COUNTY ADMINISTRATION OFFICE - R. ESPINOSA

Adopt resolution calling for an election to be consolidated with the November 6, 2018 general election, to submit to the voters for approval, an ordinance imposing a business license tax. 

SBC FILE NUMBER: 119

RESOLUTION NO: 2018-56

This item was discussed at the July 24, 2018 meeting.  At that meeting, the Board directed that an agenda item be prepared for this meeting to propose a business license tax to be submitted to the voters at the November 6, 2018 election. 

Background from July 24, 2018 meeting:

Like most of local government, the County of San Benito has struggled to meet the expanding need for public services and the increasing costs associated with providing those services. To meet this need, the Board of Supervisors has tasked the County Administrative Office with developing options for enhancing County revenue sources. In response, the Administrative Office has presented the Board of Supervisors with various revenue enhancement options. One option for the Board to consider essentially a revival of a long-standing County tax, Business License Tax. The County of San Benito had an operative Business License Tax Ordinance in place until the tax ordinance was rejected by the voters in the March 26, 1996 primary election. The Business License Ordinance was imposed to insure that businesses operating in the unincorporated County were properly licensed and were assessed an appropriate amount of tax. The amount of the tax was dependent upon the type of business operation. Basically, a person wishing to conduct business in the unincorporated County paid a nominal amount, plus an additional amount based on the volume of business conducted in the County. For most businesses, the volume of business was determined by the number of employees of that business. In 1996, Measure D was placed on the ballot as a general tax measure. The Measure sought to amend the existing Business License Tax Ordinance by increasing the minerals depletion tax from 5 cents to 7.5 cents a ton for businesses operating as surface mining operators. The Measure was rejected in part by the forceful marketing efforts of surface mining businesses in operation at that time.  The main source of disagreement was that the mineral depletion taxpayers wanted all of the tax revenues generated from this tax to fund road improvements exclusively; however, Measure D had been placed on the ballot as a general tax measure. By definition, general tax measures must be used to fund general government services and cannot be designated for any exclusive use or purpose.  Unfortunately, the entire Business License Ordinance and Tax was deemed to be overturned by the voters’ rejection of the Measure, due to the uncertainty of the legality of tax measures not previously approved by the voters at that time.

In May of this year, after consulting with HdL Companies consultant Joshua Davis, a contract was signed by the Administrative office to study and provide a report on a new Business License Ordinance with and without a tax for consideration by the Board of Supervisors.  A Business License Ordinance that imposes a fee to cover the costs of administration only does not need to have voter approval. Voter approval is needed if a Business License Ordinance with a tax is considered for adoption. A resolution would need to be adopted by the Board of Supervisors no later than August 10, 2018, in order to place a Business License Tax Ordinance Measure before the voters for the November 6, 2018 General Statewide Election. Since the Business License Tax is a general tax, the threshold for voter passage is greater than 50%.  The HdL draft report (attached) provides the detail to support the various Options offered for consideration for the proposed Business License Ordinance and Tax. The HdL Companies consultant Joshua Davis will be providing additional options and information at the July 24th Board meeting to the draft report.

Option 1: What if we just used the exact same ordinance that was operative in 1996 and put it back exactly the same way but based on current inventory of businesses? This is expected to bring in $378,000 per year in Business License Tax revenue.

Option 1+20%: Same as Option 1 but with a 20% escalator in the Tax. This option is expected to bring in $453,600 per year in Business License Tax revenue.

Option 1+40%: Same as Option 1 but with a 40% escalator in the Tax. This option is expected to bring in $529,200 per year in Business License Tax revenue.

Option 1+60%: Same as Option 1 but with a 60% escalator in the Tax. This option is expected to bring in $604,800 per year in Business License Tax revenue.

Option 2: A new Business License Tax Ordinance that utilizes a Single Gross Receipts method. This is the most prevalent business license tax method utilized by most cities. Using a $100 Flat Fee with a $1/thousand tax on gross receipts brings in an estimated $370,000 per year in Business License Tax revenue.

                Option 2+$1.50/thousand:  This option is the same as Option 2 but instead of taxing $1/thousand dollars of gross receipts that rate increased 50% to $1.50/thousand dollars on gross receipts. The enhanced option is expected to bring in $495,000 per year in Business License Tax revenue.

Option 3: A hybrid Business License Tax methodology utilizing a flat fee of $100 as a base amount per business combined with a percentage of gross receipts and/or $.05/ton. This option is expected to bring in $428,400 per year in Business License Tax revenue.

Option 4: A new Business License Ordinance that is principally regulatory in purpose. The Business License ordinance would begin to collect data concerning the types, numbers and volume of sales that are in the unincorporated County. In this option, the Board would either direct an internal fee study or outsource the study to a firm like HdL Companies to perform an analysis to determine the correct amount for the administrative fee necessary to cover the administrative costs of the County Business License program.

The Board is requested to consider these options for further action. Only Option 4 is not tethered to requiring actions to the August 7, 2018 Board of Supervisors meeting for additional action if the Board wishes to pursue voter approval at the November 6, 2018 General Statewide Gubernatorial Election.

Adopt resolution calling for an election to be consolidated with the November 6, 2018 general election, to submit to the voters for approval, an ordinance imposing a business license tax.