Rancho Palos Verdes City Council
   

TO:

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: FINANCE DIRECTOR

DATE: NOVEMBER 5, 2002

SUBJECT: BUSINESS LICENSE ORDINANCE REVISION – SIMPLIFICATION OF TAX CALCULATION

Staff Coordinator: Kathryn Downs, Accounting Manager

RECOMMENDATION:

1) Introduce Ordinance No. , an Ordinance of the City of Rancho Palos Verdes regarding the classifications and calculation of business license tax, amending the Rancho Palos Verdes Municipal Code, for the first reading; and

2) Direct staff to prepare the necessary resolution to adopt a cost based business license application-processing fee to be presented during a Public Hearing at the November 19, 2002 meeting of the City Council; and

3) Direct staff regarding the inclusion of the cost of staff time within the proposed application-processing fee.

BACKGROUND AND ANALYSIS:

The City of Rancho Palos Verdes Municipal Code requires all businesses operating in the City to obtain a business license by completing an application and paying a business license tax. The business license tax was enacted solely to raise General fund revenue, rather than regulate business within the City.

Currently, section 5.04 of the Rancho Palos Verdes Municipal Code (hereafter referred to as the Business License "Ordinance") defines nineteen (19) inidual classifications of business for the purpose of obtaining a business license. Depending on the nature and business classification, businesses remit an annual business license tax based on annual gross receipts, number of vehicles, number of rental units, itinerant carts and wagons, a flat tax, or a combination thereof.

As a result of the numerous business license classifications, City staff maintains multiple business license applications defined by the Ordinance. Updating the applications and mailing the proper application to each prior applicant based upon their respective classification is a monumental task performed by staff each year. As a result of the number of classifications and methods for computing the tax, the applicants’ calculation is often incorrect.

Staff believes the proposed simplification of the Ordinance will reduce the number of applications with incorrect calculations, as well as the staff time required to complete the processing of the applications. The simplification of the Ordinance is essential to enabling the filing of applications and accepting payment via the City’s Web site in the future.

Following is a summary of the number of business license applicants, business classifications, and business license tax received for 2002.

Number of Applicants Classification Description Total 2002 Tax Received Average per License

20

Wholesale & Auto Sales (Home Occupancy)

$ 2,006

$ 100

71

Retail Sales & Other Businesses

73,712

1,038

94

Retail Sales & Other Businesses (Home Occupancy)

13,933

148

121

Professions & Specified Services

42,782

354

402

Professions & Specified Services (Home Occupancy)

30,239

75

4

Commercial Rentals

735

184

1

Commercial Rentals (Home Occupancy)

159

159

4

Residential Rentals (3-9 units)

410

103

9

Residential Rentals (10+ units)

10,051

1,117

159

General Building Contractor

43,403

273

100

Plumbing, Gas, Sewer & Electrical Contractors

13,524

135

257

Subcontractors & Other Contractors

35,335

137

6

Taxicabs

4,395

732

12

Refuse Operators

14,366

1,197

23

Pickup or Delivery Vehicles

2,577

112

178

Outside Businesses

33,753

190

4

Itinerant Street Vendors

1,612

403

1,465

Totals

$ 322,991

$ 220

Staff proposes a reduction to four classifications as follows:

  • General Contractors;
  • Subcontractors;
  • Businesses Within the City; and
  • Businesses Outside the City.

Based upon past experience, the flat fee tax currently paid by General Contractors and Subcontractors ($269 and $134, respectively) exceeds what would be payable if based upon gross receipts. The retention of the flat fee tax method for General Contractor and Subcontractor classifications, rather than the gross receipts method, enables the simplification to be conducted without a significant loss of business license tax revenue. An analysis of the impact of the proposed business license tax simplification follows, in the schedules below:

Number of Applicants Classification Description Projected Tax Receipts in 2002 dollars Average per License

159

General Contractors

$ 42,771

$ 269

357

Subcontractors

47,838

134

681

All Other Businesses Within the City

169,960

250

268

All Other Businesses Outside the City

44,741

167

1,465

Totals

$ 305,310

$ 208

In the event the City Council elects to adopt the proposed business license tax simplification, staff will prepare the necessary resolution to be presented during the November 19, 2002 meeting of the City Council. Upon the majority affirmative vote to enact the proposed revision to the Municipal Code to simplify the business license tax calculation, the revision would be effective thirty (30) days after the adoption of said resolution.

Business License Application-Processing Fee

To mitigate the business license tax revenue loss resulting from the proposed simplification, staff recommends the adoption of a business license application-processing fee. The proposed processing fee of $10 is based upon the cost of computer hardware, software, maintenance and annual support fees. An estimate of the proposed processing fee revenue follows:

Number of Applicants

Classification Description

Projected Fee Receipts In 2002 dollars

Per License

1,465

Business License Application-Processing Fee

14,650

10

 

Total

$ 14,650

 

The proposed fee does not include staff time to process the application and issue a business license. The cost of fully burdened staff time to process each application has been calculated as $12. Staff seeks Council direction regarding the inclusion of staff time in the processing fee.

In the event the City Council elects to adopt the cost based application-processing fee, staff will prepare the necessary resolution to be presented during a duly noticed Public Hearing at the November 19, 2002 meeting of the City Council. Upon the majority affirmative vote to enact the application-processing fee during the Public Hearing, the assessment of the processing fee would be immediately effective.

FISCAL IMPACT

Staff’s recommendation for the Business License Ordinance simplification is revenue neutral; therefore, no fiscal impact is anticipated. The tax rates of the four proposed business license classifications remain the same.

Respectfully submitted,
Dennis McLean
Finance Director

Reviewed,
Les Evans
City Manager

ORDINANCE NO. ___

AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDES AMENDING THE CITY’S BUSINESS LICENSE ORDINANCE AND AMENDING THE RANCHO PALOS VERDES MUNICIPAL CODE

THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES DOES ORDAIN AS FOLLOWS :

Section 1. Section 5.04.100 B of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended to read as follows :

B. Every person required to have a license under the provisions of this chapter shall pay a business license application processing fee established by city council resolution.

Section 2. Section 5.04.110 A of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended by amending paragraphs 5 and 7 thereof to read as follows :

5. In all cases where the amount of license tax to be paid is measured by gross receipts, the application shall set forth such information as may be therein required and as may be necessary to determine the amount of the license tax to be paid by the applicant;

7. If the amount of the license tax to be paid by the applicant is measured by gross receipts, as provided in this chapter, for the period to be covered by the license to be issued. Such estimate, if accepted by the collector as reasonable, shall be used in determining the amount of license tax to be paid by the applicant; provided, however, the amount of the license tax so determined shall be tentative only, and such person shall, within thirty days after the expiration of the period for which such license was issued, furnish the collector with a sworn statement, upon a form furnished by the collector, showing the actual gross receipts during the period of such license, and the license tax for such period shall be finally ascertained and paid on the basis of such actual gross receipts, after deducting from the payment found to be due, the amount paid at the time such first license was issued.

Section 3. Section 5.04.130 B of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended to read as follows :

B. All persons subject to the provisions of this chapter shall keep complete records of business transactions, including sales, receipts, purchases, and other expenditures, and shall retain all such records for examination by the collector. Such records shall be maintained for a period of at least three years. No person required to keep records under this section shall refuse to allow authorized representatives of the collector to examine said records at reasonable times and places.

Section 4. Section 5.04.140 of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended to read as follows :

5.04.140 Information confidential.

It is unlawful for the collector or any person having an administrative duty under the provisions of this chapter to make known in any manner whatever the business affairs, operations, or information obtained by an investigation of records and equipment of any person required to obtain a license, or pay a license tax, or any other person visited or examined in the discharge of official duty, or the amount or source or income, profits, losses, expenditures, or any particular thereof, or other criteria for measurement of the tax set forth in any statement or application, or to permit any statement or application, or copy of either, or any book containing any abstract or particulars thereof to be seen or examined by any person; provided, that nothing in this section shall be construed to prevent:

    1. The disclosure to, or the examination of records and equipment by, another city official, employee, or agent for collection of taxes for the sole purpose of administering or enforcing any provisions of this chapter, or collecting taxes imposed under this chapter;
    2. The disclosure of information to, or the examination of records by, federal or state officials, or the tax officials of another city or county, or city and county, if a reciprocal arrangement exists, or to a grand jury or court of law, upon subpoena;
    3. The disclosure of information and results of examination of records of particular taxpayers, or relating to particular taxpayers, to a court of law in a proceeding brought to determine the existence or amount of any license tax liability of the particular taxpayers to the city;
    4. The disclosure after the filing of a written request to that effect, to the taxpayer himself, or to his successors, receivers, trustees, executors, administrators, assignees and guarantors, if directly interested, of information as to the items included in the measure of any paid tax, any unpaid tax or amounts of tax required to be collected, interest and penalties; further provided, however, that the city attorney approves each such disclosure and that the collector may refuse to make any disclosure referred to in this subsection when in his opinion the public interest would suffer thereby;
    5. The disclosure of the names and addresses of persons to whom licenses have been issued, and the general type or nature of their business;
    6. The disclosure by way of public meeting or otherwise of such information as may be necessary to the city council in order to permit it to be fully advised as to the facts when a taxpayer files a claim for refund of license taxes, or submits an offer of compromise with regard to a claim asserted against him by the city for license taxes, or when acting upon any other matter;
    7. The disclosure of general statistics regarding taxes collected or business done in the city.

Section 5. Section 5.04.200 of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended by deleting paragraphs C and D therefrom.

Section 6. Section 5.04.220 B of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended to read as follows :

B. No license shall be issued, nor shall one which has been suspended or revoked be reinstated or reissued, to any person, who at the time of applying therefor is indebted to the city for any delinquent license taxes, unless such person, with the consent of the collector, enters into a written agreement with the city, through the collector, to pay such delinquent taxes, plus seven percent simple annual interest upon the unpaid balance, in monthly installments, or oftener, extending over a period of not to exceed one year.

Section 7. Section 5.04.240 of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended to reflect the amount of the tax that was first established, which has been increased annually commencing on January 1, 1979, pursuant to the provisions of Chapter 5.04 (formerly Section 5.04.440) so that this Section also will set forth the current amount of the tax, which was in effect as of January 1, 2002, (thus, this amendment does not increase the tax that is to be paid by businesses in the City above the level that currently is in effect), to read as follows :

      1. License tax—Gross receipts.

Except as expressly otherwise provided in this section or elsewhere in this chapter, every person who engages in business at a fixed place of business within the city shall pay a license tax measured by the gross receipts of such business within the city for the immediately preceding calendar year.

In 1974, when this Chapter was adopted, the minimum tax was $20.00 for the first $50,000.00 of gross receipts or fractional part thereof, and in addition thereto $0.30 for each $1,000.00 or fractional part thereof of gross receipts in excess of $50,000.00. Due to the annual increases of this tax rate that have occurred pursuant to the provisions of this Chapter, which commenced in January 1, 1979, the current rate of the tax, as of January 1, 2002, is $53.00 for the first $50,000.00 of gross receipts or fractional part thereof, and in addition thereto $0.81 for each $1,000.00 or fractional part thereof of gross receipts in excess of $50,000.00.

Section 8. Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended by deleting Sections 5.04.250, 5.04.260, 5.04.270, 5.04.280, and 5.04.290 therefrom.

Section 9. Section 5.04.340 of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended by changing the title of that section from "Classification G-- Residential builders, developers—Annual" to "Residential builders, developers—Annual."

Section 10. Section 5.04.350 of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended by changing the title of that section from "Classification H— Commercial, industrial builders, developers—Annual" to "Commercial, industrial builders, developers—Annual"

Section 11. Section 5.04.370 B of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended to read as follows :

B. A builder or developer within the meaning of Sections 5.04.330, 5.04.340 and 5.04.350 shall not be required to pay the license tax imposed upon contractors under the provisions of Sections 5.04.300 with respect to any residential, commercial or industrial construction as to which such licensee is a builder or developer.

Section 12. Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended by deleting Sections 5.04.380, 5.04.390, 5.04.400, 5.04.410 and 5.04.420 therefrom.

Section 13. Section 5.04.490 of Chapter 5.04 of Title 5 of the Rancho Palos Verdes Municipal Code is hereby amended to read as follows :

5.04.490 Penalty for violation.

Any person violating any of the provisions of this chapter or knowingly or intentionally misrepresenting to any officer or employee of this city any material fact in procuring the license provided for in this chapter shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be punishable by a fine of not more than one thousand dollars or by imprisonment in the city jail for a period of not more than six months, or by both such fine and imprisonment.

PASSED, APPROVED AND ADOPTED THIS ____ DAY OF ________, 2002.

_________________________________
MAYOR

ATTEST:

____________________________
CITY CLERK

STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES )ss
CITY OF RANCHO PALOS VERDES )

I, JO PURCELL, City Clerk of the City of Rancho Palos Verdes, do hereby certify that the whole number of members of the City Council of said City is five; the foregoing Ordinance No. ____ was duly and regularly adopted by the City Council of said City at a regular meeting thereof held on ______________, and that the same was passed and adopted by the following roll call vote:

AYES:
NOES:
ABSENT:
ABSTAIN:

__________________________________
CITY CLERK