of the equity, ease of administration and
tax rates of the current Business License Tax ordinance. This
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was necessary because the City's Business License Tax rates were
last revised in FY1983/84 and the overall structure of the
ordinance has not been revised since 1962. RAA are recognized
experts in this field and ~ere instrumental in assisting city
staff in successfully implementing the FY1983/84 tax rate
changes.
During the last six months, RAA has undertaken three basic work
efforts:
Conducted an overview assessment of the City's Business
License Tax Ordinance to identify its strengths and
weaknesses, and to recommend opportunities to improve the
current ordinance.
Reviewed the adequacy of the city's Business License Tax
apportionment guidelines in relation to various issues raised
by businesses in the City.
Prepared a detailed framework from which the City Attorney
can draft a revised Business License Tax Ordinance which will
result in a tax which is equitable, easily understood and
administered, and which reflects tax rates which are
consistent with similar tax rates in neighboring
jurisdictions.
Attached is RAA's final report. Copies of interim materials were
distributed to the City Council during January 1990.
Key Findinqs and Recommendations
Key findings and recommendations of the RAA report are summarized
under the headings of equity, ease of administration and revenue
generation.
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A. Equ1ty - This deals w1th whether or not similar
businesses are treated in a like fashion and if tax rates
reflect a general ability to pay.
The current ordinance is inequitable due to
"bracketingll of tax rates where the amount of tax
paid by larger businesses (except Auto Dealers) per
$1,000 of gross receipts is more than the amount
paid by smaller businesses.
For Auto Dealers, the use of a $5,000 tax I1cap"
means that smaller dealers pay more tax per $1,000
of gross rece1pts than larger dealers. This is not
equitable.
Current tax rates do not reflect the general
profitability of different categories of businesses.
To correct these problems, the proposed ordinance would
eliminate bracketing of tax rates, remove the Auto Dealer
tax cap, and re-categorize businesses in relation to
modified tax rates to better reflect their general
ability to pay.
B. Ease of Administration - This deals with how efficiently
the ordinance can be administered by City staff and how
understandable the ordinance is to the business
community.
The current ordinance has 73 different categories of
businesses. This results in un-needed complexity
for City staff and businesses.
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The current ordinance commingles regulatory and
revenue generating provisions. This is confusing
for all readers.
Apportionment gUidelines help a business determine
how much of its gross receipts are properly
attributable to the city of Santa Monica for tax
purposes. The business community has raised several
questions concern~ng how to apply various provisions
of the City's apportionment guidelines.
To correct these problems, the proposed ordinance would
reduce the number of business categories to 16, separate
regulatory from revenue generating provisions, and
clarify the apportionment guidelines.
c. Revenue Generation - This deals with how comparable are
City of Santa Monica Business License Tax rates to those
in neighboring jurisdictions. Current tax rates are low
in compar~son to those found in Beverly Hills, Culver
City and Los Angeles.
The proposed ordinance would increase tax rates to be
competitive. Please see page 21 of the attached report
for rate comparisons.
For the majority of businesses in Santa Monica, the
impact of the proposed tax rate structure is minimal.
Typical annual tax increases for various types of
businesses at various gross receipt levels is shown at
page 27 of the attached report.
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Also, attached is a table showing current City Business
License Tax Rates.
Implementation Schedule
In order to implement the provisions of a revised Business
License Tax Ordinance for FY1990-91, staff will ask the City
Council on March 27, 1990 to direct the City Attorney to draft
the revised ordinance.
Attachments
Prepared by: John Jalili, City Manager
Mike Dennis, Director of Finance
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CITY CF SAL'llA ~1OKIC;'--2{ISTDJG 'I'.;;X RA'IES
Gross Gross
Annuai Receipts ReceiPts Gross
Type of Business (a) License $50,001- 5100,001- Receipts
Feelb} 100,000 250,000 5250,001 +
Co nt ractorsiS ubco nt. $50+ S 1.00/1000 $1.25/1000 $1.25/1000
Commercial Rental 50+ 1.00/1000 1 25/1000 1 25/1000
Merchants-Retail 50+ 60/1000 60/1000 1 25/1000
Manufactu rers-Who lesa I ers 50+ 50/1000 50/1000 1 00/1000
ProfesSions 50+ 1 00/1000 3.00/1000 3 00/1000
Servl ces 50+ 1 00/1000 3.00/1 000 3 00/1000
Auto and Trailer Sales tel
Corp IAdmln. Headquarters (dl
MISC. Busmesses (el
Apartments (over 3 unlts)/Hotels (f)
(a) For tax rates of other busmess types, refer to Ordmance.
(b) Applicable per licensed busmess location except for contractors/subcontractors, rental
of commercIal property and Corporate/Admin Headquarters which pay only S50 regard-
less of the number of busmess locations operated.
(c) Greater of $100 or $1.25 per $1000 of gross receipts With a maximum tax of S5000.
(dl Gross receipts equals the cost of operation In Santa Monica, With the cost of operation
equal to the annual rental value of real property, payroll and utlllty costs of the
Corporate/Adm Inlstratlve Headquarters.
If gross receipts cannot be calculated. use method noted In footnote (d) above
50+
50+
60/1000
60/1000
60/1000
60/1000
1 25/1000
1 25/1000
(e)
(f)
S 1 0 00 for S 00 - S 1 0,000 of gross receipts, thereafter S 1 25 per each $1,000 or fraction
thereof of gross receIpts In excess of $10,000