City of Sacramento
Law and Legislation Committee Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2025-01738 10/14/2025
Business Operations Tax Modernization
File ID: 2025-01738
Location: Citywide
Recommendation: 1) Review, comment, and provide direction on options to modernize the City’s Business Operations Tax (BOT); and 2) Pass a Motion directing staff to draft a BOT modernization ballot measure for Council consideration.
Contact: Pete Coletto, Director of Finance, (916) 808-5416, [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] Attachments:
1-May 20, 2025 Law and Legislative Committee BOT Overview Staff Report Description/Analysis
Issue Detail: The City’s 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 modernization of the City’s BOT as a strategy to enhance revenue. The City’s 5-year forecast in the Fiscal Year (FY) 2023/24 Approved Budget projects a structural deficit with ongoing expense growth outpacing revenue growth over the term of the forecast. In 2010 Council considered placing a measure on the ballot, but ultimately did not move forward. In 2024, Measure C was placed on the ballot to modernize the BOT, which was not successful. During the FY 2025/26 budget hearings, Council directed staff to explore options to modernize the City’s BOT. An overview of the BOT was presented to the Law & Legislation Committee (Committee) in June of 2024, where staff was directed to hold outreach events with the business community to obtain feedback on a potential BOT modernization effort.
Staff conducted four outreach events with the business community. Generally, those in attendance acknowledged that the current structure of the BOT is outdated, but stressed the difficult position that businesses are in with increases in other City fees and generally rising operating costs. Many also
File ID: 2025-01738 10/14/2025
shared frustrations with current service levels offered by the City. Additionally, questions were raised about current BOT enforcement efforts, and requested that staff do more to ensure businesses are compliant with the current structure of the BOT. Staff shared the status of the recent data-sharing agreement with the Franchise Tax Board (FTB) whereby the City shares its BOT data with the FTB.
FTB matches this data to their own and provides potential leads for non-registered businesses. Staff are currently working on these leads. Additionally, staff are currently undertaking an effort to validate reported gross receipts as businesses submit their annual renewals.
City staff have examined practices in similarly sized cities in California to develop options for updating BOT policies and rates. Staff findings include the need to adjust for future inflation, the need to increase the maximum annual payment cap, and opportunities to standardize rules to make the BOT easier to understand and administer. Based on these findings staff developed three options for consideration to modernize the City’s BOT. Staff also recommends any modernization allow for Council to establish penalties for non-compliance via resolution.
Option 1 - Inflation Adjustment
· Inflation adjustments for gross receipt tax businesses based on Consumer Price Index (CPI) growth from 1991 to 2025:
· Gross Receipts minimum threshold from $10,000 to $26,100; · Minimum payment from $30 to $78;
· No change to 0.04% rate
· Inflation adjustment of flat fee for all professionals from a range of $75-$300 to $196-$783 and per employee rate from $30 to $78.
· Inflation adjustment of flat fee for all hotels, motel, short-term rental from $50 to $130 and per room/unit rate from $0.75 to $1.96.
· Inflation adjustment of flat fee residential rental BOT from $25 to $65 and per unit rate from $1.75 to $4.57 for rental units in excess of four units. · Add an annual inflation adjustment tied to CPI.
· Increase maximum annual payment cap from $5,000 to $13,050.
Option 1 would result in additional revenue of approximately $3.6 million in the first full fiscal year.
Option 2 - Update for Inflation & Remove Cap
· Option 1 updates, but with no annual maximum cap on BOT.
Option 2 would result in additional revenue of approximately $10.8 million in the first full fiscal year.
File ID: 2025-01738 10/14/2025
· For gross receipt businesses:
· Gross receipt minimum threshold from $10,000 to $100,000 · Minimum payment from $30 to $50;
· Add an annual inflation adjustment tied to CPI (future only). · Increase annual maximum payment cap from $5,000 to $125,000. · Professionals, Brokers, Hotels, and Residential BOT rates only adjust for future inflation.
· Phase-in the maximum cap over five fiscal years - Year 1 $25,000, Year 2 $50,000, Year 3 $75,000, Year 4 $100,000, Year 5 $125,000.
Option 3 would result in additional revenue of approximately $3.2 million in the first full fiscal year with increased annual revenue of $5.8 million in year 5 when the increase in the annual maximum cap is fully phased in.
Staff recommend Option 3 as we believe it strikes a balance between raising revenue and impacting business while addressing concerns that we heard during outreach. Under Option 3, businesses grossing between $60,000 and $12,475,000 would see a tax reduction. Based on Fiscal Year 2024/2025 data, 8,880 of 18,337 (48%) of gross receipts businesses fell into this range and would see a tax reduction. The chart below summarizes the options and how they compare vs the current tax structure:
Gross Receipts Current Option 1 Option 2 Option 3 Year 1 Minumum GR 10,000$ 26,100$ 26,100$ 100,000$ Minimum BOT 30$ 78$ 78$ 50$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ BOT Rate 0.04% 0.04% 0.04% 0.04%
Brokers Current Option 1 Option 2 Option 3 Year 1
Base BOT 100$ 261$ 261$ 100$ Variable Per Employee BOT Rate 30$ 78$ 78$ 30$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ Hotel, Motel, STR Current Option 1 Option 2 Option 3 Year 1 Base BOT 50$ 131$ 131$ 50$ Variable Unit BOT Rate (in excess of 4 units) 0.75$ 1.96$ 1.96$ 0.75$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ Professionals Current Option 1 Option 2 Option 3 Year 1 3 or Less Years Certified BOT 75$ 196$ 196$ 75$ 3-7 Years Certified BOT 150$ 392$ 392$ 150$ 7 or More Years Certified BOT 300$ 783$ 783$ 300$ Variable Certified Employee BOT Rate 30$ 78$ 78$ 30$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ Residential Rental Tax Current Option 1 Option 2 Option 3 Year 1 Base BOT 25$ 65$ 65$ 25$ Variable Unit BOT Rate (in excess of 4 units) 1.75$ 4.57$ 4.57$ 1.75$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ In all options, every dollar amount will be adjusted annually for inflation. The maximum cap inflation adjustement in Option 3 will begin in Year 6 after the full maximum cap phase in is completed.
Option 3 - Staff Recommendation
File ID: 2025-01738 10/14/2025
Commercial Rental Tax, Gross Payroll,
Gross Receipts Current Option 1 Option 2 Option 3 Year 1 Minumum GR 10,000$ 26,100$ 26,100$ 100,000$ Minimum BOT 30$ 78$ 78$ 50$
Maximum BOT 5,000$ 13,050$ No Limit 25,000$ BOT Rate 0.04% 0.04% 0.04% 0.04%
Brokers Current Option 1 Option 2 Option 3 Year 1
Base BOT 100$ 261$ 261$ 100$ Variable Per Employee BOT Rate 30$ 78$ 78$ 30$
Maximum BOT 5,000$ 13,050$ No Limit 25,000$ Hotel, Motel, STR Current Option 1 Option 2 Option 3 Year 1 Base BOT 50$ 131$ 131$ 50$
Variable Unit BOT Rate (in excess of 4 units) 0.75$ 1.96$ 1.96$ 0.75$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ Professionals Current Option 1 Option 2 Option 3 Year 1 3 or Less Years Certified BOT 75$ 196$ 196$ 75$ 3-7 Years Certified BOT 150$ 392$ 392$ 150$ 7 or More Years Certified BOT 300$ 783$ 783$ 300$ Variable Certified Employee BOT Rate 30$ 78$ 78$ 30$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ Residential Rental Tax Current Option 1 Option 2 Option 3 Year 1 Base BOT 25$ 65$ 65$ 25$
Variable Unit BOT Rate (in excess of 4 units) 1.75$ 4.57$ 4.57$ 1.75$ Maximum BOT 5,000$ 13,050$ No Limit 25,000$ In all options, every dollar amount will be adjusted annually for inflation. The maximum cap inflation adjustement in Option 3 will begin in Year 6 after the full maximum cap phase in is completed.
As gross receipts are the largest BOT category, the chart below shows the annual BOT payment based on gross receipts for each option and how it compares to the current BOT structure:
30 78 $ 78$
50$ $
30 78 $ 78 $ 50$ $ 46 88 $ 88 $ 50$ $ 426, 468 $ 468 $ 410$ $ 2,026 2,068 $ 2,068 $ 2,010$ $ 4,026 4,068 $ 4,068 $ 4,010$ $ 5,000 5,058 $ 5,058 $ 5,000$ $ 5,000 10,068 $ 10,068 $ 10,010$ $ 5,000 13,050 $ 20,068 $ 20,010$ $ 5,000 13,050 $ 40,068 $ 25,000$ $ 5,000
13,050 $ 80,068 $ 25,000$ $
5,000 13,050 $ 200,068$ 25,000$ $
File ID: 2025-01738 10/14/2025
The chart below shows the number of businesses in gross receipt ranges:
Gross Receipts # Of Businesses
$0 - $10,000 5,465
$10,001 - $50,000 3,203
$50,000 - 1,000,000 6,181
$1,000,001 - $5,000,000 2,425
$5,000,001 - $10,000,000 492
$10,000,001 - $15,000,000 197
$15,000,001 - $25,000,000 157
$25,000,001 - $50,000,000 120
$50,000,001 - $100,000,000 52
$100,000,001 - $200,000,000 27
$200,000,001 - $500,000,000 12
$500,000,000+ 6
TOTAL 18,337
Policy Considerations: Modernization of 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 to 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 City's 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.
In addition, the City’s low maximum annual BOT payment cap creates a regressive tax rate structure.
When considering adjustments to the BOT, it is important to recognize that a gross receipts tax is a ‘top line’ tax that does not consider business expenses and can have a larger impact on low margin businesses. The City must also take into consideration that some businesses with high gross receipts may also be large sales tax generators, and a high BOT rate could cause those firms to move or close, negatively impacting other general purpose revenues.
The City’s overall BOT burden, especially the maximum annual cap, tends to be lower than other ‘peer’ jurisdiction. However, the City’s BOT is higher than many surrounding jurisdictions.
Economic Impacts: The economic impact of BOT modernization would be dependent on the modernization strategy pursued.
File ID: 2025-01738 10/14/2025
Environmental Considerations: Not applicable.
Sustainability: Not applicable.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: During the FY2025/26 Budget Hearings, Council directed staff to explore modernization options for the City’s BOT. Given best practices in similarly situated jurisdictions and consideration of impact to local businesses, staff is recommending Option 3 to balance the goal of modernization with minimizing the impact on local businesses.
Financial Considerations: The City's FY2025/26 Budget projects a structural deficit with the City facing increased cost growth. Staff revenue estimates were based on FY2024/25 BOT data.
Increased revenues from the three options presented by staff range from $3.0 million per year to $10 million per year. Adjusting annually for inflation would increase revenues in subsequent years. In addition, the City has substantial unfunded pension and capital infrastructure liabilities. Modernizing the BOT and raising general purpose revenue is an important step in improving the City’s fiscal position.
Local Business Enterprise (LBE): Not applicable.
City of Sacramento Page 1
LAW AND LEGISLATION COMMITTEE
Caity Maple, Chair, District 5
Roger Dickinson, District 2
Phil Pluckebaum, District 4
Rick Jennings, II, District 7
COMMITTEE STAFF
Mindy Cuppy,
City Clerk
Steve Itagaki,
Supervising Deputy City Attorney
Consuelo Hernandez,
Director of Governmental Affairs
Law and Legislation
Committee
City Hall Complex
915 I Street, Sacramento, CA 95814
Published by the Office of the City Clerk
(916) 808-7200
SUPPLEMENTAL MATERIAL
Description of Attached: Attached is supplemental material received after publishing the agenda. The attached staff report replaces the original staff report in its entirety.
For the Meeting of: Tuesday, May 20, 2025 at 11:00 a.m.
Agenda Item: Discussion Item 4
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
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)
0.0405% to 0.5%
(dependent on
business type and
GR)
Property
rentals-
1.395%
San Francisco
**
None None N/A 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)
0.0405% to 0.5%
(dependent on
business type and
GR)
Property
rentals-
1.395%
San Francisco
**
None None N/A 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
* Corrected clerical error found in Oakland rate. Changed from 0.04% to 0.05%. ** With the passage of Measure M, San Francisco’s business tax rates will increase over the next three years.
*** Businesses in San Jose under certain gross receipt thresholds may apply for exemption under the “Business Tax Financial Hardship” program.
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
File ID: 2025-01006 5/20/2025 Item 4.
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 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.