Proposed Revenue Measures
CITY COUNCIL STUDY SESSION
JULY 9, 2024
ALAN ALTON
CHIEF FINANCIAL OFFICER
Agenda
Background
Transient Occupancy Tax (TOT)
Business License Tax (BLT)
Opinion Survey Results
Next Steps
2 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 3 TOT – Current
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
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% 14%
Windsor 12% 2% 14%
Petaluma 10% 2% 2% 14%
Cloverdale 10% 2% 12%
4 Current TOT Rates – Sonoma County
TOT – Proposed
Proposed Changes
Increase TOT by 2%, from 9% to 11%
Total charges to lodger incr. to 16%
$1.5M est. revenue to General Fund
City TOT BIA -
Local
BIA -
County
Total
Healdsburg 14% 2% 16%
Santa Rosa 11% 3% 2% 16%
Sonoma 13% 2% 15%
Rohnert Park 12% 2% 14%
Sebastopol 12% 2% 14%
Sonoma County 12% 2% 14%
Windsor 12% 2% 14%
Petaluma 10% 2% 2% 14%
Cloverdale 10% 2% 12%
5 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 This would not include the business tax structure for the cannabis industry which fall under Chapter 6-10 in the Santa Rosa Code
6 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
7 Methodology for Changes
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
8 Proposed Changes to Section 6-04
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 9 Changes in Rates
10 Group Type Gross
Receipts
Threshold
GR Less Than
Threshold
GR More Than
Threshold
Group 1 Retail, Wholesale, Restaurant,
Manufacturing, Corporate
HQs, Auto Sales
$8,775,000
$25 + $0.34 /
$1,000 Gross
(Max: $3,000)
$25 + $1.50 /
$1,000 Gross
Public Utility
$3,566,666
$25 + $0.84 /
$1,000 Gross
(Max: $3,000)
$25 + $1.50 /
$1,000 Gross
Recreation and Entertainment
$2,754,357
$25 + $1.09 /
$1,000 Gross
(Max: $3,000)
$25 + $1.50 /
$1,000 Gross
Group 2 Land Developer
$2,754,357
$25 + $1.09 /
$1,000 Gross
(Max: $3,000)
$25 + $3.50 /
$1,000 Gross
Changes in Rates
11 Group Type Gross Receipts
Threshold
GR Less Than
Threshold
GR More Than
Threshold
Group 2 Doctor’s Offices,
Accountants,
Attorneys, Consultants
$1,795,833 $25 + $1.68 / $1,000
Gross (Max: $3,000)
$25 + $3.50 /
$1,000 Gross
Group 3 Commercial or
Residential Property
Rental, STR
$3,566,666 $25 + $0.84 / $1,000
Gross (Max: $3,000)
$25 + $2.50 /
$1,000 Gross
Group 4 Services, Healthcare
Center, Moving
Company
$3,566,667 $25 + $0.84 / $1,000
Gross (Max: $3,000)
$25 + $2.50 /
$1,000 Gross
Group 5 Contractors $2,754,357 $25 + $1.09 / $1,000
Gross (Max: $3,000)
$25 + $1.50 /
$1,000 Gross
Changes in Payments - Examples
Business Type Group Gross Receipts Current New
Department Store Retail $10,200,000 $3,000 $15,300
Auto Dealership Retail $32,000,000 $3,000 $48,000
Full-Service Restaurant Retail $3,300,000 $1,400 $1,400 Automotive Repair Services $53,700,000 $3,000 $134,000
Beauty Salon Services $155,000 $181 $181
Apartment Complex Rental $3,600,000 $3,000 $12,500
Electrical Contractor Contractors $122,500,000 $3,000 $306,000 Medical Office Professional $167,600,000 $3,000 $586,500 CPA Office Professional $1,200,000 $2,545 $2,545
12 Comparison to other Cities
13 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
14 Opinion Survey Results
Opinion survey completed in late November 2024
90,060 likely voters surveyed, with a margin of error of +/- 3.15% Support for changes to the Business Tax ordinance was 66.8% Support for increasing the City’s TOT by 2% was 63.0% 15 Next Steps
Council Item Recommending Approval of Tax Measures and Submission to Registrar of Voters July 23, 2023
Ballot measures due to Registrar of Voters August 9, 2024 Continue to meet with business groups
16 17
Questions?