DATE: September 2, 2025
TO: Mayor and Members of City Council
VIA: Stefan Chatwin, City Manager
FROM: Nate Cruz, Finance Director
DEPARTMENT: Finance
SUBJECT: TEMPORARY AMNESTY PROGRAM WAIVING PENALTIES DUE
ON UNPAID BUSINESS LICENSE TAX
RECOMMENDATION
It is recommended that the City Council adopt the attached resolution authorizing a temporary amnesty program waiving the collection penalties for past due business license tax.
EXECUTIVE SUMMARY
In 2024, Foster City voters approved Measure V which updated the City’s Business License Tax (BLT) from a flat rate of 0.075% of gross receipts to a progressive tax bracket model, where higher tiers of gross receipts are taxed at higher rates (there are seven brackets with rates between 0.075% and 0.3%).
In order to increase awareness of and compliance with the BLT requirements under Title 5 of the Municipal Code, staff recommends authorizing a temporary BLT Amnesty Program which would waive all penalties associated with any past due BLT. Staff would then authorize our BLT tax administrator Hinderliter De Llamas & Associates (HdL) to contact businesses in the City that may be out of compliance. These services, referred to as “audit and discovery”, are included in the existing contract with HdL as approved by Council on October 16, 2023.
BACKGROUND/ANALYSIS
On October 16, 2023, Council approved a contract with HdL to administer the City’s BLT.
The scope of services includes audits, wherein HdL can examine BLT submissions to ensure the correct tax amount is paid. The scope also includes discovery services, wherein HdL contacts businesses which are not paying the tax and may be out of compliance. The cost of the BLT administration services was $33,900 in FY23-24, however, that cost was anticipated to be largely offset by the incremental BLT received under the audit and discovery services.
Shortly after the contract award, staff began considering potential changes to the BLT structure, with three town hall discussions held in the spring and summer of 2024. Due to the potential confusion that might be caused by audit and discovery work under the old BLT structure occurring in parallel to public discussions about a new BLT structure, staff determined it would be best to hold off on any audit and discovery work.
On November 5, 2024, Foster City voters approved Measure V, which updated the BLT to a progressive tax bracket model, where higher tiers of gross receipts are taxed at higher rates (between 0.075% and 0.3%). While the updated BLT structure maintained the minimum tax at $100, it increased the maximum tax from approximately $30,000 to $250,000.
Now that the new BLT structure is in place and HdL has been the administrator for nearly two years, staff would like to use HdL’s audit and discovery services to increase awareness of and compliance with the BLT requirements approved by the voters of Foster City.
Due to the increased complexity of the new BLT structure and in order to minimize the financial impact to taxpayers who may not have known about the BLT or the new tax structure, staff recommends approving a temporary BLT Amnesty Program which would •Waive all penalties 1, so long as the full unpaid balance is paid within 60 days of initial contact with HdL; and
•End on September 30, 2027.
Note that all collections are limited by the applicable statute of limitations to no more than three years of back taxes due.
HdL estimates that there may be 2,500 businesses in the City which are either not paying or are incorrectly paying the BLT. Many of these businesses are likely to be home based businesses or landlords that are not aware they are required to pay the tax.
Given the scale of potentially non-compliant businesses, staff proposes the following efforts to increase compliance.
Phase 1: General Outreach
1 The penalties imposed for delinquent BLT in Section 5.20.020 include (a) 10% of the amount due on the sixtieth day after the due date, plus an additional 10% on the last day of each month after that, up to a maximum penalty equal to the tax owed. In practical terms, this results in total amount due (including the original BLT tax plus penalties, doubling over the period of a year.
August 2025 – December 2025
Staff has already begun a public outreach campaign reminding businesses of the tax and the amended structure that went into effect as of January 1, 2025. That campaign includes promotion on social media and in the City’s biweekly newsletter, along with printed material placed in the City Hall lobby, publication in the Foster City Islander, and contact with the Chamber of Commerce. Additionally, informational material was emailed to the roughly 1,100 companies subscribed to the City’s business newsletter. It was also featured in the Summer/Fall Recology mailer, which was sent to customers at the end of August.
Phase 2: First Batch of Direct Contact
October 2025
During this phase, HdL will initiate the audit and discovery process by sending letters to approximately 300 potentially non-compliant businesses. Those businesses, if found to have an unpaid BLT liability, will have 60 days to pay the full balance to avoid any penalties due. If the taxpayer does not pay the BLT liability within 60 days, the existing penalties provided in Section 5.20.020 would apply.
Phase 3: Subsequent Batches of Direct Contact
December 2025 - July 2027
Based on the issues that may arise after the first batch of direct contact, staff and HdL may make modifications to the batches as needed to optimize the effectiveness and efficiency of the audit and discovery work. This could include adjusting batch sizes or changing the content of the letters.
Phase 4: End of Program
August 2027 - September 2027
The final batch of letters will be sent prior to August 2027, and the final 60 days of the program will provide time to collect from the final batch of taxpayers without penalties.
CALIFORNIA ENVIRONMENTAL QUALITY ACT
The request for this temporary BLT Amnesty Program is exempt per CEQA Guideline Section 15061(b)(3), Common Sense Exemption.
FISCAL IMPACT
There is no fiscal impact for either the BLT Amnesty Program or the associated audit and discovery services. The estimated value of foregone penalties under the BLT Amnesty Program is approximately $100,000; however, no such revenues were assumed in the approved FY 2025-2026 budget, therefore there is no fiscal impact of not collecting them.
Audit and discovery services are paid through a contingency fee of 40% of any taxes collected; therefore, there is also no fiscal impact to use these services.
Any past due BLT revenue collected during the proposed BLT Amnesty Program would have a positive fiscal impact for the City. Increased ongoing compliance should also have a positive fiscal impact in the years after the Amnesty Program ends.
ATTACHMENTS:
Attachment 1 – City Resolution