Staff Report.BT Modernization
PREPARED BY: Arn Andrews
Assistant Town Manager
Reviewed by: Town Manager, Town Attorney, and 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: 10/19/2021 ITEM NO: 9
DATE: October 11, 2021
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive the Town Finance Commission Recommendation and Authorize the
Town Manager to Issue a Request for Proposals (RFP) for Consultant Services
to Evaluate and Recommend Modernization Options for the Town’s Business
License Tax Program.
RECOMMENDATION:
Receive the Town Finance Commission recommendation and authorize the Town Manager to
issue a RFP for consultant services to evaluate and recommend modernization options for the
Town’s Business License Tax Program.
BACKGROUND:
On September 13, 2021, the Town Finance Commission reviewed the Town’s Business License
Tax Program. The Town's Business Tax Ordinance was last adopted on June 3, 1991
(Attachment 1). The Town Business License Tax program is governed by Chapter 14 of the Los
Gatos Town Code: Los Gatos Town Code - Business Licenses. The Articles I through III of the
business license chapter are enacted solely to raise revenue for municipal purposes and are not
intended for regulation. The Town currently has 2,557 businesses in active pay status and
another 2,577 registered on the books of which it is estimated that a third may still be active in
Town. This Tax, which is charged to business owners, currently generates approximately $1.4
million annually.
DISCUSSION:
Having not been updated in over 30 years, the current rate structure does not take into account
shifts in business models and delivery over the decades. In addition, the current ordinance
does not contemplate inflation adjustments or other predetermined structural rate changes,
therefore leaving the rates unchanged for 30 years.
PAGE 2 OF 3 SUBJECT: Business Tax Modernization DATE: October 11, 2021
DISCUSSION (continued):
The Town issues different types of business licenses based on the type of activity. The amount
of business license tax paid by each business is also based on its business activity because the
purpose of the tax is to cover municipal services and infrastructure utilized by the business, its
employees, and customers. Fees for activities such as wholesales and manufacturing are
charged on a sliding scale based on gross receipts, as is retail, with retail being capped at $975.
These gross receipt activities account for approximately 25% of annual business licenses, while
the remaining 75% are flat fee businesses. While the Town Code list different license types, the
most common ones are listed below with the appropriate business license tax and fees.
Most cities in the Bay Area and throughout California have either updated their tax structure
through local ballot measures or enacted a tax if they previously didn’t have one. In California,
all taxes imposed by local governments are classified as either general or special taxes and must
be put before voters as a local ballot measure for approval. Recent examples of general
business tax ballot measures include:
• Daly City – Measure BB 2018 (approved 80.64%)
• Mountain View – Measure P 2018 (approved 71.05%)
• Sausalito – Measure M 2018 (approved 65.42%)
• Berkley – Measure U1 2016 (approved 74.93%)
• Monterey – Measure H 2016 (approved 73.86%)
• San Jose – Measure G 2016 (approved 65.59%)
• Foster City – Measure U 2013 (approved 73.2%)
• Campbell – Measure M 2010 (approved 69.59%)
Business License Processing Fee
(Annual)
Planning Fees - Businesses Located in Los Gatos
(One-time )
State Mandated Fee
(Annual)
Type of Business License
Business License Tax - Without
Penalty
Minimum (Annual)
Business License Tax - Without
Penalty
Maximum (Annual)
Typical Businesses
Retail
(Based on Gross Receipt)$75 $975 Restaurant, Grocery Store , Gas Station, Hair Salon
Wholesale/Manufacturee/Wholesale/Ecommerce
(Based on Gross Receipt)$150
Based on sliding scale
$4,837.50 for $12,000,000 in gross receipt
plus $75 for each $550,000 or fracntion
therfor in excess of $12,000,000
Netflix, Manufacturers
Professional/Semiprofessional
(per employee)$200 $200 Medical Doctor, Attorney, Tutor,
Massage Therapist, Broker
Support Staff - Professional/Semiprofessional
(per employee)$15 $15 Real Estate Agent
Service
(per business)$100 $100
Gardeners, Repair Service, Hair
Stylist, Janitoral service
Contractor(per business)$224 $224 Licensed California State Contractor
Typical Business License Taxes and Fees
$40 at the Time of Establishment/ $30 at Renewal - Located In Los Gatos
$20 - Not Located in Los Gatos
$161.20 Home Occupancy Permit - Home Based Businesses$176.70 Change of Occupancy / $262.20 Change of Use - Commercial Zoning
$4
PAGE 3 OF 3 SUBJECT: Business Tax Modernization DATE: October 11, 2021
CONCLUSION:
The Finance Commission has recommended that the Town Council consider pursuing the
modernization of the Business license Tax schedule adopted in 1991. To better understand the
Town’s Business License Tax program, the Council should authorize the Town Manager to issue
a RFP for the review and recommendation of modernization options for the program.
COORDINATION:
This staff report was coordinated with the Town manager, Town Attorney, and Director of
Finance.
FISCAL IMPACT:
There is no cost associated with issuing the RFP. Based on the results of the RFP, staff will
return to Council with budget recommendations based on the successful RFP response.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachment:
1. 1991 Business Tax Ordinance