HomeMy WebLinkAboutItem 37 - Proposed Ballot Measure to restructure business licensing tax rates and CH. 21 of SAMCFinance and Management Services
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Item # 37
City of Santa Ana
20 Civic Center Plaza, Santa Ana, CA 92701
Staff Report
May 17, 2022
TOPIC: Proposed Ballot Measure to restructure business licensing tax rates and Chapter
21 of the Santa Ana Municipal Code
AGENDA TITLE:
Discuss and Provide Direction Regarding a Proposed Voter Ballot Measure to
Restructure Business Licensing Tax Rates and Chapter 21 of the Santa Ana Municipal
Code
RECOMMENDED ACTION
Discuss and provide direction regarding a proposed Voter Ballot Measure for the
November 8, 2022, General Election to: (1) restructure non -cannabis business license
tax rates and charges with the aim of achieving an overall net revenue neutral result
designed to reflect current best practices and to recognize the impact of home -based
businesses and the new "gig" economy; and (2) provide a flexible Tax Holiday period for
unlicensed, past due, or under -assessed businesses to obtain a valid business license or
satisfy unpaid or unassessed taxes; and (3) align with closely associated provisions of
SAMC Chapter 21.
DISCUSSION
The City of Santa Ana's Business License Tax Code, Santa Ana Municipal Code
("SAMC") Chapter 21, was comprehensively revised on July 7, 1987 through the adoption
of Ordinance NS-1922. Subsequently, between 1987 and 2019, the City's Business
License Tax Code has been further modified fourteen times, the most recent
modifications affecting non -cannabis business license taxes occurring in 2019. The
purpose of SAMC Chapter 21 is to provide a revenue for the general operation of the City
of Santa Ana by the levy of a license tax on all business transactions or activities carried
on or occurring within the City and is not intended for regulation. Over the passage of
time, the best practices approach to business license taxation has shifted. The current
business license tax rate structure favors large businesses, whose contributions to the
City are indirectly subsidized by medium and small businesses, whose effective tax rates
are considerably higher than large businesses due to the steeply regressive nature of the
gross receipts tax rate schedules originally adopted. Current best practice is to equalize
this burden by adopting a flat and neutral (typically described as "proportional") tax rate
structure where all businesses sharing the same broad tax category; i.e. "retail & services
Proposed Ballot Measure to Restructure Business License Tax Code
May 17, 2022
Page 2
business" versus "whole & manufacturing businesses", etc. pay the same percentage rate
on all their gross receipts revenue generated.
The intent of the proposed restructuring of the City's non -cannabis business license tax
rates is to effectively achieve such a proportional rate structure that is both simpler and
more equitable to medium and small businesses, home -based businesses, and
independent contractors and free-lancers. In 1987, the business license tax code did not
properly factor in the evolving effect of home -based businesses and the future gig
economy, which have grown tremendously in the last 35 years. Historically, Santa Ana
business license taxation has been composed of a mix of tax assessment methodologies
and rate structures. These include the following:
• Gross Receipts Business License Tax Assessment, including, but not limited to,
retail sales and services, commercial property rental, wholesale sales and
manufacturing, processing, gas and oil sales, and telecommunication utilities.
• Variable Flat Rate Business License Tax Assessment, including, but not limited to,
ambulances, billboard signs, buses, limousines or other vehicles for hire, catering
trucks, produce or fruit & produce trucks, delivery vehicles, ice cream trucks, junk
collection vehicles, shoeshine stands, taxicabs, tow trucks, vending machines, and
professional offices (physicians, dentists, attorneys, etc.).
• Fixed Flat Rate Business License Tax Assessment, including, but not limited to,
advertising (handbill) services, amusement centers, bankruptcy -closeout -fire -
wreck sales, sports exhibitions, carnivals or circuses, Christmas tree or pumpkin
patch lots, dance halls or places, daycare or nursery services, firework stands,
gratuitous licensees or hobbyist licensees, home occupations, independent
contractors per individual, itinerant merchants, pawnbrokers, residential rentals,
solicitor/peddler as principal, state licensed contractors, theatrical performances,
and warehouses and storage.
Through a three-part phased approach comprised of (1) a leading consolidation
Ordinance of Rates and Schedules; (2) the adoption of a Voter Ballot Measure; and (3)
an optional trailing cleanup Reconciliation Ordinance, staff is proposing to accomplish the
following:
Phase One includes the adoption of a consolidated Rates and Schedules
Ordinance to unify all non -cannabis tax rates, schedules, and charges currently
contained in Articles V through X of SAMC Chapter 21, respectively, into a single
article (Article X) for clarity and cohesion. This Ordinance will facilitate a more
compact Voter Ballot Measure. (If the Voter Ballot Measure process is deferred
after this initial phase, the changes made will not negatively impact continuing of
non -cannabis business license taxes pursuant to the pre-existing rate structure.)