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Finance and Management Services <br />www.santa-ana.org/finance <br />Item # 37 <br />City of Santa Ana <br />20 Civic Center Plaza, Santa Ana, CA 92701 <br />Staff Report <br />May 17, 2022 <br />TOPIC: Proposed Ballot Measure to restructure business licensing tax rates and Chapter <br />21 of the Santa Ana Municipal Code <br />AGENDA TITLE: <br />Discuss and Provide Direction Regarding a Proposed Voter Ballot Measure to <br />Restructure Business Licensing Tax Rates and Chapter 21 of the Santa Ana Municipal <br />Code <br />RECOMMENDED ACTION <br />Discuss and provide direction regarding a proposed Voter Ballot Measure for the <br />November 8, 2022, General Election to: (1) restructure non -cannabis business license <br />tax rates and charges with the aim of achieving an overall net revenue neutral result <br />designed to reflect current best practices and to recognize the impact of home -based <br />businesses and the new "gig" economy; and (2) provide a flexible Tax Holiday period for <br />unlicensed, past due, or under -assessed businesses to obtain a valid business license or <br />satisfy unpaid or unassessed taxes; and (3) align with closely associated provisions of <br />SAMC Chapter 21. <br />DISCUSSION <br />The City of Santa Ana's Business License Tax Code, Santa Ana Municipal Code <br />("SAMC") Chapter 21, was comprehensively revised on July 7, 1987 through the adoption <br />of Ordinance NS-1922. Subsequently, between 1987 and 2019, the City's Business <br />License Tax Code has been further modified fourteen times, the most recent <br />modifications affecting non -cannabis business license taxes occurring in 2019. The <br />purpose of SAMC Chapter 21 is to provide a revenue for the general operation of the City <br />of Santa Ana by the levy of a license tax on all business transactions or activities carried <br />on or occurring within the City and is not intended for regulation. Over the passage of <br />time, the best practices approach to business license taxation has shifted. The current <br />business license tax rate structure favors large businesses, whose contributions to the <br />City are indirectly subsidized by medium and small businesses, whose effective tax rates <br />are considerably higher than large businesses due to the steeply regressive nature of the <br />gross receipts tax rate schedules originally adopted. Current best practice is to equalize <br />this burden by adopting a flat and neutral (typically described as "proportional") tax rate <br />structure where all businesses sharing the same broad tax category; i.e. "retail & services <br />