Staff Report with attachments
PREPARED BY: Arn Andrews
Assistant Town Manager
Reviewed by: Town Manager 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: 06/21/2022 ITEM NO: 22
DATE: June 16, 2022
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive the Town of Los Gatos Business License Analysis and Ordinance
Review, Direct Staff to Continue Research and Public Outreach, and Return to
Town Council on August 2, 2022 with Proposed Ballot Measure Language to
Modernize and Create a More Equitable Business License Tax Structure
RECOMMENDATION:
Receive the Town of Los Gatos Business License Analysis and Ordinance Review, direct staff to
continue research and public outreach, and return to Town Council on August 2, 2022 with
proposed ballot measure language to modernize and create a more equitable business license
tax structure.
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. On October 19, 2021, the
Town Council received the Finance Commission recommendation (Attachment 1) and directed
staff to engage a consultant to review the Town's 1991 Business Tax Ordinance and recommend
options for updating the Ordinance.
On December 17, 2021, the Town issued an RFP for Business License Tax consulting services.
The Town received a single response from HdL Companies (HdL) by the January 26, 2022,
submission deadline. HdL was selected given their significant experience in business license
review and analysis including having performed dozens of tax study and modernization
programs in California.
PAGE 2 OF 6 SUBJECT: Business License Modernization DATE: June 16, 2022
BACKGROUND (continued):
HdL submitted their Business License Analysis and Ordinance Review (Report) to the Town on
June 8, 2022 (Attachment 2). 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. The Commission requested a special meeting in July if
Council voted to pursue a potential ballot measure.
DISCUSSION:
Consultant Study
The Report includes an executive summary, analysis of the Town’s current business tax
structure and comparative jurisdictions, options for modifying the Town's business tax rates
and classifications, and appendix with administrative recommendations to simplify other
elements of the Town’s Ordinance.
Following is a summary of the major findings and recommendation of the report:
Having not been updated in over 30 years and currently utilizing a blend of flat fees and
decreasing gross-receipts tax rates, the Town’s existing structure is regressive in nature. For
example, a general retail business grossing $50,000 a year (the small business in the chart
below) would pay $75.00, which is an effective tax rate of 0.15%. But a large business, grossing
$1 million in a year, will pay $600 or 0.06%--less than half the effective tax rate of the small
business. This is illustrated in Chart 4 of the report.
PAGE 3 OF 6 SUBJECT: Business License Modernization DATE: June 16, 2022
DISCUSSION (continued):
Compared to other jurisdictions, the Town’s total business tax revenue is relatively strong
(Table 2 of the report) however as illustrated above the composition of those revenues is
currently not equitable. Given the results of the analysis, HdL has recommended that the Town
move to a single-rate, gross-receipts model (Model 2 in the report). Many California cities use
some form of gross receipts tax structure and a standard rate multiplier to determine the tax
amount owed.
The "single rate" method of taxing on gross receipts provides an even distribution of the
effective tax rate because all businesses subject to the tax will pay the same rate. The benefits
of gross receipts-based taxes are the equity of their effective tax rate, ease of calculation, and
potential for capturing revenue from growth in the economy. Under this method, no cap is put
in place, and therefore most of the revenues are received from the highest-grossing businesses.
While the model does expand revenue, it does so by helping to decrease the effective tax rate
on smaller businesses while asking larger businesses to pay their fair share. The model also
lowers the annual base rate to a uniform $25 (first $25,000 gross receipts), to provide some
additional tax relief for smaller businesses. The following chart (Chart 9 in the report)
illustrates the redistribution of effective tax rates among small, medium, and large business’s
utilizing two different single-rate scenarios.
PAGE 4 OF 6 SUBJECT: Business License Modernization DATE: June 16, 2022
DISCUSSION (continued):
Table 8 from the report (below) illustrates the estimated revenues from implementing a gross
receipts tax (Model 2) with two single-rate options, $1.25 per thousand and $1.50 per
thousand. The model uses estimated gross receipts based on the business classification. It
should be noted that in estimating the Total Gross Receipts, HdL exclude a significant outlier
that would skew the models.
As illustrated above both single rate options are estimated to produce slightly more revenue
than currently collected (FY 2021/22 $1.3 million), excluding the outlier, but in a more equitable
distribution.
Ballot Measures
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.
With the November 2022 election scheduled, the last regular Council meeting to add an item
on this ballot is at its August 2nd meeting. 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 16, 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 23, 2022: Deadline for submitting rebuttal arguments to primary arguments in
favor of and against a measure and impartial analyses.
If the Town Council directs staff to continue pursuing a business tax modernization ballot
measure, staff will return to Council on August 2, 2022 with draft ballot language, resolution,
and ordinance.
PAGE 5 OF 6 SUBJECT: Business License Modernization DATE: June 16, 2022
DISCUSSION (continued):
Community Outreach
If the Town Council directs staff to continue pursuing a business tax modernization ballot
measure, staff will implement a comprehensive business outreach plan during the summer,
including the following elements:
• To provide information on the proposed business license tax measure, staff will create a
webpage on the Town’s website with background information for residents and
businesses interested in the issue. In addition to a dedicated webpage, staff will utilize
the Town’s social media platforms to disseminate information.
• Staff intends to coordinate business outreach to the Los Gatos Chamber of Commerce
and its member businesses. Since not all Los Gatos businesses are Chamber members,
broader outreach will be needed in local newspapers and other modes.
• Staff will engage one-on-one with the Town’s largest employers and business groups.
• The Town will publicize and host a virtual Business Forum event. To the extent it is
feasible, staff would send out a postcard to all Business License holders inviting them to
this event.
• Staff is available to meet with local service clubs and others to obtain additional input.
• As requested by the Finance Commission at its June 13, 2022 meeting, a special
Commission meeting would be scheduled in July to review the results of the additional
research and outreach.
CONCLUSION:
The Town Council should review the Town of Los Gatos Business License Analysis and
Ordinance Review and direct staff to pursue a ballot measure to modernize and create a more
equitable tax structure.
COORDINATION:
This staff report was coordinated with the Town Manager and Finance Director.
PAGE 6 OF 6 SUBJECT: Business License Modernization DATE: June 16, 2022
FISCAL IMPACT:
A single ballot measure costs approximately $58,256 and the Proposed Fiscal Year 2022/23
Operating Budget includes funding for potential measures.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. October 19, 2021 Town Council Staff Report
2. HdL Business License Analysis and Ordinance Review
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.
ATTACHMENT 1
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
This Page Intentionally Left Blank
ORDINANCE 1857
ORDINANCE OF THE TOWN OF LOS GATOS
AMENDING CHAPTER 15, ARTICLE II OF THE TOWN CODE
THE TOWN COUNCIL OF THE TOWN OF LOS GATOS DOES HEREBY ORDAIN:
SECTION I
Article II of Chapter 15 of the Town Code is hereby repealed in its entirety.
SECTION II
Article II of Chapter 15 of the Town Code is hereby enacted to read as follows:
ARTICLE II
SCHEDULE
Section 15 -27. Gross Receipts Tax
Every person doing business in the Town, except those persons whose business is taxed under the
terms of Section 15 -28 shall pay an annual license tax based on the gross receipts of the business.
The tax is levied according to one or both of the following schedules. When the business activities
of one person, taxable under the provisions of this section, involve both retail and manufacturing,
wholesaling or jobbing transactions, the total gross income is apportioned between the two
schedules, according to its source.
Retailing
At Least But Less Than Tax
0 50,000 75.00
50,000 100,000 112.50
100,000 150,000 150.00
150,000 200,000 187.50
200,000 250,000 225.00
250,000 300,000 262.50
300,000 350,000 300.00
350,000 400,000 337.50
400,000 450,000 375.00
450,000 500,000 412.50
500,000 600,000 450.00
600,000 700,000 487.50
700,000 800,000 525.00
800,000 900,000 562.50
900,000 1,000,000 600.00
1,000,000 1,100,000 637.50
1,100,000 1,200,000 675.00
1,200,000 1,300,000 712.50
1,300,000 1,400,000 750.00
1,400,000 1,500,000 787.50
1,500,000 1,600,000 825.00
1,600,000 1,700,000 862.50
1,700,000 1,800,000 900.00
1,800,000 1,900,000 937.50
1,900,000 2,000,000 975.00
and above)
MGR035 A: \FEES \0RDINANC
ATTACHMENT 1
Section 15 -28. License Taxes for Specified Businesses
Every person doing any of the kinds of business specified in the subdivisions of this Section 15-
28 shall pay the business license tax specified in such subdivision. The fees are annual unless
otherwise specified.
Sec. 15- 28.02. Advertising Signs
Signposting and painting .... ............................... 420.00
MGR035 A: \FEES \ORDINANC 2
Manufacturing, Wholesaling and Jobbing
At Least But Less Than Tax
0 200,000 150.00
200,000 300,000 187.50
300,000 400,000 262.50
400,000 500,000 337.50
500,000 600,000 450.00
600,000 800,000 562.50
800,000 1,000,000 675.00
1,000,000 1,200,000 787.50
1,200,000 1,400,000 900.00
1,400,000 1,600,000 1,012.50
1,600,000 1,800,000 1,125.00
1,800,000 2,000,000 1,237.50
2,000,000 2,500,000 1,350.00
2,500,000 3,000,000 1,462.50
3,000,000 3,500,000 1,575.00
3,500,000 4,000,000 1,687.50
4,000,000 4,500,000 1,800.00
4,500,000 5,000,000 1,912.50
5,000,000 5,500,000 2,025.00
5,500,000 6,000,000 2,137.50
6,000,000 6,500,000 2,250.00
6,500,000 7,000,000 2,362.50
7,000,000 7,500,000 2,175.00
7,500,000 8,000,000 2,587.50
8,000,000 8,500,000 2,700.00
8,500,000 9,000,000 2,812.50
9,000,000 9,500,000 2,925.00
9,500,000 10,000,000 3,037.50
10,000,000 10,500,000 4,500.00
10,500,000 11,000,000 4,612.50
11,000,000 11,500,000 4,725.00
11,500,000 12,000,000 4,837.50
12,000,000 4,837.50
plus $75.00
for each $550,000 or
fraction thereof in
excess of $12,000,000
Section 15 -28. License Taxes for Specified Businesses
Every person doing any of the kinds of business specified in the subdivisions of this Section 15-
28 shall pay the business license tax specified in such subdivision. The fees are annual unless
otherwise specified.
Sec. 15- 28.02. Advertising Signs
Signposting and painting .... ............................... 420.00
MGR035 A: \FEES \ORDINANC 2
Section 15- 28.04. Amusements
Shows, concerts, et cetera (per day) ...........................42.00
Circuses, menageries, etcetera:
Less than 2,000 seating capacity
First day ............. ...............................420.00
Each succeeding day ..... ...............................52.50
More than 2,000 seating capacity
First day ............. ...............................630.00
Each succeeding day ..... ...............................105.00
Side shows (per day):
Entrance fee not exceeding$.10 ..............................21.00
Entrance fee exceeding $.10 . ...............................42.00
Circus procession or parade (each) ............................210.00
Carnivals (per day) ....... ...............................42.00
Ferris Wheels, merry-go- rounds, et cetera (per month) .................210.00
Public dances (per dance) ... ...............................21.00
Section 15- 28.05. Apartment Rentals and Mobilehome Parks.
The term "apartment' includes all buildings or groups of buildings on the same premises, composed
of a total of three or more dwelling units (per unit) .................... 7.50
Section 15- 28.06. Auctioneers ............................... 112.50
Section 15- 28.08. Billiard and Pool Rooms (per table) ................. 52.50
Section 15- 28.10. Boardinghouses.
Boardinghouses licensed by the State or County as boardinghouses for pensioners, and who board
pensioners exclusively, are exempt from the business license tax.
For first four boarders ...... ............................... 21.00
For each person over four .... ............................... 4.50
Section 15- 28.12. Cleaning and Dyeing Laundry Delivery.
Vehicles (annual, per vehicle) . ............................... 168.00
The tax applies to those who have no fixed place of business in the Town.
Section 15- 28.14. Contractors (annual).
A separate fee for each type of work activity, such as general engineering, building, plumbing,
plastering, painting, masonry, termite, service, installation or other specialty, in addition to any sales
or jobbing license fee ...... ............................... 224.00
MGR035 A: \FEES \ORDINANC 3
Section 15- 28.15 Day Care Facilities.
Day Care Facilities provide day care for children under 18 years of age who are unrelated to the
licensee.
Small Family Day Care Home - a facility providing day care for six (6) children or less. (Including
resident children) ....... ............................... No Fee
Large Family Day Care Home - a facility providing day care for 7 to 12 children (including resident
children) ............. ............................... No Fee
Nursery School - a facility providing day care for 13 or more children ...... No Fee
Section 15- 28.16. Hospitals, Rest Homes, Etc
Annual, or ............. ............................... 140.00
Per bed, if that is larger ..... ............................... 10.00
Section 15- 28.18. Hotels and Motels (annual, per guest room) ............ 7.50
Business activities other than renting rooms, conducted in connection with a hotel, are taxed
separately.
Section 15- 28.20. House Movers.
Annual license .......... ............................... 105.00
Additional per structure moved ............................... 84.00
Section 15- 28.22. Itinerant Photographers (annual) ................... 210.00
Section 15- 28.24. Itinerant Vendors (daily) ........................ 105.00
The works "itinerant vendor" mean any person, both principal and agent, who engages in
a temporary and transient business n the Town selling goods, wares and merchandise with
the intention of continuing such business in the town for a period of not more than ninety
days, and who, for the purpose of carrying on such business, hires, leases or occupies any
room, building or structure for the exhibition or sale of such goods, wares, or merchandise,
or from which room, building or structure the sales shall be made or business solicited by
means of samples or delivery from house to house. The person so engaged is not relived
from the provisions of this section by reason of associating temporarily with any local dealer,
trader, merchant or auctioneer, or by conducting temporary or transient business in
connection with, or as a part of, or in the name of any local dealer, trader, merchant or
auctioneer. The provisions of this section do not apply to commercial travelers or selling
agents selling their goods to dealers, whether selling for present or future deliveries, by
sample or otherwise, nor to hawkers on the street, nor peddlers from vehicles, nor to
persons selling fruit, vegetables, butter, eggs, or other fruit or ranch products.
Section 15- 28.28. Junk Dealers (annual) ......................... 420.00
Junk dealer" means any person who has a fixed place of business in the Town, and who
engages in or carries on the business of buying or selling, either at wholesale or retail, any
old rages, sacks, bottles, cans, papers, metals or other articles of junk.
MGR035 A: \FEES \ORDINANC 4
Section 15- 28.30. Junk Collectors (annual, per vehicle) .................... 84.00
Junk collector" means any person who has not fixed place of business in the Town and
who engages in or caries on the business of collecting, buying or selling any old rags,
sacks, bottles, cans, papers, metals or other articles of junk.
Section 15- 28.36. Peddlers.
Peddlers of wares other than food, per person:
Daily.............................. ..........................21.00
Peddlers of food, except lunch wagon operators:
Using a vehicle, per vehicle, annual ... ............................... 210.00
Not using a vehicle, carrying wares by hand ............................ 42.00
Lunch wagon operators (per vehicle, annual) ........................... 210.00
Peddlers engaged in the business of selling any personal property at a sale conducted by
an organization exempt from the business license tax under the provisions of Section 15-
5 of this chapter shall pay a license tax of seven dollars and fifty cents per day. This rule
applies only when all fees, commissions or other renumeration of any kind paid by the
peddler to the organization conducting, sponsoring or promoting the sale is devoted
exclusively to the business license tax - exempt purposes of the organization and the
organization has obtained prior approval from the Town Council to conduct the sale.
Daily.............................. ...........................7.50
A "peddler" is every person not having a regularly established place of business in the Town
who travels from place to place, or has a stand upon any public street, alley or other public
place, doorway or any building, unenclosed or vacant lot, or parcel of land, who sells, offers
for sale, any goods, wares or merchandise in his possession.
Section 15- 28.38. Professional and Semiprofessional Occupations.
Per professional or semiprofessional person ........................... 200.00
Additional per employee ............ ............................... 15.00
Professional or semiprofessional business or service occupations include, but are not limited to, the
following:
Accountant
Advertising counsel
Appraiser
Architect
Artist
Assayer
Attorney -at -law
Auditor
Bacteriologist
Broker, stock or bond
Chemist
Chiropodist
Chiropractor
Dentist
Designer or decorator
MGR035 A: \FEES \QRDINANC 5
Detective or investigative personnel
Draftsperson
Drugless practitioner
Electrologist
Engineer: civil, mining, electrical, construction
Engineer: structural, consulting, mechanical, hydraulic
Engraver
Feed, grain and fruit broker
Geologist
Illustrator or showcard writer
Landscape architect
Lapidary
Lithographer
Masseuse or masseur
Oculist, optician or optometrist
Osteopath
Physician
Real estate brokers
Surgeon
Surveyor
Taxidermist
Veterinarian
X -ray, dental or medical laboratory
Section 15- 28.40. Service Occupations .......................... 100.00
Service occupations" means appliance, home furnishing or radio and television installation,
maintenance and repair, janitorial and building maintenance, or landscape installation and
maintenance.
Section 15- 28.42. Shooting Galleries ........................... 105.00
Section 15- 28.44. Solicitors (per business) ........................ 210.00
A "solicitor" is one who engages in the business of going from house to house, place to
place or in or along the streets within the Town selling or taking orders for, or offering to
sell or take orders for, goods, wares, merchandise, advertising or other things of value for
future delivery, or for services to be performed in the future.
Section 15- 28.46. Taxicabs.
Per business ........... ............................... 150.00
Additional per taxi ........ ............................... 22.50
Section 15- 28.48. Theaters and Concert Halls ...................... 105.00
Section 15- 28.50. Trucking (annual)
Persons other than peddlers who sell or deliver food or any other goods by means of a vehicle, and
who have no fixed place of business in Town, per vehicle ............... 140.00
MGR035 A: \FEES \ORDINANC 6
Persons who make no more than two deliveries or sales per quarter are exempt from the foregoing
tax. All other motor vehicle delivery business, whether the business operates on a regular route or
between fixed termini or not:
For one vehicle .......... ............................... 45.00
For each additional vehicle .. ............................... 22.50
Section 15 -29. Credit for Businesses in Business Improvement Area
a. Any business located and operating within a parking and business improvement area
established pursuant to Streets and Highways Code §§ 36500 et ee . shall receive a credit on the
annual license tax as set forth in this section.
b. Each person doing any of the kinds of business specified in subdivisions 15- 28.14, 15-
28.16, 15- 28.38, 15- 28.40, and 15 -28.50 shall receive a credit equal to 50% (one -half) of the annual
business license tax.
c. Every person doing any other kind of business shall receive a credit equal to 33 -1/3%
one- third) of the annual business license tax.
SECTION III
Any judicial action or proceeding to attack, review, set aside, void or annul this ordinance shall be
commenced within 120 days after adoption of this ordinance.
SECTION IV
A. This ordinance shall take effect July 1, 1991. Within 15 days after this ordinance is adopted
the Town Clerk shall cause it to be published once in a newspaper of general circulation
published and circulated in the Town.
B. In establishing the effective date, the Town Council finds that this ordinance relates to taxes
for the usual and current expenses of the Town within the meaning of Government Code
Section 36937, and must be effective July 1, 1991, so that business license fees will be paid
at higher rates commencing with the beginning of the 1991 -92 fiscal year.
This ordinance was introduced at a regular meeting of the Town Council of the Town of Los Gatos
on May 28, 1991 and adopted by the following vote as an ordinance of the Town of Los Gatos at a eeting
of the Town Council of the Town of Los Gatos on June 3, 1991. d
COUNCIL MEMBERS:
AYES: Joanne Benjamin, Randy Attaway, Eric D. Carlson, Steven Blanton
NAYS: None
ABSENT: Mayor Brent N. Ventura
ABSTAIN:
SIGNED:
VICE- MAYOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
ATTEST:
CLERK OF THE TOWN OF LOS , d OS
LOS GATOS, CALIFORNIA
MGR035 A: \FEES \ORDINANC
This Page Intentionally Left Blank
SUBMITTED BY HdL Companies 120 S. State College Blvd., Ste 200 Brea, CA 92821 hdlcompanies.com
CONTACT Eric Myers T: (424) 228-8517 Ext. 1022 E: emyers@hdlcompanies.com
Final
June 8, 2022
Business License Analysis & Ordinance Review
ATTACHMENT 2
2 | Page
Table Of Contents
EXECUTIVE SUMMARY 3
SECTION 1 – TOWN OF LOS GATOS & COMPARATIVE JURISDICTIONS 4
BUSINESS TAX - ANALYSIS 4 BUSINESS TAX - EQUITY OF CONTRIBUTION 5 TOWN OF LOS GATOS: BUSINESS TAX – BUSINESS TYPE SUMMARY 6
TOWN OF LOS GATOS: COMPARISON TO NEIGHBORING CITIES 7 COMPARISON CITIES SUMMARY TABLE (USING FY 18-19 DATA) 8 RATE COMPARISON - TOWN OF LOS GATOS VS. NEIGHBORS 11
SECTION 2 – CATEGORY & TAX ANALYSIS 12
LICENSE CLASSIFICATION AND RATE TYPES 12 MODEL 1: EXISTING CATEGORIES WITH SIMPLE INCREASES 13 MODELS 2 AND 3: GROSS RECEIPTS TAX – REPLACE ALL CATEGORIES WITH GROSS RECEIPTS TAX 13 PROPOSED RATES COMPARISONS 17
APPENDIX A 20
CODE REVIEW 20
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Executive Summary
Background
The Town of Los Gatos (Town) requires all businesses operating within the Town to obtain a business license and pay
business license taxes. (Town’s Municipal Code (Code) section 14.10.020). This revenue is locally controlled and funds
essential services. The Town commissioned the HdL Companies ("HdL" or "we," "us," "our," or similar terms) to prepare this
tax study to review the administrative efficiency of the current structures, to review options for improving the equity of the
business license tax structure, if any, and to investigate the possibilities for additional revenue generation. In addition, the
Town would like a flexible structure that can adapt to ongoing changes in the economy.
To put it another way, the models and recommendations in this study should be evaluated not only on whether they increase revenue but, ideally, also on whether they move the Town's business license structure up and to the right in the four quadrants presented below in Chart 1.
Chart 1: Key attributes of modern business tax structures
Recommendation
The Town’s current structure, while capable of being improved, is already producing well when compared to similar jurisdictions. If the Town were to consider updating its tax structure, we recommend that the Town consider adopting a gross receipt tax structure like Model 2 on page 14. This model is similar to the Town’s existing structure but it makes that structure simpler to administer, improves the equity, and could modestly increase revenue for the future.
Report Structure
We have divided this report into two major sections and an appendix.
Section 1 - Pages: 4 to 11
In the first section, we review the Town's current revenue and tax structures to describe the Town's current situation. Because the Town already uses some gross receipts, the Town is currently well-placed in comparison to similar jurisdictions. The Town has a concentration of professional services and rental revenue that make its economy different from many jurisdictions.
Section 2 - Pages: 12 – 20
In this section, we review three alternative tax structures. Model 1 is simple percentage increase applied to the existing tax structure. Models 2 and 3 estimate the impact of switching from the Town’s current hybrid approach—some gross receipts and some flat fees—to a gross receipts-based approach. Ultimately, we recommend model 2 because of its simplicity and its modest increase in revenue without imposing too much of an increase on key economic sectors.
Appendix A
Appendix A discuss key items in the Town’s current structure that could be administratively simplified. It also notes some areas for further review to help modernize the Town’s tax structure. Unequal Effective Tax Rate Equitable Effective Tax Rate Tax Structure Simplification
Complex Tax Implementation
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SECTION 1 – Town of Los Gatos & Comparative Jurisdictions
Business Tax - Analysis
The Town currently has approximately 2,483 business that are paying their business license tax. Over the last five fiscal years, business license tax revenue has averaged approximately $1.43 million per fiscal year. As you can see in Chart 2, the Town's business tax revenue peaked pre-pandemic and has yet to return to pre-pandemic levels. This is consistent with the slow recovery we are seeing statewide. (Please note that while FY 2022 is showing a decline, that may simply be from late reporting at the time the data was pulled.)
Chart 2: 5-year revenue trend
Chart 3, which compares the percentage change year-over-year in business tax revenue to the percentage change in sales tax, shows the impact of the pandemic on both sales tax and business license tax growth rates. The comparison is useful since it shows the varying impacts of economic changes on sales tax (goods sold at retail) and the business license tax (the broader economy, including services). As you can see, the impact of the recession on the Town’s overall economy was deeper than it was on just the retail sector.
Chart 3: Comparing revenue growth against the broader economy
$1,526,894
$1,686,251
$1,334,654 $1,443,637
$1,272,892
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
FY2018 FY2019 FY2020 FY2021 FY2022
Town of Los Gatos Business Tax Revenue Recent Trend
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
FY2019 FY2020 FY2021
Business Tax and Sales Tax Percent Change Year to Year (YTY)
Bus Tax % Change YTY
Sales Tax % Change YTY
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Business Tax - Equity of Contribution
The Town currently uses a combination of flat fees and gross-receipts to measure the tax on businesses.
Table 1: Current Tax Structures
Business Category Type Total Count Primary Tax Type
CONTRACTOR 539 $224 Flat Fee
GENERAL COMMERCE/RETAIL 644* Tiered Gross-Receipts
RENTAL (COMMERCIAL & RESIDENTIAL) 227 $7.50 per unit (over 3 dwelling units)
SERVICE 511 $100 flat fee
PROFESSIONAL 562 $200 per professional/$15 per non-professional employee
TOTALS 2,483
*Includes 342 businesses that did not have a classification in the data
As you can see in chart 4, given the Town’s current use of flat fees and decreasing gross-receipts tax rates, the Town’s
current structure is regressive. For example, a general retail business grossing $50,000 a year (the small business in the chart
below) would pay $75.00, which is an effective tax rate of 0.15%. That is not a bad tax rate. But a large business, grossing
$1 million in a year, will pay $600 or 0.06%--less than half the effective tax rate of the small business. From a revenue
perspective, this is perfectly reasonable given that larger business contributes more revenue overall. But it leaves something
to be desired on the equity front since it imposes a higher effective tax rate on smaller businesses. Chart 4 below illustrates
the current effective tax rates in the town using three hypothetical business.
Chart 4: Examples of Current Tax Rate as Percent of Estimated Gross Receipts
0.150000%
0.080000%
0.060000%
0.00%0.02%0.04%0.06%0.08%0.10%0.12%0.14%0.16%
Business
Large Business
Medium Business
Small Business
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Town of Los Gatos: Business Tax – Business Type Summary
As you can see below, the Town's economy, at least as reflected in its business tax revenue, is heavily concentrated in professional and other services. These business are fairly mobile and thus may be more sensitive to tax increases.
Pie Chart 1:
4%
13%
11%
10%
39%
9%
7%
5%1%1%
Total Share of Tax Revenue Generated by Business Type
Real Estate and Rental andLeasing
Health Care and SocialAssistance
Professional, Scientific, and
Technical Services
Construction
Other Services (except PublicAdministration)
All Others
Retail Trade
Accommodation and FoodServices
Finance and Insurance
Transportation and
Warehousing
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Town of Los Gatos: Comparison to Neighboring Cities
Below you can see the comparison jurisdictions that we chose to use in the study. They were chosen because they were: (1) in similar geographic regions, (2) were like the Town in median income, and (3) were relatively similar in population density.
Chart 5
The table below highlights population, the estimated number of licensed businesses, and estimated annual revenue for quick comparison. Below the table are some key graphics showing how the Town compares to other jurisdictions. For purposes of comparison, we use the fiscal year 18-19 data. We do so because that data is pre-COVID and so avoids the ‘noise’ in the data caused by the impact of the pandemic on the Town.
Continued on next page.
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Comparison Cities Summary Table (Using FY 18-19 data)
Table 2: Comparison Data
Jurisdiction Name Est. Square Miles
Est. Population
Est. Median Household Income
Est. Businesses in FY 18-19 Tax Type Est. Revenue in FY 18-19
Gilroy 16.15 59,520 $ 107,729.00 3,545 Gross Receipts
(capped at $2k) $ 693,758
Morgan Hill 12.88 45,483 $ 128,373.00 3,341 Employee + Flat $ 246,007
Campbell 5.8 43,959 $ 122,644.00 5,869 Employee $ 693,263
San Bruno 5.48 42,807 $ 113,103.00 4,060 Gross Receipts $ 1,814,000
Los Gatos 11.08 33,529 $ 156,270.00 2,483 Gross Receipts +
Fixed Fee $ 1,686,251
Los Altos 6.49 31,625 $ 240,094.00 3,807 Employee $ 540,262
Saratoga 12.38 31,051 $ 201,046.00 3,742 Employee + Flat $ 377,106
Monterey 8.47 30,218 $ 80,908.00 3,866 Gross Receipts $ 3,834,852
San Carlos 5.54 30,185 $ 189,739.00 4,245 Employee + Flat $ 1,020,000
Belmont 4.62 26,941 $ 160,046.00 3,074 Employee & Flat $ 880,000
Sausalito 1.77 7,269 $ 120,920.00 2,285 Gross Receipts $ 631,060
As you can see in the above table, the Town’s FY19 business tax revenues place it in the top three amongst this comparison group. One interesting comparison is between the Town and Saratoga. These are the two least densely populated jurisdiction in the study but the Town’s business tax revenues are significantly higher than those for Saratoga. This is likely influenced by Saratoga’s per employee structure. Another instructive comparison is with Belmont. Belmont has almost double the population density of the Town but given its current tax structure received 50% of the tax revenues that the Town did in FY19. This too is likely a function of the Employee and Flat-fee structure currently used in Belmont. Yet another interesting comparison may be with the City of Sausalito. While the City is quite a bit smaller, its per capita revenue is nearly twice that of the Town’s and is more than that now given its implementation of a simplified gross receipts model a couple of years ago.
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Chart 6: Est. Count of Businesses
Chart 7: Business Tax Per Capita Comparison
5,869
4,245
4,060
3,866
3,807
3,742
3,545
3,341
3,074
2,483
2,285
0 4,000 8,000 12,000 16,000 20,000 24,000
Campbell
San Carlos
San Bruno
Monterey
Los Altos
Saratoga
Gilroy
Morgan Hill
Belmont
Los Gatos
Sausalito
Est. Count of Businesses
FY18/19 by Jurisdiction
$126.91
$86.82
$50.29
$42.38
$33.79
$32.66
$17.08
$15.77
$12.14
$11.66
$5.41
$- $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00
Monterey
Sausalito
Los Gatos
San Bruno
San Carlos
Belmont
Los Altos
Campbell
Saratoga
Gilroy
Morgan Hill
Est. FY 18/19 Business Tax Revenue Per Capita
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Chart 8: Business Tax per Business Comparison
$991.94
$679.12
$446.80
$286.27
$276.18
$240.28
$195.70
$141.91
$118.12
$100.78
$73.63
$- $200.00 $400.00 $600.00 $800.00 $1,000.00 $1,200.00
Monterey
Los Gatos
San Bruno
Belmont
Sausalito
San Carlos
Gilroy
Los Altos
Campbell
Saratoga
Morgan Hill
Est. FY 18/19 Business Tax Revenue
Per Business
Rate Comparison - Town of Los Gatos vs. Neighbors
Current Rate Comparison (Table 3)
Sample Business Los Gatos Belmont San Carlos San Bruno Los Altos Sausalito
Small Craft Business: 1 employee / <$20,000 $75.00 $375.00 $234.00 $75.00 $75.00 $125.00
Restaurant: 3 Employees / $150,000 $150.00 $443.00 $234.00 $162.50 $75.00 $150.00
Big Retailer: 275 Employees / $19,000,000 $975.00 $9,691.00 $10,024.00 $7,750.00 $2,765.00 $19,000.00
Hotel / Rental Property: 50 Employees /
$1,500,000 $375.00 $341.00 $2,424.00 $1,205.00 $305.00 $1,500.00
Doctors Office: 20 Employees / $2,000,000 $2,150.00 $3,750.00 $1,304.00 $1,480.00 $980.00 $6,000.00
Professional Firm: 15 Employees / $1,100,000 $1,520.00 $2,659.00 $1,009.00 $985.00 $735.00 $3,300.00
Small Contractor: 1 Employee / $75,000 (outside) $224.00 $341.00 $234.00 $75.00 $75.00 $150.00
Contracting Firm: 3 Employees / $225,000
(outside) $224.00 $341.00 $234.00 $75.00 $150.00 $450.00
Sample Business Los Gatos Saratoga Morgan Hill Gilroy Campbell Monterey
Small Craft Business: 1 employee / <$20,000 $75.00 $110.00 $20.00 $40.00 $124.00 $26.00
Restaurant: 3 Employees / $150,000 $150.00 $130.00 $43.00 $120.00 $124.00 $213.50
Big Retailer: 275 Employees / $19,000,000 $975.00 $200.00 $3,035.00 $2,000.00 $572.00 $28,488.50
Hotel / Rental Property: 50 Employees /
$1,500,000 $375.00 $200.00 $165.00 $360.00 $321.00 $3,585.00
Doctors Office: 20 Employees / $2,000,000 $2,150.00 $200.00 $640.00 $100.00 $400.00 $2,988.50
Professional Firm: 15 Employees / $1,100,000 $1,520.00 $200.00 $450.00 $100.00 $400.00 $1,638.50
Small Contractor: 1 Employee / $75,000
(outside) $224.00 $45.00 $60.00 $150.00 $99.00 $101.00
Contracting Firm: 3 Employees / $225,000
(outside) $224.00 $45.00 $60.00 $150.00 $325.00 $326.00
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SECTION 2 – Category & Tax Analysis
The Town requested that HdL conduct an analysis of the current license structures and explore options for modifying the rates and categories. In Section 1, we summarized the current structure of the Town’s business tax and compared the town to neighboring jurisdictions to give an idea of how the various tax structures and markets in nearby municipalities are creating different revenue outcomes.
In this section, we provide options for modifying the Town's business tax rates and classifications. Using the data compiled in section 1 of this report on current license revenues, we developed models to estimate potential fiscal impacts to the Town from the different models. You can find summary charts on pages 17-19 that provide a quick look at each proposed model's impact on the Town revenues and the business community.
License Classification and Rate Types
In what follows, we will use five basic categories of businesses. You have seen those categories earlier in Table 1. These
are five basic structures that are common across municipalities. The definitions below are general and not meant to be the
complete definitions that would appear in a municipal code.
General Commerce/Retail: These are retailers, wholesalers, hoteliers, restaurateurs, and manufacturers. All these businesses are likely to contribute to your tax base in other ways (i.e., property tax and sales tax) and often have lower profit margins.
Rental (Commercial & Residential): This category includes any business that leases, rents, or provides use of real property to
another individual or entity for compensation. Examples include but are not limited to commercial leasing, residential rental,
parcel leasing, etc.
Service: This is the offering of services that require minimal to no higher education training. This is also the default category
for any business that is not specifically defined in one of the other five categories. Examples include but are not limited to
hair stylists, gardeners, nail salons, etc.
Professional: These businesses offer services that require a rigorous amount of training through any type of higher education, or vocational institutions that exclusively certifies, complete obtainment of skills and the ability to offer such professional services. Examples include but are not limited to a doctors’ office, a law office, a consulting firm, etc.
Contractors: These are persons or firms that are carrying on the business of a contractor, subcontractor, or builder
particularly the construction or repair of any buildings. Examples include but are not limited to construction, plumbing,
HVAC, etc.
Table 4: Approximate grouping of Town's Businesses by the proposed categories
Business Category Type Total Count Total Taxes
CONTRACTOR 539 $ 128,316
GENERAL COMMERCE/RETAIL 644* $ 276,138
RENTAL (COMMERCIAL & RESIDENTIAL) 226 $ 50,845
SERVICE 512 $ 505,640
PROFESSIONAL 562 $ 311,954
TOTALS 2,483 $ 1,272,892
*Includes 342 businesses that did not have a classification in the data
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Model 1: Existing Categories with Simple Increases
The Town may elect to retain the existing structure while modifying the tax amounts for each category. Keeping the current structure in place would eliminate the need to create different categories and allow for a much simpler implementation for the Town and the business community. It would not avoid the need for an election since it would entail an increased tax rate. And it would not address any administrative complexity in the current workflows.
Table 5: Estimated revenue from a simple percentage increase
Number of Businesses Est. FY2022 Revenue 20% Increase 40% Increase
2,483 $ 1,272,892 $1,527,470 $1,782,048
Model 1 – Highlights and Impact Review
As indicated in the model above, a simple increase could keep the existing structures in place while yielding higher revenues to the Town. A 20%-40% increase across all sectors of industry is easy to implement but it does nothing to address equity. The drawback of model 1 is that the tax remains regressive. In fact, because it would increase the flat fees, it becomes more regressive. And, thus, does not really fit the Town's objectives.
Models 2 and 3: Gross Receipts Tax – Replace All Categories with
Gross Receipts Tax
We now turn to consider two models that are variations on the theme of a gross-receipts-based tax.
Many California cities use some form of gross receipts tax structure. Many of those cities use a standard rate multiplier to determine the tax amount owed, setting the rate for each business category. For example, a city may choose to charge $1 per thousand dollars of gross receipts (0.001 x Gross) for a retail business while charging a rate of $3.00 per thousand dollars of gross receipts (0.003 x Gross) for service or professional businesses.
The benefits of gross receipts-based taxes are the equity of their effective tax rate, ease of calculation, and potential for capturing revenue from growth in the economy. The drawback is that it exposes Town revenues to the fluctuations of gross receipts in the economy.
Gross Receipts Tax – Estimates
Since we do not have information on gross receipts for the Town's current businesses, we used multiple assumptions in the
options below, which are meant to provide an estimate of the possible impact and should not be relied upon for precise
budgeting. The following information was used as a basis for the tax tables and models in the options below. Please note
that in estimating the Total Gross Receipts, we have chosen to exclude a significant outlier that would skew the models.
Table 6: Key estimates used in the gross-receipts models
Number of Businesses Total Business Taxable Gross Receipts (Est.)
2,483 $1.17 billion
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Model 2: Gross Receipts Tax – Single Gross Receipts Rate
Model 2 reflects the potential revenues for converting the Town tax to a single-rate, gross-receipts model. This model is simple to administer—everyone is charged the same rate—but it allows the Town to increase revenue. Model 2 also lowers the annual base rate to a uniform $25, to provide some tax relief for smaller businesses.
Table 7: Model 2—Potential Tax Structure
Tax Basis Tax Rate
Base Rate $25 Flat Rate (first $25,000 Gross Receipts)
Gross Receipts Tax + $1.50 per thousand dollars of Gross Receipts
(0.0015 x Gross Receipts)
Model 2 Estimates Table
The table below indicates the potential revenues from implementing a gross receipts tax with two options, $1.25 per
thousand and $1.50 per thousand. Information for the estimates comes from the data in the section above. Please note that
this model and model three do not include the actual gross receipts. These models use estimated gross receipts based on
the business classification. Although, this is generally useful, where, as here, the jurisdiction has taxpayers that far exceed
the average, the model will be conservative.
Table 8: Model 2 – Rough Estimates from a simple gross receipts structure
Number of Accts Taxable Gross Receipts Base Rate @ $25 per Account
Tax Amount $1.25/ thousand -Over $25,000-
Tax Amount $1.50/ thousand -Over $25,000-
2,483 $1.17 billion $62,075 $1,382,939 $1,659,527
TOTAL $1,445,014 $1,721,602
Model 2 – Highlights and Impact Review
The "single rate" method of taxing on gross receipts provides an even distribution of the effective tax rate because all businesses subject to the tax will pay the same rate. Under this method, no cap is put in place, and therefore most of the revenues are received from the highest-grossing businesses. Model 2 expands revenue while keeping the tax structure simple and easy to understand for businesses and helping to decrease the effective tax rate on smaller businesses while asking larger businesses to pay their fair share.
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0.120000%
0.120000%
0.060000%
0.140000%
0.140000%
0.080000%
0.060000%
0.080000%
0.150000%
0.00%0.05%0.10%0.15%0.20%
Large Business
Medium Business
Small Business
Current vs. New Effective Tax Rates
Current Tax Structure
$1.50/Thousand-Over $25,000
$1.25/Thousand-Over $25,000
Chart 9: Estimated Effective Tax Rates Under A Simple Gross Receipt Model
Model 3: Gross Receipts Tax – Classification-Based Rates
Model 3, as indicated below, would create different rates for different business classifications. For example, the Town might choose to implement a rate for the retail/wholesale/miscellaneous business activities at a base rate of 0.001, recognizing the higher costs of goods sold and lower profit margins for these types of business as well as their contribution to other Town revenues such as sales tax. Conversely, the Town could consider implementing a higher rate for professionals due to the nature of their business model. This model affords the most flexibility for increasing revenues while accommodating certain business categories. Model 3 utilizes the same base rate as the previous model to resemble the base rate of neighboring cities.
Please note that for the Town of Los Gatos, given its more upscale nature and concentration of professional services, the additional burden placed on professional services in this model may be a serious constraint on how useful Model 3 if it were implemented.
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Tax Structure and Estimated Revenue
The following table illustrates how gross receipts rates can vary by categories giving flexibility to the tax structure. The structure provided is just one example of how the Town might utilize a gross receipt model. Should the Town decide to use a gross receipts tax model, HdL will work with the staff to finalize a structure that best serves the Town's goals.
Table 9: Basic tax structure for classification-based gross receipts
Categories Base Rate Gross Receipts Tax Rate
CONTRACTOR
$25 Flat Rate per
Business (first $25,000
in Gross)
0.002 X Gross
GENERAL COMMERCE/RETAIL 0.001 X Gross
RENTAL (COMMERCIAL &
RESIDENTIAL) 0.003 X Gross
SERVICE 0.001 X Gross
PROFESSIONAL 0.003 X Gross
Table 10: Estimated revenue from classification-based gross receipts
Business Type Number of Accts Est. Taxable Gross Receipts
Base Rate $25 per business
Total Est. Annual Gross Receipts Tax Current Taxes
CONTRACTOR 539 $ 130,595,970 $ 13,475 $ 234,241 $ 128,316
GENERAL COMMERCE/RETAIL 644 $ 513,460,273 $ 16,100 $505,910 $ 276,138
RENTAL (COMMERCIAL &
RESIDENTIAL) 226 $ 58,682,658 $ 5,650 $159,097 $ 50,845
SERVICE 512 $ 112,360,600 $ 12,775 $ 199,171 $ 505,640
PROFESSIONAL 562 $ 353,067,423 $ 14,050 $1,017,052 $ 311,954
2,483 $1.17 billion $62,075 $ 2,116,177
TOTAL $ 2,178,252 $ 1,272,892
Model 3 – Highlights and Impact Review
This option has the benefit of spreading the burden of an increase across multiple business types. But given the high number
of professionals in the Town’s economy there would be a significant increase in taxes paid by professional services. While
they may be able to absorb the cost, they may also choose to relocate. The impact of such a loss should be considered when
evaluating the Town’s options. The Town has the option of modifying the rates and reassigning business types to different
categories to account for concerns about impacts on different parts of the economy. The model above includes basic rate
increases for standard categories but can be further expanded or contracted to accommodate a different method of the
Town's choosing.
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Proposed Rates Comparisons
Table 11: Comparing Gross-Receipt Models By Hypothetical Business Type
Sample Business Town's Current Rates
Model 2 Gross Receipt $1.50 / Thousand
Model 3 Gross Receipts $1 - $3 / Thousand Small Craft Business: 1 Employee / <$20,000 $75 $25 $25
Nail Salon: 1 Employee/$100,000 $112.5 $138 $100
Tutor: 1 Employee/$75,000 $200 $100 $75
Restaurant: 3 Employees / $150,000 $150 $213 $150
Mid-size Restaurant: 15 Employees / $2,000,000 $975 $2,988 $2,000
Big Retailer: 275 Employees / $19,000,000 $975 $28,488 $19,000
Hotel / Rental Property: 50
Employees / $1,500,000 $375 $2,238 $1,500
Doctors Office: 10 Professional/ 10 Support / $2,000,000 $2,150 $2,988 $5,950
Doctor's Office: 1 Professional/1 Support/$745,000 $215 $1,105 $2,185
Doctor's Office: 20 Professionals /1 Support/$2,000,000 $4,015 $2,988 $5,950
Professional Firm: 15 Employees / $1,100,000 $1,520 $1,638 $3,250
Attorney: 1 Professional/$300,000 $200 $438 $850
Small Contractor: 1 Employee / $75,000 (outside) $224 $100 $125
Contracting Firm: 3 Employees / $225,000 (outside) $224 $325 $425
Ecommerce/Wholesale: 25 Employees/$4,000,000 $1,687.50 $5,988 $7,975
Estimated Totals $13,098 $49,755 $49,560
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Chart 10: Average Revenue Yield Models By Business Category
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
CONTRACTORS GENERALCOMMERCE/RETAIL PROFESSIONAL RENTAL (COMMERCIAL &RESIDENTIAL)SERVICE
Current Model 2 Model 3
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Chart 11: Equity of Models
0.290000%
0.090000%
0.050000%
0.150000%
0.140000%
0.080000%
0.060000%
0.080000%
0.150000%
0.00%0.05%0.10%0.15%0.20%0.25%0.30%0.35%
Large Business
Medium Business
Small Business
Current vs. New Effective Tax Rates
Current Tax Structure
Model 2 Tax Rate Structure($1.50/1000)
Model 3 Tax Rate Structure
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Appendix A
Code Review
1. Code Section 14.10.10 Definitions
We recommend that the Town update the definition of “gross-receipts” to clarify that transfers from one entity or partner
to another, are only excluded if the receiving partner (or entity) has a business license in the Town.
We also recommend that to deal with the rise of start-ups and ecommerce that the definition of “Gross Receipts” should
include the cost of operations. For example, if a business is in start-up-mode and has $10,000 in gross receipts but has
significant venture capital backing and thus has a cost of operations of $1,000,000, that business should use the cost of
operations as its gross-receipts and pay the tax on that measure. While this change would add some complexity to the
application and renewal process it improves the flexibility of the code for future changes in the economy.
2. Code Section 14.10.015 Statement of Purpose
We commend the Town for having a clear statement that the purpose of the business license is for revenue purposes.
This clear statement can be vital in shaping administrative ease and avoiding potential legal issues with intertwining the
revenue-based and regulatory measures.
3. Code Section 14.10.025 Branch Establishments
We recommend that this section be amended to add language clearly addressing what happens if two different business
activities, having two different classifications, occur at the same location. Generally, municipalities either allow
apportionment or require the higher of the two classifications to apply.
4. Code Section 14.10.03 Exemptions.
We commend the Town for the flexible definition of exemptions in subparagraph (a)(1). In that same spirit, the Town may
want to consider combining the exemptions in subparagraphs(a)(2)-(4) with the clearer definition of a non-profit entity in
subparagraph(a)(5).
Additionally, paragraph (b) contains a small business exemption. And section 14.20.125 contains one for contractors. We
recommend consolidating the exemptions or at least placing them together here in this section. It will make it easier for
your administrative staff and the community to find and apply the exemptions.
5. Code Sections 14.10.035, 14.10.040, and 14.10.045—Signature requirements
We recommend that you remove the signature requirement. It is of little value—you already have a provision indicating the
statements are not binding against the Town—unless you want that ability to prosecute people for perjury. You may also
consider removing any requirements for certification or sworn statements, etc., for the same reason. Both requirements
can make it difficult to use online processing and thus can increase administrative complexity.
6. Code Section 14.10.040 True-up
Paragraph (b) gives the taxpayer until May 15th to file their true-up. Given that the same information is used for the true-
up and the renewal, which is due in January, we recommend that you move the true-up to January to make it easier for
your administrative staff and your taxpayers.
7. Code Section 14.10.055 Confidentiality
You may want to consider that your current language here prevents you from sharing information with internal
departments. Additionally, it might be good to clarify that some form of aggregated reporting is allowed.
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8. Code Sections 14.10.060, 14.10.065, and 14.10.115
In these sections, the Town requires approvals or administrative hearings to go immediately to the Council. We
recommend that the code be changed to have the first approvals and hearings conducted by the Town Manager. This can
preserve confidentiality for the taxpayer and provides another opportunity for resolution before bringing the matter
before the Town Council.
9. Code Section 14.10.075 Delinquencies
It may be difficult to require that no license be issued if they are delinquent. This is particularly true since the purpose of
the license is just signify payment of tax and not to authorize the conducting of a business. Put another way, to refuse
payment for a current period when back periods are owed may expose the taxpayer to additional penalties. This may be
the intent but, if not, the Town may want to consider the cost of this policy. Additionally, we recommend that you add
language allowing the Town to recoup the cost of collection.
10. Code Section 14.10.095 Term
You may want to consider clarifying that licenses expire at the end of the duration (i.e. a calendar year and calendar month)
and not just at the end of year as stated in this section.
11. Code Section 14.10.105 Transferability
We recommend that you not allow transfers. A change of address may require new zoning or other reviews. We
recommend that you require a new application when a business relocates.
12. Code Section 14.10.110 Duplicate License Charges
We recommend that the Town remove the charge for a duplicate. It may make sense to charge it if the requests become
excessive but generating a certificate with most modern systems is not sufficiently expensive to justify the overhead of
tracking and charging this cost.
13. Code Section 14.10.125
We recommend that Town remove the duty to inspect and replace it with the right and the discretion to inspect. It is
unlikely that the Town will inspect all businesses. The cost is too high and the benefits are too low. We also recommend
that you add language clarifying that the Finance Director can designate someone else to do this function in their place.