SR-0 (42)
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CM:MS
Council Meeting: October 18. 1983
Santa Monica. California
TO:
Mayor and City Council
FROM:
City Staff
RE:
Amendment to City-Chamber Compromise Proposal
INTRODUCTION
This
report
recommends
m.odifying
the
tax schedule for
contractors/subcontractors to ensure that sector is taxed no
higher than the professions/services/occupations sector.
BACKGROUND
The existing tax rate for contractors/subcontractors is:
Min Tax
$40 to $100
depending on
number of
skills
GR
Tax Rate
.65{1000
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The City-Chamber Compromise Proposal recommends tax rates:
Small Business GR
Min Tax Recosnition Tax Rate
$40 to $100 $1.00/1000 $3.00/1000
[No change] GR;::., 20.000 ~ 100.000
The effect of this compromise wou Id be to tax some
contractors/subcontractors at a higher effective tax rate than
prOfessionals/services/occupations
firms.
This
was
not
identified during City-Chamber discussions and appears to be an
unanticipated, undesired outcome.
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RECOMMENDATION
It is recommended that there be no gross receipts based tax on
contractors taxable receipts b~low $100,000. This would result in
approximately $10,000 less revenue annually than was estimated
for the City-Chamber compromise.
Prepared by: Meganne Steele
Sr. Administrative Analyst
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BUSINESS LICENSE TAX CONSULTANT ORIENTATION
October 13. 1983
(1) Scope of Services Requested
- develop apportionment standards
- recommend gross receipts definition and taxing policy on
services
(2) Timetable
- gross receipts definition and services policy guidance ASAP
- apportionment (see attached proposal)
(3) Compensation
- hourly rate and incidential expenses
(4) Decision-making Roles
- Finance: contract administration
- Management Services: technical and policy support
- City Attorney: legal review
- City/Chamber Working Group: advisory
- City Manager: approval
(5) General Approach
- follow-up meeting 10/13
- draft scope of services. timetable and cost estimates ASAP
10/13/83
10/18
10/25
10/26
11/2
11/8
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PROPOSED TIMETABLE FOR BLT ORDINANCE WORK
City Council Meeting - public hearing and education of
City Council
City Council Meeting - public hearing and first reading
First draft of Ordinance apportionment standards
submitted to City staff
Staff comments to RA on first draft
City Council Meeting - second reading and vote on
Ordinance
11/9; 11/23; 12/7 Meetings with City - Chamber working group on
apportionment standards
12130
12/14
Concerns:
BLT adjustment billings/refunds
Final draft of apportionment standards approved by
City Attorney
(1) Timetable f~r City Attorney's review
(2) Training of BLI administrative staff
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SUMMARY OF TAX CHANGES
CITY-CHAMBER COMPROMISE
Business Small Business
Sector Min Tax Recognition Gr Tax
Professional/ $50 $1.00/1000 $3.00/1000
Occupations/ GR == 100,000 GR :':::'100,000
Services
Retail $50 $0.00/1000 $1.25/1000
GR === 250,000 GR ~ 250,000
MF/Wholesale $50 $0.00/1000 $1.00/1000
GR == 250,000 GR::::" 250,000
Commercial $50 $1.00/1000 $1.25/1000
Rental GR -= 100,000 GR ~ 100,000
Contractors/ Existing $0.00/1000 $3.00/1000
Subcontractors Flat Rates GR ::: 100,000* GR ~ 100,000
Unchanged
Auto Sales $100 None $1.25/1000 GR
Max Tax:
$2,500 1984-85
$5,000 Thereafter
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This represents an amendment recommended by the City Manager to
ensure that the effective tax rate on contractors is not higher
than on other services/firms.
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IaDta lIaa1ca Ana Daaber of C [
IQAII) or DDIC!OIS
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October 11. 1'83 - '100 ....
JD napoaM to the clCJ'. 1In1tatioD to 11- 1Dput OD the propoaed
1U111Dau L1ceue bs, cbe ~~ with iDput fram the bu1Dua ea .'CJ
co TaU.. fo11.owe I
1. !he Cbab.r naerv.. ita obj.ectlona 1:0 the h4aet which MC...ttat..
th1a tax iDcnue.
%be CbaIIber faile to UDor.tand vby . city with .ucb a revenue aeecl
41.courasea DeW bUll1De..es which are aew rev....ue aourc.. to the city,
1..., Ilart1l1 Cadillac.
2. 450.00 11:1",.. tax to do bu1neaa 1D the city. or the rate achedule,
wb1cheger b1Jher.
3. a) JIo .re tba $1.00 "1' thOUHDd for let $100.000 fpr .Y ...:tua.
aff.ctecl b7 tbu. cbaq...
1>>) Proportlcmate reduct!OD ill all rat.. aero.. eM ))oard for the foUov!ft!
...iDe.... :
. ..tailer - DO .re dIaD $1.20 per tboua.wt
. 1Ih0leNler and llaDufacturer - DO .re thaD .95 per tbOUUDCl
. Prof...10D&l aDd SerYlce - DO 1IOre than $2.90 per tbouaaud
eo..erc1al hI1tal - DO _re than $1.20 "1' tbouaaDd
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c) Auto haler. .. at aclor..d .cbeclule vy'_- .;11-' pI'I;''''''' ,,.. (I
d) laviDp ad J.oau treatec1 like ....
4. Cap....t be put oa aU raua.
5. .0 uapti0D8.
6. ApportlOD11Ult to be done by ordiDance, DOt bylegulation.
7. All Cbaber que8tlou reaardiPa 4ef1D1.tlon of aro.. to be __red
prior to Clty Council bearina.
8. Izplautlon why all .ector. of tbe bua1De.. ~-lftity vere DOt ..ked
to Abare tbe iDere..e.
9. Any reveDue beyond projections to be rebated to the bua1De.. c--ity
proportioutely by a reduction :In rat.. or otbezv1.e.
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AGENDA
1. CLARIFY CHAMBER PROPOSAL
2. ExPLAIN FISCAL IMPACT OF CHAMBE~ FROPOSAL
3. POSSIBLE COMPROMISE POSITION
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lata IIoD1ca Ana Ch..r of C:-rce
JOAIJ) or >>DIC'IOU
October 11. 1'83, - ,,00 ....
ID reapoua to tbt city'. 1Dv1tat:loD to &1ft 1IIput OIl the ,ropoee4
..iDe.. LS.eaue tas. !:~ Cbaabe.r witb iDput fna the "!Du. cc_ 'Id.~
.t.(I pta.. follan:
1. Dae CUllber n..rvu it. objectlou to tbe lwlIet which Mc_ltat..
th1a tax 1ncnue.
!he Cbaber fails to UDder.tanc! why a city with .uch . revezaue Mad
.s..cou.ra,_ Dew buaiDu.e. vh1cb are DeW Z'aYeDUe source. to the city,
:I..... HartiD Cadillac.
2. $50.00 )Uft-t_- tax to tlo bua1nU. 1Jl ~b,~ e1.t1, or the rate achaclul..
whichner biper.
3. a) )to ~re than $1.00 per tbouaancl for lat $100.000 fpr ay ltaw..
aff.ct.d by tb... cbaDa...
b) Proportlozaate reduction 1D all rat.. acru. the Itoar' for the follov1D&
bua1De.... :
. ..taU.r - 1lO ~re tban $1.10 per thCNHD4
. Wholewer and Manufacturer - DO ~re ChaD. .9S per tbouaaDCJ
. Prof...iou1 aDd Service - DO ~r. thu $2.90 per thoUADd
ec-erc1al reueal - DO ~re than $1.20 per tb01l8aDd
e) Auto Dealer. - .t ..or.ed ached\lle ~ ,;,.. pll&;r,.". AJ/IH 10/11/83)
d) lariDp a4 Loaa treat.d like Iub.
4. Cap. -.at be put OD aU ratu.
5. 110 Uellptl0D8.
6. ApportiODll8ut to be done by Ordinance, DOt by leauJ,atlon.
7. All Chuber queatlona resard1n& def~!I~tlou of aro.. to be -.vered
prior to City Council bear1n&.
8. IxplaDat10n why all .ectora of tbe b1l81De.. ,.:.--.mi ty were DOt ..ked
to .bare the :l.Dcrea...
9. ADy revenue beyond projections to be rebated to the bus1De.. c-I'I'I1ty
proportinately by a reduction :I.D rates or otberviaa.
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10/16/63
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ANnUAL. REVENUE COMPARI SOt~: C 1 TV VEP.sUS CHN1BER PROPOSAL
(~) (2) (2)-(1)
Bvs It~ESS SECTOR t1D: ~HAMBER CHANGE
PROFESS IONS/ $ 2,052,037 .
OCCUPATIONS/ $ 1,807,756 ($244,281)
SERVICES
RETAIL 654,315 905,539 251,224
t'HOLEsALEI 305,060 367,723 62,663
f\ANUFACTURING
COr1MERC tAL 106,L&24 109,838 . 3,414
RENTAL
AUTO .55,232 55,232 -0-
SAVINGS & LOAN 317,500 -0- ( 317,500)
3, Ll90.. 568 3,246,,008 ( 244,lI80)
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10/16/83
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I'ISTRIBl'TION CF TAX IMCIDENCE COMPARISON:
PERCENT OF. TAX !URDEN Bv SECTOR
(1) (2) (2)-(1)
~USINESS SECTOR tlTY ~HAMBm ~HANGE
PROFESSIONSI
I)ccUPATIONSI 58.8 % 55.7 : ( 3.1 %>
SERVICES
RETAIL 18.7 27.9 9.2
WHOLEsALE! 8.7 11.3 2.6
MANUFACTURING
COMMERCIAL 3.1 3.4 .3
RENTAL
AUTO 1.6 1.7 .1
SAVINGS & LOAN 9.1 o.e ( 9.1 )
lCO.C 100.0 ---
10/16/83
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REVENUE Loss FROM S~~LL BUSINESS ExEMPTION
E X E M P T ION LEVELS
~ WD..JlQQ ~
RETAIL 38..343 167..148 327~3!Jq
MANUFACTURING 15..739 38..892 62..263
SUBTOTAL 54..082 206..040 389~607
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PROFESSIONAL 310..148 ~54..801 556..839
SERVICES 437..238 554..752 678~947
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. SUBTOTAL 747..386 1..009..553 1..235..786
GRAND TOTAL 801,468 1,224..447 1..625~393
-BUDGET REFLECTS THIS REVENUE LOSS.
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..co..e.'.. ~eatate. of Cro.. ..cel,t. ~~flDttlo.
..taiD ..CIU.tOD. for Iro.. ~ec.lpt. _blcb are laclud.d Sa ch.
'/27 ,rop..a. .rdiaaace.
(I) casb 'iaco.Dt. allo..d or take. OD aa1.. ahall aot ~.
l.c~.'e4 ( 61161.a.l.).
(2) a.ouDt of a., fe.eral ta. t.po... OD or witb r..p.ct
to retal1 .al.. .hall Dot be lacla'.' C 61161.a.3.)1
(3) a.,thiDI which ..y Dot lawfully b. iDClu'.' b, .irtue
of the Co..tltuCloD of the UDit.d 8tat.. 0% the
Co..titutloD of the Stat. ~f CaliforDia ( 6116....6.)
Zste.' ..CIU.tOD. for Iro.. r.e.tpt.s
(4) collectio.. for other. whan the bu.ia... 1. actlDI a.
an a,'Dt or trust.e to the e.t.Dt t.at pa,..nt. ar.
.... to tho.. for whoa coll.ct"1
(5) ca.h yala. of ..1.., tr.... or tr.D.actioD. '.t...D
'.p.rt..at. or unit. of the .... bu.1D...;
(6) that portioD of the r.~.lpt. of . I'Deral cODtractor
wbleb r.pre~'Dti pa,.'Dt. to .abeoDtr.ctor. provid..
auch subcontractor. ar. lice...' uD'.r the proyl.loD. -
of th1. chapt.r aD' further provid.. that the leDeral
contractor furDiabe. the riDaDCe Director with tbe
..... aDd ..'r..... of the .ubcoDtractor. and the
..ou.t. p.ld to each .ubcontr_ctor;
(7) r.c.ipt. of per.ons .ctia, .. aleDt. or broker., other
than receipt. received as co..i..1on. or f... .arned and
otber than Det inter.at iDCO.. ear..d froa ..raln aecount
loans. or char,.. of aD, character .ade or co.peDs.tioD
of .n, cbaracter rece!..' for the p.rfor..nce of auy
.ervice a. aleut or bToker; provided, however. any a,ent
or broker <<..liD8 i. atocka or other aiailar written.
In.tru.eut. evidenciul a rilbt to participate in the
...et. of aD, bu.ine.., or ..alinl in ~on'. or other
evidence. of iDd.btedu.... who al.o 4..1. iD each
propert, .. . principal. .hall ~Dclu'e In the Iro..
recet,t. by whieh the cax 1. ....ur.d the ..aunt of
h1. tr..inl profitl r..ul~lDI froaAUch ...1iDI..
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Apportionment. "of Pqt:ent.1al11."axable Groa. Receipt.
Ba.ic Apportionment Ob~eetive -- Given the definition of potentially
t.axable gr08a receIpt., to determine how IIlUcb of the total
potentially taxable gros. receipt. are attributable to busine..
activitiea carried on within the City. Potentially taxable gro..
receipt. are a buaine..' total gross receipts les. any exclusions
(e.g. taxes collected, administratively .et exemption., et.c.).
.aaie Apportionment Guideline. -- Two key factors muat be con.idered
1n any attempt to determ1ne how much of t~al potentially taxable
gross receipt. of a bus in... are attributable t.o bu.ine.s activit.ie.
carried on wi~iD a CitYI 1) office locatlon(a) of ~e buain..., and
2) locat.ion of bu.ine.. activity (i.e. W'bere the .ervice is
proviaed, where goods are soleS or provided, etc.). Int.errelat.ing
the.. two factors we get the following nine po..ible combination. of
.it.uationa.
Location of Bu. in... Activitv
Only 1n Only out of Both in and
~ation of Office City City out of Ci t.y
Only in City 1 2 3
Only out of City 4 5 6
Both in and out 7 8 9
of City
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Poa.lble baaic'guideline. for a~~rlbutlng potentially taxable gro..
receipt. are a. follow. for eaCh numbered po..ible ai~uationl "
po.aibl11tf .
1
2
3
4
5
6
7
8
9
Ba.ic Guielel1De
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-- 1001 of ~.ntially taxable gro.. receipt.
-- Coat of maintaining office operation. (e.g.
.alari.. .n~ vag.. of empl~..a, .~c-)
-- 100' of ~at portion of potentially taxable
gro.. receipts for busin.aa activiti..
carried on in the City ;plUB .
proportionate .~.re of coat of maintaining
office operations within 'the City
-- Same a. po..ibility '1
-- Zero percentage of potentially taxable
groa. receipt.
-- Same a. po..ibility .3
.) Por offic.(a) located in CitYI 100' of
potentially taxable gro.. receipt.,
b) Por office(.) locatee! out.iela of City, -
.ame a. po.sibility '3
-- Same.. pos.ibility '2
-- Same.a possibility '3
Apportionment Rules -- Wi~in tbe basic guie!elinea .et forth above,
it 1. nece..ary to develop apportionment rul.. which can be applied
r.a.onably and fairly 'to specific type. of bu. in..... (e-g-
contractor.. manufacturers, whol..aler., ana profe..lonals) . To
...i.t the Ci~y In &Sev.loping til... apportionment rul.., t.be Ci~y bas
retained ~e .ervice. of an independent eoneultant and propo.e. to
work cooperatively with a working committee of tbe Chamber of
Commerce _ To guide our joint efforts in 'the development of
.ppor~ionment rules relevant ~o specific ~ype. of businesses, we also
propose to follow generally the form of apportionment rules uaed by
the City of Loa Angeles.
am: jw
10/14/83
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· 10/18/83
BUSInESS LICENSE TAX t~I6ES1
CITY - CHAMBER COMPROMISE PROPOSAl
A. USE CHAMBER PROPOSAL AS BASE
B. ADJuST ALL RATES ON 6R OVER
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$100,000 TO EQUAL ENDORSED RATES..
C. ExEMPT RETAIL I WHOLESALEIHANUFACT...
URING SECTORS:
$50 MINIMUM UP TO $250,000 6R
D . TAX CONTRACTORS/SUBCONTRACTORS AT
CURRENT FLAT RATES PLUS ENDORSED
SERVICES SECTOR RATE ($3/1000)
ON 6R OVER $100,000 hUTH 20,000
- 80,,000 6R TAX AT $1110001
CITY-CHAMBER COMPROMISE
ORIGINAL CITY PROPOSAL-
VARIANCE
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$ 3,246..088
126,844
(~..901)
158,760.
$ '..466,791
3..490..568
'(23..777)
-THIS REVENUE ESTIMATE IS $290,120 LOWER THAN PREVIOUSLY
PRESENTED BECAUSE AN ERROR OF DOUBLE COUNTING WAS IDENTIFIED.
THE REVENUE ESTIMATES PRESENTED HERE REFLECT CONSISTENT
PROJECTION TECHNIQUES AND, THEREFORE, ARE A FAIR BASIS FOR
COMPARISON. THE 1983-84 BUDGET IMPACT OF THE IDENTIFIED
ERROR WOULD BE A REVENUE UNDER RUN OF APPROXIMATELY $145..000.
**AUTO DEALERS ENDORSED TAX SCHEDULE. SAVINGS AND LOANS ARE ~.
--l-REA TED -I.. I KE -BANKS.
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a.co...ud.d r..tu~.. of c~o.. a.ce1pts b.fi~ltloD
a.cain ..clusions for Iro.. r.c.ipt. which are inclu'.. in the
'/27 propo..d ordinanc.1
(1) ca.h di.count. al10..' or taken OD .a1.. ahall aot be
include' ( 61161...1.);
(2) ..ount of .ny f.deral ta. tapo..' on or with re.pect
to retail a.les sball not be Include. ( 61161.a.3.);
(3) anytbiul .bleb .ay Dot lawfully be 1nclud.d b, virtue
of the Con.titution of the Untte' Stat.. or the
Con.titutioD of the State ~f California ( 6116....6.)
Extend eaclusion. for Iros. receipt.'
(4) collection. for other. vben tbe b..1ne.. i. actinl ..
an alent or trustee to tbe .atent tbat p.,..nts are
.ade to tho.e for whoa collected;
(5) ca.h .alue of ..1... tr.d.. or tran..ctiona bet.een
d.partaenta or unit. of the .... bu.ine..;
(6) that portion of tbe re'celpt. of a laneral contractor
.blch repr..ent. p.,a.nt. to aubcDntractora provi'.d
auch'.ubcontr.ctor. are licen... under the pro~i.1DD. .
of this chapter and further provided that th. laneral
coutTactDr furnl.b.. the Itnance D1Tector with ~be
.a.e. and .ddre.s.. of the .ubcontractor. aDd the
..ount. ,aid to .ach evbcontractor;
(7) receipt. of person. actinl .. ..ent. or broker.. other
than receipts received a. co..i..ion. or fee. earne' and
other than net intere.t inco.. earned from .araln aCCDunt
loans. or charle. of an, character .ad. or co.pensation
of any character received for tbe perfor..Dc. of any
.ervice .. asent or broker; provided. bowev.r. any alent
or broker d.a11nl ln .tocks or other .1ailar written.
In.truaenta evldenclDI a r11bt to participat. ln tbe
...eta of any busine... or 'eallnl in ~oDd. or otber
evldence. of indebtedn.... who a1.0 4.al. in auch
property.. a principal, .hall ~Dclu'. In the Ira..
receipt. b, whlcb tbe tax 1. ..a.ured the a.ount of
hi. tradin& profit. re.ulting froa~cb dealiDS..
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ANO \..OAN ASSOCIATION
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CENTURY FEDERAL SAVINGS
ROBERT R J-llELD
PRESIC-~NT
!!:or SANTA ;o,,-tONI:::A eLV!J
5A~j:"A MO-':'CA CALrF 90401
(2'.3) 3:13 vi' I
18, 1983
.lncil Members
City Attorney
City Manager
Finance Director
FROM:
City Clerk
SUBJECT:
Business License Tax Ordinance--City
Council Study Session of October 18, 1983
The attached letter has been received ~n regard to the
above subject and is being sent for your information.
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l~ttachment
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Century Federal Savings
AND LOAN ASSOCIATION
October 17, 1983
The Members of the C1ty Coune1l
C1ty of Santa Mon1ca
Santa Monica, Cal1fornla
Re: Proposed Amendments to the Santa Mon1ca
Mun1c1pal Code, Sect10ns 61l6(b) and 6223
Dear Counc1l Members:
Century Federal Sav1ngs and Loan ASSocIatlOn ("Century"), WhICh has two
off1ces located In Santa MOnlca (the "City"), subm1ts thlS letter to the
members of the Clty Counc1l for the purpose of comment1ng upon the proposed
adoptlon and lmplementat10n of the above-referenced amendments to the Santa
Mon1ca Munlc1pal Code.
Prel1mlnarlly, Century w1shes to emphaslze that It 1S, and has always been,
a good corporate c1tlzen of the communitles In WhlCh lt operates. As such,
lt has no obJectlOn to beanng lts "fa1r share" of the aggregate tax burden
requ1red to pay for governmental serV1ces. Century asks only that lt be
treated equltably wlth all other corporate c1t1zens, most espec1ally those
w1th WhlCh 1t dlrectly competes 1n the flnanc1al serVlces lndustry.
TAXING AUTHORITY
It lS Century's pos1t1on that the Clty of Santa Monlca lS precluded by appll-
cable law from tax1ng It ln any manner or respect whatsoever and nothlng
conta1ned 1n thlS letter shall be construed as an adm1ss1on to the contrary.
The Callfornla Tax rate for Century lS approxlmately 20% greater than the
general corporate tax rate. The reason for the rate dlfferentlal 1S the
State law prohlblt1ng local taxatlon of sav1ngs and loan assoclatlons (Revenue
and Taxatlon Code S 23182). Thus, Century 15 already under a slgn1flcantly
greater State tax burden than non-flnanc1al corporations d01ng buslness In the
C1ty. This extra tax burden lS lntended to compensate for the fact that
Century lS not lntended to be subject to the type of tax the Clty now proposes
to assess.
TAX INCREASE
The percentage lncrease 1n Century's bus1ness llcense tax burden that would
result from the proposed amendments 1S staggerlng. At present the 11cense
tax 1mposed upon Century by the Clty lS $100 per offlce per year, or $200.
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199 NORTH LAKE AVENUE' PASADENA. CALIFORNIA 91109' TELEPHONE {213} 577-0500 (213} 684-1830
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October 17, 1983
Page 2
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Under the proposed amendments, Century's llcense could be 1n excess of $120,OOO~
The dramatlc lncrease 1S partla11y due to certa1n centra11zed functlons current-
ly operated from our Santa Mon1ca Ma1n Off1ce.
The C1ty proposes lmplementlng an apport1onment formula. Wh11e 1t 1S not clear
exactly how th1S formula mlght work, Century's estlmate of the poss1ble llcense
fee on a payroll or operatlng expense allocat1on baS1s st111 lnd1cates a tax
burden In excess of $25,000, or an 1ncrease of more than 12,500%.
Even on the apportlonment basls, Century belleves that an lncrease 1n taxes of
thlS magn1tude lS unreasonable.
TAX BASE
Savlngs and loan assoc1atlons operate on a very narrow marg1n. Rap1dly lncreas-
lng lnterest rates such as we have exper1enced ln recent years can qU1ckly erode
or even ellmlnate our marglns. A tax based upon gross recelpts further erodes
the already narrow marg1n. Century.s gross recelpts wlll not decrease when
1nterest rates rlse) but the proflt marg1n wlll decrease as lnterest costs
escalate. A gross recelpts tax falls to conslder the relatlonshlp of such
recelpts to the profltablllty of a savlngs and loan assoclation.
Furthermore, the Clty proposes a tax of $3 per $1,000 of gross recelpts for
Century, the hlghest tax rate for any buslness. By compar1son, reta1l sales
buslnesses' tax rate lS $1.25 per $1,000 of gross rece1pts. Slnce both
lndustrles operate on narrow prof1t marYlns, Century suggests the tax rates
should be comparable.
COMPETITION
The tax places Century at a severe dlsadvantage Vls-a-V1S other flnanclal
1nstltut1ons wlth WhlCh 1t competes:
Century competes for buslness, lncludlng deposlts and loans,
dlrectly w1th natlonal and state chartered banks and savlngs banks. By vlrtue
of a provlslon of the Cal1forn1a Const1tutlon, Artlcle 13, Sectlon 27, however,
banks are immune from local taxatlon; and, at the State level, banks, and
sav1ngs and loan assoc1atlons are taxed at the same rate. Thus, to the extent
that Century must bear a local tax burden that lS not shared by natlonal and
state chartered banks) ~he latter have an 1nherent compet1tlve advantage.
Century also competes wlth other savlngs and loan assoc1atlons for
buslness; and ln thlS regard, the affect of the proposed amendments would be
to place 1t at a unlque competltlve dlsadvantage. Under the proposed amend-
ments, whlle all savlngs and loan assoclatlons would be taxed at the same
rate) taxes would be apportloned "on the basls of payroll value and SltuS of
tanglble property. general expense, or by reference to any other method of
apportlonment as wlll falrly determlne the amount of gross recelpts derlved
from or attr1butable to engaglng 1n bus1ness In the "C1ty." (Proposed
~ 6116B{b.).) A large proportlon of Century's business funct10ns and personnel
are located wlthln the C1ty llm1ts, as lS ltS Maln Offlce. By contrast, most,
lf not all) of the sav1ngs and loan assoc1atlons wlth Wh1Ch Century competes
only malntaln branches wlth1n the Clty and do not have a large proportion of
thelr buslness pract1ces and personnel located there. Thus by lmplement1ng
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the proposed amendment, the C1ty would be plac1ng Century at a substantlal
compet1tlve d1sadvantage Vls-a-V1S ltS local competltors.
ADVERSE CONSEQUENCES FOR THE CITY
While adoption and implementat10n of the proposed amendments would have a
harsh, unjust and inequltable lmpact upon Century, lt could also have ser10US
adverse consequences for the Clty ltself.
The rlght of the Clty to lmpose a buslness llcense tax upon savlngs
and loan assoc1atlons lS hlghly doubtful. State law as expressed ln Revenue
Code ~ 23182 expressly prohlb1ts local governments from taxlng savlngs and
loan assoclatlons; and, In recognltlon of that proh1bltlon, lmposes upon savlngs
and loan assoc1atlons State taxes at a rate approxlmately 20% hlgher than that
lmposed upon other general corporatlons. Thus the Clty lS legally entltled to
tax Century only lf the State law prohlbltlon lS ult1mately determlned to be
lnvalld. Slnce there lS, at the mlnlmum, substant1al doubt as to the eXlstence
of such 1nvalldlty, local Clty taxatlon of savlngs and loan assoc1at1ons lS not
a rellable source of publlC funds. Any taxes collected may well have to be
refunded, wlth lnterest. at a later date; and the dlsruptlve effect Wh1Ch such
refunds could have on the future flscal operatlons of the Clty lS ObV10US.
Adopt1on and lmplementatlon of the tax w1ll force Century to conslder
modlfYlng ltS future buslness operat1on In order to protect ltself agalnst the
preJudlc1al consequences WhlCh would result from the tax. One optlon would be
for It to convert to a federal savlngs bank charter pursuant to 12 U.S.C.
~ (464(1) (2), the Clty Attorney havlng acknowledged that sald lnstltutlons
are wlthln the purvlew of the State Constltutlonal prohlbltlon agalnst local
government taxatlon of banks conta1ned In Artlcle 13, Section 27. Another
optlon, also detr1mental to the Clty, would be for Century to transfer some or
all of ltS functlons (other than the malntenance of savlngs and loan branch
offlces) to other Jur1sdlctlons WhlCh do not lmpose taxes such as the Clty'S
proposed bUSlness llcense tax. The result would be a reduct10n In employment
opportunltles and bus1ness actlvlty conducted wlth1n the Clty llmlts and a
resultant decrease ln the revenues WhlCh the Clty derlves from such actlvltles.
Whlle Century would prefer to 1ncrease lts Santa Monlca operatlons, lt must
rema1n competltlvely vlable; and conslderatlons of competltlve vlablllty may
dlctate that It alter ltS method of operatlon.
Imposltlon of the tax may embroll the City 1n protracted and costly
lltlgat1on. Should the Clty adopt the proposed amendment, Century must conslder
lnstltut1ng legal actlon challenglng the Clty'~ authorlty to Subject lt to
local bus1ness llcense taxes. Such lltlgatlon lS already pendlng agalnst other
cltles. Moreover, even lf Century should refraln from sUlng the City. other
saVlngs and loan assoclatlons may lnstltute such lltlgatlon. The result would
be to lmpose upon the Clty the cost and burden of lltlgatlon that could other-
Wlse be avo1ded and thereby consume much, 1f not all, the beneflts WhlCh the
C1ty may derlve from the lmpos1tlon of the tax.
ABSENCE OF NECESSITY FOR IMMEDIATE IMPOSITION OF THE TAX
The "0pportUnltles to Increase Local Revenues ln Santa MOnlca" memorandum
prepared by the Clty Manager's Offlce and dated May 6, 1983, suggests that by
v1rtue of the Farrell deC1Slon of the Callfornla Supreme Court, the Clty has
a "wlndow penoa" wlthln WhlCh lt may 1mpose new taxes; and that there lS a
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movement afoot to amend the State Const1tut1on 1n a manner Wh1Ch would reduce
the Clty'S opportunlty to 1mpose, or even preclude the future lmpos1t1on of,
such taxes. Whlle there lS ObV1ous1y a poss1b1llty of future Constltut1ona1
amendments that would adversely effect the C1ty'S taxlng author1ty, Century
w1shes to pOlnt out that such amendments are not, to lts knowledge, lmmlnent,
and glven the protracted t1me perlod that would normally be requlred to effect
such a Constltut1onal amendment, the C1ty lS not under any lmmedlate compuls1on
to adopt the proposed amendments. Rather, the Clty may defer act10n upon the
amendments at th1S tlme and awalt a clarlflcat10n of the status of the law
through the pend1ng lltlgat10n agalnst other charter cltles.
We therefore respectfully request that there be no change 1n the current
method of taxlng savlngs and loan aSSQClat1ons.
Very truly yours,
~Q~
Robert R. H1eld
Presldent
RRH:gh