Belmont City Council
April 23, 2024

BUSINESS LICENSE TAX UPDATE
City Council Study Session, April 23, 2024
Business License Update 2
Why update?
What are our alternatives?
What do local businesses think?
Where do we go from here?
Tonight, We Will Discuss…
4/23/2024
Our
Purpose
4/23/2024 Business License Update 3
Why Have a Business License Tax?
4 • Supports essential City services
• 911 response times
• Safe and clean public streets and facilities
• Quality of life services such as high-quality parks and recreation programs and amenities
• Services utilized by businesses
their employees, and customers
• Services benefit the community,
making Belmont a great place to
live, visit, shop, and do business
• Generates ~$1.1 million annually,
4% of general fund revenue
4/23/2024 Business License Update
Why Do We Need an Updated Model?
5 • Our business license program is outdated, originally established in 1976 and last updated in 1990
• Our $341 minimum is much higher than nearby cities
• Low-revenue businesses pay higher effective tax rates since most businesses pay the minimum,
regardless of business size or revenue
• Council directed staff to modernize
the program to address any
imbalances while remaining
revenue neutral
4/23/2024 Business License Update
What is Our Current Business Mix?
Business License Update 6
4%
7%
12%
14%
19%
45%
Rentals (Commercial)
Construction Contractor
Professional Services
Rentals (Residential)
General
Other Services
• Landscaping
• Hairstylist
• Arts instructor
• Sports trainer
• Tutoring
• Restaurant
• Retail
• Wholesale
• Manufacturing
• Lawyer
• Physician
• Therapist
• Accountant
• Realtor
• Property mgmt.
• Architect
4/23/2024
Who Pays the Highest Effective Tax Rates?
Business License Update 7
3%
4%
7%
13%
14%
58%
Rentals (Commercial)
Rentals (Residential)
Construction Contractor
Professional Services
General
Other Services
Belmont Small Businesses by Category
• Landscaping
• Hairstylist
• Arts instructor
• Sports trainer
• Tutoring
• Restaurant
• Retail
• Wholesale
• Manufacturing
• Lawyer
• Physician
• Therapist
• Accountant
• Realtor
• Property mgmt.
• Architect
 The highest effective rates are paid by the
52% of Belmont businesses categorized
as “small” (generating <$100k annually)
4/23/2024
General Fund Revenue Per Household (in Millions)
Business License Update 8
$6,567
$3,767
$4,578
$2,943
$5,573
$4,872
$6,080
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Burlingame San Mateo Foster City Belmont Redwood
City
San Carlos Menlo Park
 With lower revenue per household, Belmont cannot
afford an alternative with a projected revenue loss
4/23/2024
Guiding Principles for This Update
Business License Update 9
Fairness Address inequities in existing model
Adaptability Reflect current and future business trends Comparability Use a model like surrounding agencies
Simplicity Make easy for businesses to understand
Streamlined Reduce stumbling blocks to administer
Address existing imbalances with no overall
gain or loss to the City Revenue Neutral
4/23/2024
Business Forums
Business License Update 10
• February – 3 forums, 42 attendees
• Revived discussion of an update with businesses
• Business Feedback
 Challenges with current tax administration
 Concerns with framing of the update effort
 References to prior update effort
 Support for a lower minimum tax
 Appreciation for being included in the conversation
4/23/2024
Evaluating
Alternatives
4/23/2024 Business License Update 11
What is Our Current Model?
Business License Update 12
• $341 base (minimum) tax plus a per employee or real
estate unit fee
• Fees set across 20+ business categories
4/23/2024
What Types of Models Exist?
13 Flat tax amount regardless of business size or revenue Flat Rate
Based on number of employees or real estate unit
Employee or Unit Based
Based on revenues generated by each business
(single rate or by business category)
Business (Gross) Receipts
Model leveraging any combination of the programs above
Hybrid
4/23/2024 Business License Update
What Are Other Nearby Cities Doing?
Business License Update 14
City Population Estimated
Businesses* Model Basis Minimum Tax
Belmont 26,773 2,400 Base + Employee/
Real Estate Unit $341
Burlingame 30,106 6,100 Tiered Gross Receipts $200
Foster City 32,517 1,900 Gross Receipts $100
Menlo Park 32,475 4,600 Tiered Gross Receipts/Hybrid $50 Millbrae 30,106 2,500 Base + Employee + Gross
Receipts $55
Redwood City 81,643 8,167 Base + Employee $70
San Carlos 30,034 4,765 Base + Employee $172
San Mateo 102,200 11,370 Gross Receipts/Hybrid $31
*nonprofits/non-paying businesses not reflected
 Models vary, but Belmont has a higher minimum,
disproportionately impacting our small businesses
4/23/2024
Who Provided Input During the Evaluation Process?
Business License Update 15
120+ Local Businesses Chamber San Mateo
County
Council Subcommittee
4/23/2024
How Did We Ensure Business Feedback?
Business License Update 16
Direct emails
eNews &
social media
Chamber
Communications
Postcard mailer
Door-to-door and
word of mouth
3 business
forums
(42 participants)
3 focus groups
(11 participants)
Business survey
(120 participants)
4/23/2024
Beginning Our Evaluation Process
Business License Update 17
• Obtained business data, including revenue estimates
• Tested models based on impacts to different
business types, with guiding principles in mind
• Developed 3 draft models for testing
4/23/2024
Model A: Employee/Real Estate Unit
Business License Update 18
Highlights
 Revision of current model
 $200 base plus a per employee or real estate unit fee  Requires CPI adjustments
Category Unit Employee
Threshold Base
Rate
(Up To
Threshold)
Rate
(Over
Threshold)
Current
Model
General
Business
Employee
Count 25 $200.00
$75.00/
Employee
$50.00/
Employee
$35/
Employee
Rental
(Commercial) Sq. Footage - $200.00 $0.25/Sqft -
$118 +
$0.06/sqft
Rental
(Residential) Rental Unit - $200.00
$60.00/
Unit -
$37/
Unit
Total Est. Revenue $1.13M
4/23/2024
Model B: Business (Gross) Receipts by Category
Business License Update 19
Category Rate Per $1,000 Percentage
Retail/Restaurant $0.30 0.03%
Professional/Professional Service $1.00 0.1%
Contractors $1.00 0.1%
Other Service $0.75 0.075%
Commercial Rental $1.00 0.1%
Residential Rental $0.50 0.05%
Total Est. City Revenues $1.15M
4/23/2024
Highlights
 Percentage of business receipts from prior tax return  Lower percentage for businesses with narrower margins  $25 minimum
 No CPI adjustments needed
Business License Update 20
Tier Business Receipts
(Range Min.)
Business Receipts
(Range Max.) Flat Rate
Tier 1 $0 $10,000 $25
Tier 2 $10,001 $50,000 $75
Tier 3 $50,001 $100,000 $150
Tier 4 $100,001 $300,000 $250
Tier 5 $300,001 $500,000 $325
Tier 6 $500,001 $800,000 $550
Tier 7 $800,001 $1,000,000 $750
Tier 8 $1,000,001 $2,000,000 $1,000
Tier 9 $2,000,001 $3,000,000 $1,200
Tier 10 $3,000,000+ $1,200 + Model B rates
for amount >$3M
Total Est. City Revenues $1.18M
Model C: Tiered Flat/Hybrid
4/23/2024
Highlights
 Flat rate based on range of business receipts; any receipts exceeding $3M follow Model B
 $25 minimum
 Requires CPI adjustments
Model
Feedback
(Focus Groups
& Survey)
4/23/2024 Business License Update 21
Soliciting Model Feedback
Business License Update 22
• Using the 3 alternative models, we developed a tool to help businesses calculate their draft rates
• In focus groups and our survey, we asked businesses to assess current and alternative models based on…
• Our guiding principles
• Their lowest payment
• Their overall preference
• Also invited additional thoughts or suggestions
• Gathered feedback in two formats
• March – 3 focus groups (11 attendees)
• March-April – survey (120 responses)
4/23/2024
Focus Group Feedback
Business License Update 23
• Model A: Employee/Real Estate Unit
• Sole proprietors saw decreases while those with more
employees (e.g., restaurants) saw increases
• Concerns about increases for property rentals
• Support for the lower $200 minimum
• Model B: Business (Gross) Receipts by Category
• Support for $25 minimum
• Decreases for smaller businesses, including
restaurants, due to rates by category
• Suggestion for higher residential rental rates
• Split opinions about higher rates for higher revenues 4/23/2024
Focus Group Feedback (Cont.)
Business License Update 24
• Model C: Tax Table/Hybrid
• Support for $25 minimum
• Lower rates for smaller businesses
• Some medium-revenue businesses saw higher rates
since business type doesn’t factor in
• Other Comments
• All models were easy to calculate
• Change is needed: high minimum tax is causing small
businesses to go elsewhere or not register
• Property rentals could pass increases along to tenants • Need feedback from more businesses
4/23/2024
Survey Feedback (120 Responses)
Business License Update 25
79% Based in Belmont
Belmont-Based Not Belmont-Based
59% Brick-and-Mortar
Brick-and-Mortar Home-Based
4/23/2024
Survey Participants by Business Type
Business License Update 26
2 11
17 40
50 Commercial Rental
Residential Rental
Retail/Restaurant
Other Services (e.g., nail salon,
gardener, tutor)
Professional/Prof. Services (e.g.,
engineer, doctor)
# of Businesses
4/23/2024
Survey Participants by Business Longevity
Business License Update 27
22 12
20 20
36 10
21+ years
16-20 years
11-15 years
6-10 years
1-5 years
<1 year
# of Businesses
4/23/2024
Survey Model Preference Overall
Business License Update 28
22%
14%
18%
46%
Current
Employee/Real
Estate Unit
Tax Table/Hybrid
Business
Receipts by
Category
% of Businesses
Single Most Preferred
146
154
184
230
Current
Employee/Real
Estate Unit
Tax Table/Hybrid
Business
Receipts by
Category
Weighted Points
Weighted Preference
(3 pts for top choice, 2 pts for second
choice, 1 pt for third choice)
4/23/2024
Survey Model Ranking by Business Category
Business License Update 29
Current
Employee/
Real Estate
Unit
Business
Receipts by
Category
Tax
Table/Hybrid
Retail/Restaurant 2 4 1 3
Prof./Prof. Services 4 3 1 2
Other Services 4 3 2 1
Commercial Rentals 3 3 2 1
Residential Rentals 2 4 1 3
 “Business (Gross) Receipts by Category” was ranked 1st most frequently and was the only model ranked 1st or 2nd across all business categories
4/23/2024
• Support for keeping model as-is as well as concerns the minimum tax is cost-prohibitive for small businesses
• Support for lowering the minimum to $25
• Support for applying rates by business category
• Concerns about higher rates for those with higher revenue • Distrust in City motivation (i.e., to make change based on “fairness” or “revenue neutrality”)
• Suggestions to implement a cap, phase rates in, or exempt lowincome or home-based businesses • Suggested alternatives include…
• $100 base plus $25 per employee, like San Mateo
• Tiered tax table with more gradual steps
• Combine per-employee/unit and a tiered tax table
• Model based on City services used (e.g., higher rates for retail for more road usage)
Other Survey Feedback
4/23/2024 Business License Update 30
Recommendation
& Next Steps
4/23/2024 Business License Update 31
What is the Recommendation?
Business License Update 32
Category Rate Per $1,000
(Original Draft)
Rate Per $1,000
(Revised Proposal)
Retail/Restaurant $0.30 $0.40
Professional/Professional Service $1.00 $1.00
Contractors $1.00 $1.00
Other Service $0.75 $0.75
Commercial Rental $1.00 $1.00
Residential Rental $0.50 $1.00
Estimated City Revenues $1.15M $1.26M
Model B: Business (Gross) Receipts by Category
4/23/2024
Highlights
 Percentage of business receipts from prior tax return  Lower percentage for businesses with narrower margins  $25 minimum
 No CPI adjustments needed
Business License Update 33
Overall preferred
Significantly
lower minimum
Decreases for
63% Belmont
businesses, 55%
all businesses
Each business
type pays their fair
share
Categories
account for high
overhead
Ranked most fair,
adaptable, &
comparable
Ranked near
current model in
simplicity &
streamlined
Mixed perception,
though outreach
helped
Why Recommend This Model?
4/23/2024
Business License Update 34
Hypothetical Business Example Current
Rate
Model A
Employee/
Real Estate
Unit
Model B
Business
Receipts by
Category
(Revised)
Model C
Tiered
Flat/
Hybrid
Home-Based Small Business (0 Employees; $20,000) $341 $200 $25 $75 Home-Based Prof. (0 Employees; $125,000) $341 $200 $125 $250 Sole Proprietor Prof. (0 Employees; $750,000) $341 $200 $750 $550 Small Restaurant (3 Employees; $450,000) $446 $425 $180 $325 Mid-Sized Restaurant (20 Employees; $1,900,000) $1,041 $1,700 $760 $1,000 Big Retailer (80 Employees; $15,000,000) $3,141 $4,825 $6,000 $4,800 Small Residential Rental (4 units; $144,000) $341 $440 $144 $250 Large Residential Rental (50 units; $1,800,000) $1,850 $3,200 $1,800 $1,000 Commercial Rental (50,000 sqft; $3,500,000) $413 $12,700 $3,500 $1,700 Professional Office (10 Employees; $2,100,000) $691 $950 $2,100 $1,200 Contractor (0 Employees; $75,000) $341 $200 $75 $150
Mid-Sized Contractor (3 Employees; $225,000) $446 $425 $225 $250 Rates for Sample Businesses by Model
Rate decrease I rate increase
4/23/2024
How Do Rates Compare in Cities with Similar Models?
Business License Update 35
Rate Per $1,000
Business
Category
Belmont
(Original)
Belmont
(Proposed) Foster City* Fremont**
Redwood
City
(Proposed)
Richmond***
(Rev. 2020)
Retail/Restaurant $0.30 $0.40 $0.75 $0.25-$.30 $1.00
$0.60-
$1.20**
Professional/
Prof. Service $1.00 $1.00 $0.75 $1.30 $3.00 $3.60**
Contractors $1.00 $1.00 $0.75 $.10 $2.00 $1.80**
Other Service $0.75 $0.75 $0.75
$1.00-
$1.50 $2.00
$1.80-
$4.50**
Commercial
Rental $1.00 $1.00 $0.75 $1.30 $3.00
$10.81-
$28.80
Residential Rental $0.50 $1.00 $0.75 $1.00-1.30 $3.00
$10.81-
$28.80
*Currently considering rate increases
**Excludes $30 annual registration fee, up to $95 for construction based in the city ***Higher rates applied to all categories except rentals for business receipts exceeding $1M 4/23/2024
What’s Next?
36 If directed to proceed with outreach for a “business receipts by category” model…
• May 2024: Staff prepares a second round of business
forums
• June 2024: Council reviews a final proposal and
recommends whether to place on the ballot for
November 2024
4/23/2024 Business License Update
Thank you
www.belmont.gov/businessupdate
[email protected]