BUSINESS LICENSE TAX UPDATE
City Council, June 25, 2024
Business License Update 2
Our purpose
Business outreach
Business survey summary
Recommended Model
Updates Since April
Next Steps
Agenda
Our
Purpose
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 recreation programs, parks, open spaces, and sports fields
• Services support businesses,
their employees, and customers by
making Belmont an attractive and
safe place to live, visit, shop, and
conduct business
• Generates ~$1.1 million annually,
4% of General Fund revenue
Business License Update
Why Do We Need to Update Our Program?
5 • Our business license program is outdated, established in 1976 and last updated in 1990
• Our $341 base is much higher than nearby cities
• Lower-revenue businesses pay higher effective tax
rates; most businesses pay the base,
regardless of business size or revenue
• Strategic Focus Area – Council
directed staff to modernize
the program to address these
imbalances while remaining
revenue neutral
Business License Update
General Fund Revenue Per Household
Business License Update 6
$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
Belmont manages its funds efficiently, but with lower
revenue per household cannot afford to lose revenue
$4,911 Average per Household
Business
Outreach &
Survey
Summary
Business License Update 7
Business Outreach
Business License Update 8
Email, eNews, &
social media
Postcard mailer
Door-to-door &
word of mouth
Chamber
Communications
Business Forums,
Round 1
(42 participants)
Focus groups
(11 participants)
Business survey
(129 participants)
Business Forums,
Round 2
(14 participants)
Outreach Methods Feedback Opportunities
Business Survey
Business License Update 9
• 129 businesses participated
• Gathered input on 3 alternative models
• Provided tax calculator tool, asking respondents to
assess the current and alternative models based on:
Guiding principles
Lowest payment
Overall preference
Business Survey Overall Model Preference
Business License Update 10
23%
14%
18%
45%
Current
Employee/Real
Estate Unit
Tax Table/Hybrid
Business
Receipts by
Category
% of Businesses
Single Most Preferred
155
164
193
244
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)
Business Survey Model Ranking by Category
Business License Update 11
Tax Table/
Hybrid
Business
Receipts
by Category
Employee/
Real Estate
Current Unit
Retail/Restaurant 2 4 1 3
Prof./Prof. Services 4 3 1 2
Other Services 4 3 1 (tie) 1 (tie)
Commercial Rentals 4 3 1 (tie) 1 (tie)
Residential Rentals 2 4 1 3
“Business receipts by category” was the top choice or tied in all business categories; this applies to single most preferred and weighted preference
Recommended
Model
Business License Update 12
What is the Recommended Model?
Business License Update 13
Business Category Rate Per $1,000
Retail/Restaurant $0.40
Professional/Professional Service $1.00
Contractors $1.00
Other Service $0.75
Commercial Rental $1.00
Residential Rental $1.00
Estimated City Revenues $1.26M
Business (Gross) Receipts by Category
Highlights
• Minimum payment of $25
• Percent applied to business receipts from prior tax return • Lower percent for businesses with narrower margins
• No future rate adjustments required (i.e., CPI increases) Business License Update 14
Top overall
preference of 129
businesses
Significantly
lowers the
base tax
Decreases
anticipated for
63% of Belmont
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 This Model?
How Do Our Proposed Rates Compare?
Business License Update 15
Rate Per $1,000
Richmond***
(Rev. 2020)
Redwood City
(Proposed) Foster City* Fremont** Belmont
(Proposed)
Business
Category
$0.60-
Retail/Restaurant $0.40 $0.75 $0.25-$.30 $1.00 $1.20**
$1.00 $0.75 $1.30 $3.00 $3.60**
Professional/
Prof. Service
Contractors $1.00 $0.75 $.10 $2.00 $1.80**
$1.80-
Other Service $0.75 $0.75 $1.00-$1.50 $2.00 $4.50**
Commercial Rental $1.00 $0.75 $1.30 $3.00 $10.81-$28.80 Residential Rental $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 Updates &
Next Steps
Business License Update 16
Updates Since April
Business License Update 17
• Business Forums, Round 2
• 14 total attendees
• Presented recommended model
• Several smaller businesses supported recommended
model; others preferred to leave it “as-is”
• Suggestions to identify a maximum tax, refine business categories, and assign private education a lower rate
category
• Concerns about attracting/retaining commercial real
estate and the potential for commercial property
owners to pass any increases to tenants
• Public opinion survey (Godbe Research Presentation)
Next Steps
18 • Request Council direction regarding whether to place a November 2024 ballot measure allowing voters to
decide whether to update the business license program to the recommended “business receipts by category” model;
if yes…
Staff to prepare an ordinance
Council to consider approving submittal of the
proposed ordinance and calling of municipal election
City Attorney to prepare an impartial analysis
Stakeholders to prepare ballot measure arguments
Election Nov. 5, 2024, and if approved, ordinance
takes effect Jan. 1, 2025
Business License Update
Thank you
www.belmont.gov/businessupdate
[email protected]
Additional Materials for Reference Only
Business License Update 20
Proposed Rates
Business Category Rate
Up to $0.40 per $1,000 Category 1
(e.g., restaurants, retail establishments)
Up to $0.75 per $1,000 Category 2
(e.g., tutoring, training, hairstylist, gardener)
Up to $1.00 per $1,000 Category 3
(e.g., prof. services, contractors, rentals)
Up to $100.00 per
$1,000
Category 4
(i.e., cannabis activities)
Proposed Business Category (1 of 3) • Category 1 • Businesses operating an establishment where meals, prepared food, or beverages are served to customers (restaurants). An establishment includes mobile and transient businesses that operate from a temporary location. • Businesses selling goods, including pre-packaged food, to ultimate consumers, usually in small quantities (retail sales). • Any similar business. • Category 2 • Lawn services, gardening and landscaping services, but not including landscape architects. • Hairstylists, beauticians, cosmetologists, and aestheticians. • Massage therapists. • Arts instructors. • Automotive repair. • Drycleaners. • Tutors. • Test preparation. • Translation and interpretation services. • Sports trainers. • Any similar business.
Proposed Business Category (2 of 3) • Category 3
• Businesses conducting, managing, or carrying on the business of contractor, subcontractor, or builder; or engaging in the construction or repair of any buildings; or regularly employing help for building construction, sewer construction, plumbing construction, or general construction; but not including architects or engineers. • Businesses manufacturing, packing, or processing of any goods, wares, merchandise, or commodities at a fixed place of business within the city. • Businesses selling goods in quantity, as to retailers or jobbers, for resale (wholesales). • Scientific and technical services. • Legal advice and representation. • Medical and dental services. • Chiropractors and physical therapists. • Psychiatrists, psychologists, therapists, and marriage counselors. • Licensed financial planners and licensed investment counselors. • Accounting, bookkeeping, and payroll services. • Architects and landscape architects. • Engineers.
Proposed Business Category (3 of 3) • Category 3 (Continued) • Specialized design services. • Computer services. • Consulting services. • Research and development services. • Advertising services. • Photographic services. • Real estate agents and real estate brokers. • Mortgage brokers. • Veterinary services. • Administrative offices and business headquarters. • Property management. • Property rental. • Any similar business and any business that does not fit into another category. • Category 4 • All cannabis business activities regardless of whether a different category describes all or part of a cannabis business’ activity.
Commercial Rental Considerations
Business License Update 25
• Proposed rate for Commercial Property Rentals is
$1.00 per $1,000 in revenue
• If medium-large property owner fully passed along any increases, the tenant impact would be small
• As an example, for a current rental rate of $50 per sq. ft., the maximum rental increase would be $0.04/sqft/year
Increase to
Rental Rate
Total Commercial
Property Sqft
Current
Rental Rate
$50/sqft annually Under 7,600 sqft N/A (lower tax anticipated) $50/sqft annually Aprox. 7,600-22,700 sqft $0.01-$0.03/ sqft annually $50/sqft annually Over 22,700 sqft $0.04/sqft annually
KC0
Slide 25
KC0 [@Kathy Kleinbaum]
Please review.
Karen Clark, 2024-05-14T18:28:42.731
KK0 0 see changes
Kathy Kleinbaum, 2024-05-14T18:34:56.698
What Criteria Were Applied to Alternatives?
Business License Update 26
Fairness Address inequities in current 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
Criteria developed in 2020 and reaffirmed in 2023
Business License Update 27
Proposed
Model
Current
Model Hypothetical Business
Home-Based Small Business (0 Employees; $20,000) $341 $25 Home-Based Prof. (0 Employees; $125,000) $341 $125
Sole Proprietor Prof. (0 Employees; $750,000) $341 $750 Small Restaurant (3 Employees; $450,000) $446 $180
Mid-Sized Restaurant (20 Employees; $1,900,000) $1,041 $760 Big Retailer (80 Employees; $15,000,000) $3,141 $6,000
Small Residential Rental (4 units; $144,000) $341 $144
Large Residential Rental (50 units; $1,800,000) $1,850 $1,800 Commercial Rental (50,000 sqft; $3,500,000) $413 $3,500 Professional Office (10 Employees; $2,100,000) $691 $2,100 Contractor (0 Employees; $75,000) $341 $75
Mid-Sized Contractor (3 Employees; $225,000) $446 $225
Rates for Sample Businesses by Model
Low-medium revenue businesses typically saw decreases, especially in lower-rate categories
KC0
Slide 27
KC0 Keep or just at the end incase it's referenced?
Karen Clark, 2024-06-22T20:58:53.422
What Are Other Nearby Cities Doing?
Business License Update 28
Model Basis Base Tax Estimated
Businesses* City Population
$341 Base + Employee/
Real Estate Unit Belmont 26,773 2,400
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 $55 Base + Employee + Gross
Receipts Millbrae 30,106 2,500
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
Manual Calculations
Rate Per Unit
(Above
Threshold)
Rate Per Unit
(Below
Threshold)
Base Employee
Threshold Category Unit
$50.00/
Employee
$75.00/
25 $200.00 Employee
Employee
General Business Count
Rental (Commercial) Sq. Footage - $200.00 $0.25/Sqft - Rental (Residential) Rental Unit - $200.00 $60.00/Unit - Total Est. City Revenue $1.13M Business Type Formula
Up to 25 Employees $200 + ($75 x number of employees)
26+ Employees $200 + ($75 x 25) + ($50 x number of employees over the 25 employees) Commercial Property $200 + ($0.25 x Sqft)
Residential Property $200 + ($60 x Number of Units)
Model A: Employee/Real Estate Unit
Calculation Formulas
Manual Calculations
Category Rate Per $1,000 Percentage
Retail/Restaurant* $0.40 0.04%
Prof./Professional Services* $1.00 0.1%
Contractors* $1.00 0.1%
Other Services* $0.75 0.075%
Commercial Rental Property* $1.00 0.1%
Residential Rental Property* $1.00 0.1%
Total Est. City Revenues $1.26M
Model B: Business (Gross) Receipts by Category (Rev. 04/23) Calculation Formulas
Business Type Manual Calculation
Retail/Restaurant* Gross Receipts ÷ $1,000 x $0.40 (Note: $25 min.) Prof./Professional Services* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) Contractors* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) Other Services* Gross Receipts ÷ $1,000 x $0.75 (Note: $25 min.) Commercial Rental Property* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) Residential Rental Property* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) *Business Category Examples on Last Page
Flat Rate Gross Receipts
(Range Max.)
Gross Receipts
(Range Min.) Tier
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
$1,200 + Model B rates
Tier 10 $3,000,000+ for amount >$3M
Total Est. City Revenues $1.18M
Manual Calculations
Model C: Tiered Flat/Hybrid
Calculation Formulas (Above $3 Million)
Business Type Manual Calculation
Retail/Restaurant* Gross Receipts ÷ $1,000 x $0.40 (Note: $25 min.) Prof./Professional Services* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) Contractors* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) Other Services* Gross Receipts ÷ $1,000 x $0.75 (Note: $25 min.) Commercial Rental Property* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) Residential Rental Property* Gross Receipts ÷ $1,000 x $1.00 (Note: $25 min.) *Business Category Examples on Last Page