Staff Report.Business License Modernization
PREPARED BY: Arn Andrews Holly Young
Assistant Town Manager Town Manager Administrative Analyst
Reviewed by: Town Manager, Town Attorney, and Interim Finance Director
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 08/02/2022 ITEM NO: 18
DATE: July 29, 2022
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Adopt a Resolution of the Council of the Town of Los Gatos for Model 3,
Calling a Municipal Election for November 8, 2022, Requesting that the
County Consolidate the Municipal Election with the General Election on
November 8, 2022, and Submitting to the Qualified Electors of the Town at
the November 8, 2022 Consolidated General Election a Measure to Amend
Chapter 14 of the Los Gatos Town Code Relating to Business License Taxes
RECOMMENDATION:
Adopt a Resolution of the Council of the Town of Los Gatos for Model 3, calling a municipal
election for November 8, 2022, requesting that the County consolidate the municipal election
with the general election on November 8, 2022, and submitting to the qualified electors of the
Town at the November 8, 2022 consolidated general election a measure to amend Chapter 14 –
Licenses and Miscellaneous Business Regulations (Chapter 14) of the Los Gatos Town Code
relating to business license taxes.
BACKGROUND:
On September 13, 2021, the Town Finance Commission reviewed the Town’s Business License
Tax Program and recommended that the Town Council authorize the Town Manager to issue a
Request for Proposal (RFP) for consultant services to evaluate and recommend modernization
options for the Town’s Business License Tax Program. The Business License Tax supports all
municipal services that are enjoyed by the businesses, including but not limited to streets,
other infrastructure, and public safety.
On October 19, 2021, the Town Council received the Finance Commission recommendation and
directed staff to engage a consultant to review the Town's 1991 Business Tax Ordinance and
recommend options for modernizing the Ordinance.
PAGE 2 OF 8 SUBJECT: Business License Modernization DATE: July 27, 2022
BACKGROUND (continued):
On December 17, 2021, the Town issued an RFP for Business License Tax consulting services.
Hinderliter, deLlamas & Associates (HdL) Companies was selected given their significant
experience in business license review and analysis, including having performed dozens of tax
study and modernization programs in California.
HdL submitted their Business License Analysis and Ordinance Review (Report) to the Town on
June 8, 2022.
On June 13, 2022, the Finance Commission discussed the HdL Report and voted unanimously to
move forward to continue research and public outreach on business license tax modernization.
On June 21, 2022, the Town Council unanimously directed staff to continue conducting
research and public outreach and prepare options for proposed ballot measure language for
Council consideration on August 2, 2022.
DISCUSSION:
Per Council direction, staff has been coordinating extensive business outreach and working with
HdL to refine potential business license modernization models. Following are summaries of
both efforts:
Business Outreach
The Town set up a dedicated webpage at www.LosGatosCA.gov/BLModernization with
information regarding the current business license tax program, background on modernizing
the tax, discussions to date, the options being considered, and the timeline for a ballot
measure. The Town also set up a unique email address of BLModernization@losgatosca.gov for
public comment and received several communications on this topic from a variety of businesses
(see Attachment 1).
The Town hosted a community workshop on July 25, 2022 at 7:00 p.m. via teleconference. The
Town publicized the potential business license modernization ballot measure and the July 25
informational workshop via the Town website homepage, weekly Newsletter, multiple posts on
the Town’s official social media accounts (Nextdoor, Facebook, Instagram, Twitter, and
LinkedIn), and a postcard mailing. The postcard went out to every business the Town has on
file and was mailed to a total of 5,167 valid business addresses with receipt occurring between
July 15 and 21.
The community meeting provided an opportunity for Town residents and businesses to learn
more about the potential business license modernization, discuss each of the proposed options
PAGE 3 OF 8 SUBJECT: Business License Modernization DATE: July 27, 2022
DISCUSSION (continued):
under consideration, ask questions, and provide feedback. The materials from the webinar are
available at www.LosGatosCA.gov/BLModernization. Though lightly attended, the community
answered a series of Zoom poll questions following the initial staff presentation:
• 75% felt the Town should update the business license tax.
• 100% felt the Town business license program should be equitable.
• 100% preferred the proposed Model 3.
After further discussion and a question and answer session, the poll was launched again with an
additional participant and the following results:
• 60% felt the Town should update the business license tax.
• 100% felt the Town business license program should be equitable.
• 20% preferred the proposed Model 1 and 80% preferred the proposed Model 3.
In addition to the community meeting and other outreach efforts, staff sent emails directly to
the five largest businesses discussed within Model 3 and also had separate discussions with
community stakeholders including the Los Gatos Chamber of Commerce and Netflix.
Analysis of Potential Models
Model 1 – Would retain the existing structure while modifying the tax amounts for each
category by 20%. The drawback of Model 1 is that the tax remains regressive. In fact, because
it would increase the flat fees, it becomes more regressive. In addition, since 1991, inflation
has risen approximately 117% or five times as much as the recommended increase. The
advantage of this model is that the increases for each business type are minimal. This Model
would increase revenues approximately $255,000 annually primarily from the Services category
($101,000).
PAGE 4 OF 8 SUBJECT: Business License Modernization DATE: July 27, 2022
DISCUSSION (continued):
Model 2 – Introduces the concept of converting the Town tax to a gross-receipts model for all
businesses. This means that every business would pay based on their gross receipts, utilizing
different single rates for five different business classifications. This Model also lowered the
annual base rate to a uniform $25 flat rate for the first $25,000 to provide some additional tax
relief for smaller businesses. This model affords the most flexibility for increasing revenues
while accommodating certain business categories with differing rates. This Model would
increase revenues approximately $2,861,000 annually primarily from the Services category
($2,321,000).
Categories Base Rate Gross Receipts Tax Rate
General Commerce/Retail
$25 Flat Rate per Business
(first $25,000 in Gross)
0.0005 X Gross
Services 0.001 X Gross
Contractor 0.001 X Gross
Professional 0.002 X Gross
Rental Commercial/Residential 0.002 X Gross
Model 3 - Maintains the existing gross-receipts structure for Manufacturing, Wholesaling, and
Jobbing except for updating the rate of $75.00 for each $550,000 more than $12,000,000 to
$300 for each $550,000 more than $12,000,000. For purposes of this schedule, Manufacturing
refers to any manufacturing or processing of goods, wares, merchandise, articles, or
commodities. Wholesaling refers to the sale of goods, wares, or merchandise for the purpose
of resale. Jobbing is the business of selling goods, wares, or merchandise to wholesale
PAGE 5 OF 8 SUBJECT: Business License Modernization DATE: July 27, 2022
DISCUSSION (continued):
merchants for resale at wholesale. This model also includes the E-commerce category which
includes commercial transactions conducted electronically on the internet.
This model would have the least change to the existing structure, only impacting businesses
with gross receipts above $12,000,000, while helping to offset some of the inequities
associated with the lower effective tax rates of larger businesses presented earlier. This Model
would increase revenues approximately $1,100,000 annually.
Finance Commission Alternative Model
On July 28, 2022, the Finance Commission held a Special Meeting to discuss the results of
community outreach and business feedback and the three models under consideration. At the
conclusion of their discussion, the three resident Commission members present voted to
provide the Town Council with an alternative Model. The proposed Model is an enhanced
version of Model 1. The Commission Model would increase all flat fees and the gross receipts
tax schedules for E-Commerce, Manufacturing, Wholesaling, and Jobbing and Retailing 100% to
account for inflation. In addition, the Commission expanded the Retailing gross receipts table
to include two additional payment levels above the current $2,000,000 (and above) threshold.
The following table illustrates the additional payment levels.
PAGE 6 OF 8 SUBJECT: Business License Modernization DATE: July 27, 2022
DISCUSSION (continued):
At Least But Less Than Tax
$1,900,000 $4,000,000 $1,950
$4,000,000 $8,000,000 $3,900
$8,000,000 $16,000,000
(and above)
$7,800
Like Model 1, the drawback of this Model is that the tax remains regressive. This model would
make up most of the inflation since 1991. This Model would increase revenues approximately
$1,600,000.
Ballot Initiative Process
A ballot measure to modernize the Business License Tax requires a 4/5 vote of the Town Council
to place it on the ballot. A General Tax can be expended on any program, service, or capital
need at the discretion of the local government's governing body. A simple majority vote (50
percent of voters plus one additional voter) is required for approval of a general tax.
A resolution with corresponding ballot language and its draft ordinance have been prepared for
each of the three models. For Model 1, see Attachment 2; for Model 2, see Attachment 3; and
for Model 3, see Attachment 4. If the Council decides to move forward with one of the models,
then the Council should adopt the resolution it would like, which would submit the Council's
ballot measure to voters at the November 8, 2022 regular municipal election. Provided below
is the ballot language for the three models.
Model 1
Shall the measure to fund critical Town needs such as public safety by
imposing a 20% increase to all flat fees and the gross receipts tax
schedules for E-Commerce, Manufacturing, Wholesaling, and Jobbing
and Retailing , raising about $255,000 yearly for general fund purposes
until ended by voters, and which have not been increased since 1991,
be adopted?
YES
NO
PAGE 7 OF 8 SUBJECT: Business License Modernization DATE: July 27, 2022
DISCUSSION (continued):
Model 2
Shall the measure to fund critical Town needs such as public safety by
incorporating gross receipts reporting for all businesses at rates
between $0.50 and $2.00 per $1,000 after a $25.00 flat fee for the first
$25,000 in gross receipts, replacing the existing regressive taxing
system of flat fees and gross receipts, raising $2.3 million yearly for
general fund purposes until ended by voters, and increasing equity
among small, medium and larger businesses, be adopted?
YES
NO
Model 3
Shall the measure to fund critical Town needs such as public safety by
amending the gross receipts tax schedule for E-Commerce,
Manufacturing, Wholesaling, and Jobbing for businesses with gross
receipts above $12,000,000 from $75 per each $550,000 in excess of
$12.0 million to $300 per each $550,000 in excess of $12.0 million,
raising about $1.0 million yearly for general fund purposes until ended
by voters, and increasing equity , be adopted?
YES
NO
Should the Town Council choose to pursue a ballot measure, final approval including the ballot
measure language will need to be submitted to the Santa Clara County Registrar of Voters by
August 12, 2022. Provided below are ballot measure milestone dates:
• August 12, 2022: Last day for Resolutions calling a measure
• August 12, 2022: Deadline for submitting primary arguments in favor of or against a
measure
• August 17, 2022: Last day to amend or withdraw a measure
• August 19, 2022: Town Attorney submits impartial analysis to the Town Clerk
• August 19, 2022: Deadline for submitting rebuttal arguments to primary arguments in
favor of and against a measure.
The proposed resolutions authorize the Mayor, or his designee(s), to prepare a written
argument in favor of the proposed measure on behalf of the Town Council. At the Mayor’s
discretion, the Argument may also be signed by bona fide associations or by individual voters
eligible to vote in Los Gatos.
PAGE 8 OF 8 SUBJECT: Business License Modernization DATE: July 27, 2022
CONCLUSION:
Based on business and community feedback to date staff recommends that the Town Council
adopt the resolution for Model 3 and call a municipal election for November 8, 2022,
requesting that the County consolidate the municipal election with the general election on
November 8, 2022 and submitting to the qualified electors of the Town at the November 8,
2022 consolidated general election a measure to amend Chapter 14 of the Los Gatos Town
Code.
COORDINATION:
This staff report was coordinated with the Town Manager, Town Attorney, and Finance
Director.
FISCAL IMPACT:
If approved by voters in November, the estimated additional revenue generated by the three
models is between approximately $255,000 and $2,800,000 annually. These funds would be
locally generated and therefore be safe from seizure by the State. In addition, they would
enable the Town to invest in services and infrastructure that the community values. The cost of
the ballot measure is approximately $59,000 and incorporated in the FY 2022/23 adopted
budget.
ENVIRONMENTAL ASSESSMENT:
In accordance with CEQA Guidelines Section 15378(b)(4), placement of a ballot measure on the
ballot to amend the Town's business license tax is not a project subject to CEQA, because it is a
government fiscal activity.
Attachments:
1. Public Comment
2. Model 1 Resolution with corresponding Ordinance as Attachment A
3. Model 2 Resolution with corresponding Ordinance as Attachment A
4. Model 3 Resolution with corresponding Ordinance as Attachment A