City of Santa Rosa
Revenue Measures
FINANCE SUBCOMMITTEE
JUNE 13, 2024
ALAN ALTON, CHIEF FINANCIAL OFFICER
BACKGROUND
▪ City’s General Fund has a significant structural deficit and is facing deep budget cuts that will directly impact essential services local residents rely upon
▪ The City is developing plans to address its budget imbalance including enhancing revenue and cutting expenditures
▪ Transient Occupancy Tax (TOT) – Increase by 2%
▪ Business License Tax (BLT) – remove maximum tax cap and update rates 2 Transient Occupancy Tax (TOT)
Ordinance Overview
▪ Last Updated in 1993
▪Total TOT & BIA: 14%
▪ 9% TOT
▪ 100% to General Fund
▪ SRTBIA 3%
▪ 30% to Econ Development (Non-General Fund)
▪ 70% to SR Tourism (Chamber of Commerce)
▪ SCTBIA 2%
▪ 100% to Sonoma Co. Tourism
Proposed Changes
▪ Increase TOT by 2%, from 9% to 11%
▪ Total charges to lodger incr. to 16%
▪ $2M est. revenue to General Fund
City TOT BIA -
Local
BIA -
County
Total
Healdsburg 14% 2% 16%
Sonoma 13% 2% 15%
Rohnert Park 12% 2% 14%
Santa Rosa 9% 3% 2% 14%
Sebastopol 12% 2% 14%
Sonoma County 12% 2% 15%
Windsor 12% 2% 14%
Cloverdale 10% 2% 12%
Petaluma 10% 2% 12%
3 Current TOT Rates – Sonoma County
Business License Tax (BLT)
▪ Chapter 6-04 in Santa Rosa City Code
▪ Enacted in 1990, with no major reviews or changes since ▪ Establishes that any business operating in the City of Santa Rosa pays a business tax
▪Tax is based on gross receipts
▪ Establishes a minimum tax of $25, and maximum tax of $3,000 ▪ Gross receipts between $0 and $25,000 pay $25
▪ Different rates per business category with lower rate for those contributing to the City’s tax base through other taxes
▪ General Fund revenue generating approximately $4.7M annually 4 Ordinance Review
▪ Last summer, the City asked its Business Tax administration firm, HdL, to review its Business Tax ordinance to measure the effectiveness of the City’s current structure and offer recommendations based on their expertise in the industry
▪ Found the City current structure underperforms compared to other cities of similar size
▪ Main driver is the $3,000 maximum tax
▪ Removing the cap would enable equity relative to the effective tax rates ▪ Raise rates to reflect those used by other cities
▪ Simplify rate structure where possible
5 Business Tax
City Gross
Receipts
Flat
Rate
Cap Revenue Notes
Cloverdale No Yes $120K Rate dependent on business type Healdsburg Yes Yes $200K Based on gross receipts w/ max tax amt ($400, retail; $665, contractors)
Petaluma Yes Yes $1.2M .016% - .048% of gross receipts; cap at $45 Rohnert Park No Yes Yes $487K Per employee; $50 first, $15 each add.; $5,000 max Santa Rosa Yes No Yes $4.7M $3,000 maximum tax cap
Sebastopol No Yes $135K Per employee (retail/wholesale/services) $90-$340; professionals, $150 first, $75 each other
Sonoma No Yes $387K Rate per employee.
Windsor No Yes $130K $71 initial application; $26 renewal 6 Proposed Changes
▪ Remove maximum tax
▪ Create a hybrid tax structure
▪ Protect small/medium-sized businesses by retaining same tax structure for businesses currently paying below the cap
▪ Businesses paying $3,000 or less in Business Tax will not see an increase ▪ Adopt a modern rate structure for those businesses that generate more than $1 million in gross receipts annually
▪ Keep similar business categories
▪ Expand tax for property rentals to include businesses renting fewer than four residential units
▪ Proposed changes would take effect for the 2026 business tax year 7 Changes in Rates
8 Group Type Current Rates Proposed Rates
General
Commerce/Retail
Retail, Wholesale,
Restaurant, Manufacturing,
Corporate HQs, Auto Sales
$25 + $0.39 / $1,000
Gross (Max: $3,000)
$25 + $1.50 / $1,000
Gross
Services Lawn care, Beauty Salon,
Property Rental,
Convalescent Care
$25 + $0.84 / $1,000
Gross (Max: $3,000)
$25 + $2.50 / $1,000
Gross
Contractors Contractors,
Rec/Entertainment, Land
Developers, Utilities
$25 + $1.09 / $1,000
Gross (Max: $3,000)
$25 + $2.50 / $1,000
Gross
Rental –
Commercial /
Residential
Commercial Leasing, Parcel
leasing, Short-Term Rentals
(three units or less)
$25 + $0.84 / $1,000
Gross (Max: $3,000)
$25 + $3.50 / $1,000
Gross
Professional Doctor’s Offices,
Accountants, Attorneys,
Consultants
$25 + $1.69 / $1,000
Gross (Max: $3,000)
$25 + $3.50 / $1,000
Gross
Rate Increase Methodology
▪ Allow for a more equitable effective tax structure – this inequity is caused by the $3,000 maximum tax cap
▪ Businesses paying less than the $3,000 maximum cap will see no increase in tax payments – ensuring small businesses not affected ▪ New rates in line with other cities with similar rate structure ▪ Lowest rate for General Retail category where businesses contribute to the City’s tax base in other ways and tend to have low profit margins ▪ Wanted to treat all businesses the same by including Short-Term Rental operators. Currently, BLT does not apply to residential rentals of less than 4 units
9 Comparison to other Cities
10 Group Santa Rosa
(Proposed)
Tracy Sausalito Pico Rivera
General
Commerce/Retail
$25 + $1.50/$1,000
Gross over $25K
$1 / $1,000 Gross
over $500K
$1 / $1,000 Gross
(Min: $125)
$25 + $1 / $1,000
Gross over $25K
Services $25 + $2.50/$1,000
Gross over $25K
$3 / $1,000 Gross
over $500K
$3 / $1,000 Gross
(Min: $125)
$25 + $1 / $1,000
Gross over $25K
Contractors $25 + $2.50/$1,000
Gross over $25K
$2 / $1,000 Gross
over $500K
$2 / $1,000 Gross
(Min: $125)
$25 + $2 / $1,000
Gross over $25K
Rentals –
Commercial/Res.
$25 + $3.50/$1,000
Gross over $25K
$3 / $1,000 Gross
over $500K
$2 / $1,000 Gross
(Min: $125)
$25 + $3 / $1,000
Gross over $25K
Professional $25 + $3.50/$1,000
Gross over $25K
$2 / $1,000 Gross
over $500K
$3 / $1,000 Gross
(Min: $125)
$25 + $3 / $1,000
Gross over $25K
Payment Distribution
11 12
Business Size Total Count Total Gross Receipts Current Charges Model 4 Small 7,834 $190,037,000.00 $419,763.54 $419,763.54
Medium 3,675 $1,317,065,000.00 $1,560,962.86 $1,560,962.86 Large 1,388 $8,291,951,000.00 $2,791,138.23 $14,840,044.00 Total 12,897 $9,799,053,000.00 $4,771,864.63 $16,820,770.40 Business License Revenue Models by Business Size
Business Size Total Count Current Charges Current w Admin Adjustments Model 4 Small 7,834 0.22% 0.22% 0.22%
Medium 3,675 0.12% 0.12% 0.12%
Large 1,388 0.03% 0.03% 0.18%
Total 12,897 0.05% 0.05% 0.17%
Effective Tax Rate by Business Size
Business Type Total Count Total Gross Receipts Current Charges Model 4 General/Retail 2,568 $5,167,695,000.00 $1,196,120.59 $6,176,051.57 Professional 1,244 $1,213,400,000.00 $929,559.55 $3,876,625.09 Contractor 2,867 $1,406,604,000.00 $1,055,474.12 $2,998,723.41 Service 4,742 $1,635,648,000.00 $1,212,934.80 $3,131,055.76 Rental 1,346 $375,706,000.00 $377,775.57 $638,314.57
Exempt 130 $0.00 $0.00 $0.00
Total 12,767 $9,799,053,000.00 $4,771,864.63 $16,820,770.40 Business License Revenue Models by Category
Next Steps
▪ City Council Study Session July 9, 2024
▪ Council Item Recommending Approval of Tax Measures and Submission to Registrar of Voters July 23, 2024
▪ Ballot measure due to Registrar of Voters August 9, 2024 ▪ Continue public outreach
▪ Met with representative of Chamber of Commerce
▪ Will meet with other business groups
▪ Developing educational material
13 14
Questions?