July 5, 2022
Finance Department
DATE: July 5, 2022
TO: Mayor Butt and Members of the City Council
FROM:
Delmy Cuellar, Director of Finance
Antonio Banuelos, Accounting Manager
Gabino Arredondo, Project Manager
Subject:
Ordinance Allowing for the Credit of Rent Board Fees
Paid By Landlords With Four or Fewer Rental Units
Against the Gross Receipts Tax Obligation and Amnesty
Program for Residential Rental Properties
FINANCIAL IMPACT: The financial impact of adopting the proposed Ordinance allowing for the credit of Rent Board fees paid by
landlords owning four or less residential units is
approximately $1.6 million less business tax collected per year. The FY 2022-2023 budget already includes this
reduction in General Fund business tax revenue. The
financial impact of adopting the proposed Resolution for the Amnesty Program for residential rental properties is approximately $50,000 which is projected to be recouped with a higher percentage of businesses paying the tax
during the 45 day-period of the program.
PREVIOUS COUNCIL
ACTION:
November 16, 2021
December 21, 2021
STATEMENT OF THE
ISSUE:
This proposed Ordinance allows for the crediting of Rent Board fees paid by landlords with four or fewer residential units against their gross receipts tax obligation. The proposed Resolution for the Business Tax Amnesty
Program would give residential rental property
businesses that have failed to pay their Business Tax by June 30, 2022, an additional 45 days to bring their
accounts current, and would also provide businesses that AGENDA
REPORT
July 5, 2022
have never registered with the City the opportunity to
comply with the Richmond Municipal Code (RMC),
Section VII, Chapters 7.04 and 7.88 without the
assessment of late fees and penalties.
RECOMMENDED ACTION:
INTRODUCE an ordinance allowing landlords with four or
fewer residential units to credit their paid Rent Board fees against their gross receipts tax obligation; and
ADOPT a resolution authorizing the Finance Department
to offer a Business Tax Amnesty Program for a period
commencing on July 1, 2022, and ending on August 15,
2022, for residential rental property businesses with
unpaid business licenses – Finance Department (Delmy
Cuellar 510-620-6740/ Antonio Banuelos 510-620-6741).
DISCUSSION:
City Council placed a measure on the November 3, 2020, ballot that was approved by the voters, which changed the Business Tax calculation methodology to be based on gross receipts instead of the prior method based upon the number of employees employed by a business.
Rent Board Fee Credit
At the November 23, 2021, City Council directed City staff to prepare Measure U regulations to allow landlords of four or fewer residential units to credit their paid Rent Board fees against their gross receipts tax obligation for the same period.
On December 21, 2021, City Council approved a Resolution allowing landlords with four or fewer residential units to credit their paid Rent Board fees against their gross receipts business tax obligation. The approved resolution only gave direction for one year. The proposed Ordinance will codify City Council direction that is currently in place and the item will not need to return to City Council for further extension.
Measure U was projected to result in new revenue growth of over $6 million per year ($9.5 million total) in Business Tax revenues assuming full implementation of Measure U. The City’s estimate included revenues anticipated from both residential properties as well as commercial businesses operating in Richmond. Based on current Rent Board rates, approximately $1.6 million is paid by owners of small residential properties. This amount will be credited to their Business Tax and thus will reduce the Business Tax collected. The proposed FY 2022-2023 budget includes the $1.6 million reduction from residential rental properties.
July 5, 2022
The proposed Ordinance implements City Council’s direction, which would require a landlord to demonstrate that the Rent Board fees were paid in a timely manner to receive the gross receipts tax credit.
Amnesty Program
On November 16, 2021, City Council approved the Business Tax Amnesty Program that gave businesses that had failed to pay their Business Tax an opportunity to bring their accounts current by waiving late fees and penalties through June 30, 2022. If the proposed resolution is approved, City Council will be granting residential rental property owners a 45-day extension on late fees and penalties. The proposed extension of the Amnesty Program would expire on August 15, 2022, and will allow residential rental property owners additional time to both reach out to City staff to help determine the applicable exemptions, the Rent Board credits, and help calculate the amounts due.
The City estimates that there is approximately $500,000 to $1,000,000 in outstanding Business Taxes from Residential Rental properties, not including late fees and penalties. The current late fees and penalties are estimated at approximately $50,000 for the first month. The priority is to collect the tax and staff believes more tax can be collected if the late fees are waived. Additionally, this action allows staff to update the Business Tax Customer Database for more businesses and staff anticipates this will lead to more business tax revenue in the coming years.
In the previous months, City staff reached out to commercial businesses and not residential rental property owners regarding Measure U implementation. Many of these residential rental property owners may not owe significant amounts because of the Rent Board fee credits and exemptions embedded into the Measure U Ordinance. In many cases, property owners will need to speak with City staff to have a clear understanding of the ordinance and what amount, if any, is due. City staff propose giving these businesses an opportunity to pay the back taxes while waiving the corresponding late fees and penalties. This action is expected to lead to a higher tax compliance rate for Richmond businesses, in addition to enhancing the Business Tax customer database.
These steps will potentially yield more tax revenue in the coming years which will likely cover any revenue loss caused by waiving the late fees. The proposed expiration date of the Amnesty Program is August 15, 2022.
During the period of the Amnesty Program, business license taxes can be paid all at once or, if it is agreed upon by the City, an installment agreement can be created allowing the business owner to pay the delinquent tax in three installments. If the business pays the business license taxes due before August 15, 2022, no penalties will be assessed. However, if payment is not made by August 15, 2022, the following late fees will be assessed based on the number of days delinquent:
1- 60 days late 10% late fee (10% of total business tax due) Over 60 days 25% late fee (25 % of total business tax due)
July 5, 2022
Next Steps
During the next few weeks, City staff will continue to provide information and support to the business community. The Finance Department will provide enhanced business tax advice services to the Richmond business community, which includes in person, phone calls, through our online payment portal, and through virtual online appointments. The community can leave questions for Finance staff on the business tax hotline at (510) 620-5555 or email [email protected] and we will return these questions as quickly as possible.
DOCUMENTS ATTACHED:
Attachment 1 – Ordinance
Attachment 2 – Resolution