City of Sacramento
Law and Legislation Committee Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2025-01006 5/20/2025 Item 4.
Business Operations Tax Overview
File ID: 2025-01006
Location: Citywide
Recommendation: 1) Review, discuss and provide direction on potential amendments to Chapter
3.08 of the Sacramento City Code, relating to the Sacramento Business Operations Tax.
Contact: Pete Coletto, Director of Finance (916) 808-5416, [email protected]; Jackie Rice, Finance Manager (916) 808-5844, [email protected]; Bryan Howard, Program Manager (916) 808-4847, [email protected]; Department of Finance Presenter: Pete Coletto, Director of Finance, (916) 808-5416, [email protected]; Jackie Rice, Finance Manager, (916) 808-5844, [email protected]; Department of Finance Attachments:
1-Description/Analysis
Description/Analysis
Issue Detail: The City’s Business Operations Tax (BOT) was enacted by Ordinance in 1975 and, for non-cannabis businesses, was last updated in 1991. Minimum payment, maximum payment, and gross receipts thresholds have not been adjusted for inflation since 1991. In 2010 and again in 2020 Management Partners recommended an update to the BOT as a strategy to enhance revenue. The City’s 5-year forecast in the Fiscal Year (FY) 2025/26 Proposed Budget projects a structural deficit with ongoing expense growth outpacing revenue growth over the term of the forecast. During the FY2025/26 budget updates, Council directed staff to explore options to update the BOT. A summary of the different components of the current City code as it relates to the BOT is below.
Gross Receipts
· All businesses except professionals, brokers, contractors, property rental and cannabis · Annual rate as follows:
· $30 base rate on gross receipts of $10,000 or less
· 0.04% of gross receipts in excess of $10,000
File ID: 2025-01006 5/20/2025 Item 4.
· Annual maximum tax liability of $5,000
Professionals
· Every person engaged in the profession of accountant, architect, attorney, audiologist, bacteriologist, certified public accountant, engineer, dentist, mortician, optometrist, osteopath, physician, podiatrist, psychologist, surgeon or veterinarian. · Annual BOT determined by number of licensed years in the State of California:
Three years or less $75
More than three years, less than seven years $150
Seven years or more $300
· Each licensed employee receiving profits from the business charged according to table above.
· Annual BOT of $30 for each additional licensed employee not receiving profits from the business.
· Annual maximum tax liability of $5,000.
Professionals- Brokers
· Every person engaged in the business of real estate broker, insurance broker or stockbroker · Annual BOT of $100 for principal broker
· Annual BOT of $30 for each additional employee subject to supervision by the principal broker · Annual maximum tax liability of $5,000
Contractors
· Every person engaged in any type of business activity as a contractor which requires a City building permit
· $0.40 per $1,000 of value used to determine the charge for the building permit · Annual maximum tax liability of $5,000
Housing and Shelter
· Rental of residential property
· Annual base rate of $25
· $1.75 for each rental unit in excess of four units
· Rental of fewer than four units is exempt
File ID: 2025-01006 5/20/2025 Item 4.
· Annual maximum tax liability of $5,000
· Hotels, Motels
· Annual base rate of $50
· $0.75 for each rental unit in excess of four units
· Annual maximum tax liability of $5,000
· Rental of Nonresidential Property
· Taxed based on gross receipts
· $30 base rate on gross receipts of $10,000 or less
· 0.04% of gross receipts in excess of $10,000
Staff is seeking direction from the Committee on potential amendments to Chapter 3.08 of the Sacramento City Code, relating to the modernization of the BOT. Staff have examined practices in similarly sized cities in California as detailed below.
Peer Jurisdictions
Jurisdiction Minimum Maximum Gross Receipts
Threshold
Tax Rate Other Info
Bakersfield $25 None None $0.65 per $1,000
(professionals); $0.30
per $1,000 (other),
lower rates as GR go
up
A small
number of
business
types pay flat
rates.
Folsom $40 None None Flat fee based on
gross receipts
.05/$1,000 for
GR over
$25.1M
Fresno $0 $21,200 $5,000 0.09% to 0.36%
(varies by GR level)
Select
business
types
assessed flat
fee
Long Beach $281 to $458
(dependent
on business
type)
None N/A $11 to $36 per
employee
Select
business
types
assessed flat
fee plus per
vehicle, table,
etc.
Oakland $60 None Varies from $14K
to $120K
(dependent on
business type)
0.04% to 0.5%
(dependent on
business type and
GR)
Property
rentals-
1.395%
San Francisco 0.05% to 1.008%
(dependent on
business type and
GR)
San Jose $216 $180,674 N/A $36 to $72 per
employee based on
total employee count
Indexed to
inflation
File ID: 2025-01006 5/20/2025 Item 4.
Jurisdiction Minimum Maximum Gross Receipts
Threshold
Tax Rate Other Info
Bakersfield $25 None None $0.65 per $1,000
(professionals); $0.30
per $1,000 (other),
lower rates as GR go
up
A small
number of
business
types pay flat
rates.
Folsom $40 None None Flat fee based on
gross receipts
.05/$1,000 for
GR over
$25.1M
Fresno $0 $21,200 $5,000 0.09% to 0.36%
(varies by GR level)
Select
business
types
assessed flat
fee
Long Beach $281 to $458
(dependent
on business
type)
None N/A $11 to $36 per
employee
Select
business
types
assessed flat
fee plus per
vehicle, table,
etc.
Oakland $60 None Varies from $14K
to $120K
(dependent on
business type)
0.04% to 0.5%
(dependent on
business type and
GR)
Property
rentals-
1.395%
San Francisco 0.05% to 1.008%
(dependent on
business type and
GR)
San Jose $216 $180,674 N/A $36 to $72 per
employee based on
total employee count
Indexed to
inflation
Nearby Jurisdictions
Jurisdiction Tax Details
Auburn Ranges from $25 to $100 annually for GR up to $200k. GR over $200k is
0.05%. GR over $500k is $250 + 10% of GR over $500k. Flat rates for certain business types.
Citrus Heights New business: $108-$377; annual renewal $84-270; massage $237-$475 Davis Ranges from $1.50 to $189 annually depending on GR up to $110k; additional $18 annually for every $10k exceeding $110k.
Elk Grove $12 for two years
Sacramento County $244 for 3 years, $521 for one year, depending on business type Stockton 0.09% for most businesses
Rancho Cordova $103 to $321, depending on business type Roseville $15 to $250 annually, depending on gross receipts, employee count or rental units
West Sacramento $54 to $80, depending on business type
Policy Considerations: Updating the BOT is consistent with Council adopted Core Budget Policies and Guidelines adopted February 14, 2017 (Resolution 2017-0078, Attachment 2). These policies call for one-time resources only be used for one-time costs; ongoing expenditures should be matched with ongoing financing sources and reserves are to be used in a planned and strategic manner. The BOT has not been updated since 1991 and since that time City expenses have increased, while the $5,000 annual BOT payment cap has not increased, nor have minimum BOT payments. The City Budget is forecast to be in structural deficit with expense growth outpacing revenue growth.
Economic Impacts: The economic impact of a BOT modernization would be dependent on the strategy pursued. However, the increased tax burden will support and help offset the increased cost
File ID: 2025-01006 5/20/2025 Item 4.
of essential City services, which also serve local businesses.
Environmental Considerations: Not applicable.
Sustainability: Not applicable.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: During the FY2025/26 Budget Update, Council directed staff to explore options for updating the BOT. Staff is seeking direction from the Committee on what options to explore.
Financial Considerations: The City's FY2025/26 Budget projects a structural deficit with the City facing increased cost growth. In addition, the City has substantial unfunded pension and capital infrastructure liabilities. Updating the BOT and raising general purpose revenue is an important step in improving the City’s fiscal position.
Local Business Enterprise (LBE): Not applicable.