Business License Tax
Program Update
Presentation to City Council
Matrix Consulting Group, Ltd.
Alan Pennington, Senior Vice President
Joe McDonald, Senior Consultant
May 2024
AGENDA
1 BACKGROUND
2 CURRENT BUSINESS LICENSE STRUCTURE
3 PROPOSED APPROACH
4 ESTIMATED REVENUES
2 5 Q&A
Background
The South San Francisco Municipal Code Title 6 Business Regulations was enacted solely to raise revenue for municipal purposes
Since 1976, all businesses conducting business within the City are required to have a business license
Annual business license fees are collected by the City’s Finance Department and are due by January 31st of the calendar year.
Business license structure was last modified in 2008, other than the annual cost of living adjustments
3 Background 1
Overview
Objectives for the new business license tax structure:
4 Background 1
Modernize BLT
Structure
Streamline
Administration
and Auditing
Businesses Pay
Their
Fair Share
Protect Small
Businesses
Business License Tax – Revenue Comparison
5 Background 1
SSF falls at the
lower end of
revenue
generation in
comparison to
peer
municipalities.
AGENDA
1 BACKGROUND
2 CURRENT BUSINESS LICENSE STRUCTURE
3 PROPOSED APPROACH
4 ESTIMATED REVENUES
6 5 Q&A
Current Structure – # and Size of Businesses
7 Current Business License Structure 2
Current Structure – Revenue by Classification
8 Current Business License Structure 2
Current Structure – Revenue by Firm Size
9 Current Business License Structure 2
74.4% of businesses
have 4 or fewer
employees.
84.9% of businesses
have fewer than 10
employees.
Current Structure – BLT Fee Distribution
10 Current Business License Structure 2
77.8% of businesses
paid $299 or less
annually.
Current Structure – Unlicensed Businesses
11 Current Business License Structure 2
There are approximately 450 businesses within the City that are not currently licensed. Given differences in data methodologies in classifying businesses, the specific types of unlicensed businesses are not entirely discernable but appear to fall in categories such as:
‒ Construction / Contractors,
‒ Manufacturing
‒ Warehousing and Transportation / Freight
‒ Rental properties
‒ Administrative and Support
If all of these businesses were licensed, the projected revenue increase would be approximately $370,107.
AGENDA
1 BACKGROUND
2 CURRENT BUSINESS LICENSE STRUCTURE
3 PROPOSED APPROACH
4 ESTIMATED REVENUES
12 5 Q&A
Recommended Changes For New BLT
Proposed Approach 3
13 Per Employee Rate modified
Per Associate Rate increased
Consolidate More Business Categories
into the per employee rate
Construction General Contractors and
Subcontractors Rate Change
Structural Changes Administrative Changes
Business License Tax Cap removed
Align with NAICS Codes
Automatic Annual Cost-of-Living
Adjustment
Clear definition of employee
Proposed Per Employee Rate
Proposed Approach 3
14 Utilize per employee basis for more business license tax program categories but adjust rates to provide a progressively increasing per employee rate structure as follows:
Range of Employees Base Rate Per Employee Rate
0 - 4 $150 $30
5 - 9 $270 $35
10 - 19 $445 $50
20 - 49 $945 $60
50 - 99 $2,745 $75
100 - 249 $6,495 $80
250 - 499 $18,495 $90
500 - 999 $40,995 $100
1000+ $90,995 $150
Per Employee Rate Revenues
Proposed Approach 3
15 Small businesses (defined as fewer than four employees) currently represent 24% of all business license revenue collected from per employee businesses. With the proposed changes implemented, this would be reduced to 10.3%.
Per Associate Businesses
Proposed Approach 3
16 Increase the current rate structure for professional services firms ($226.50 per associate) as follows:
‒ $275 base plus $275 per each additional associate, partner, or member of the professional corporation
‒ There are currently 477 firms in this category that generate $1,342,996. ‒ Revenue will increase by $812,268 annually if this proposal is implemented.
Construction General Contractors / Sub-Contractors
Proposed Approach 3
17 Business license tax for contractors will be based upon the permitted value of work within the City of South San Francisco.
‒ Approximately 1,300 businesses in the contractor / subcontractor categories. Current revenue approximately $280,000 per year.
‒ Establishes a BLT rate of $1.80 / $1,000 in permitted construction value for the business license for each contractor/subcontractor. This approach is used by other entities:
• Berkeley ($1.80/$1,000), Menlo Park (Base rate plus $250/$1,000,000 over $1M with maximum rate of $8,000), and Oakland ($1.80/$1,000) of gross receipts. The business license is proposed to run for the duration of the project and would be paid at time of permit issuance.
Based upon three-year average building permit valuation of $862,098,827, the estimated annual revenue increase could approach $1,270,000 if all work performed by contractors/subcontractors.
Additional Program Changes
Proposed Approach 3
18 Streamline Program as follows:
‒ Expand use of per employee rate for:
‒ All per unit categories, except for short term rentals. ‒ All other flat rates, except public utilities.
‒ No change to businesses calculated on gross receipts basis.
Administrative Changes
Proposed Approach 3
19 Eliminate the business license tax cap that is currently at $150,886.50 (2024). ‒ This change alone will increase annual revenue by approximately $51,765 without changing current per employee rate.
Update business categories to align with NAICS codes for ease of administration, increased accuracy, and enhanced auditing and registration compliance. Maintain an annual escalator in rates based upon prior year’s CPI. Update ordinance definitions for enhanced compliance and ease of administration. ‒ Include “contract workers/employees” within the definition of employee for calculation of BLT fees to capture rising “gig economy”
AGENDA
1 BACKGROUND
2 CURRENT BUSINESS LICENSE STRUCTURE
3 PROPOSED APPROACH
4 ESTIMATED REVENUES
20 5 Q&A
Impact of Proposed Changes
Estimated Revenues 4
21 The number of businesses and revenue changes by major rate categories if all proposed rate adjustments are implemented:
BLT (Pro-Forma) – Revenue Comparison
22 Background 1
AGENDA
1 BACKGROUND
2 CURRENT BUSINESS LICENSE STRUCTURE
3 PROPOSED APPROACH
4 ESTIMATED REVENUES
23 5 Q&A
Questions
24 Q&A 5