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CC: ACTION ITEM - (1) Discussion of Whether to Review the Penalty Rate Structure for the Nonpayment of Business Tax as per Culver City Municipal Code Section 11.01.205; (2) (If Desired) Creation of an Ad Hoc Business License Penalty Review City Council Subcommittee and the Appointment of Two Council Members thereto; and (3) Direction to the City Manager as Deemed Appropriate.
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Meeting Date: September 18, 2023
Contact Person/Dept: Onyx Jones, Assistant City Manager
Phone Number: (310) 253-6023
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [X] Attachments: [X]
Commission Action Required: Yes [] No [X] Date:
Public Notification: (E-Mail) Meetings and Agendas - City Council (09/13/2023)
Department Approval: John Nachbar, City Manager, (09/12/2023)
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RECOMMENDATION
Staff recommends City Council (1) discuss whether to review the penalty rate structure for the nonpayment of business tax as per Culver City Municipal Code (CCMC) Section 11.01.205; (2) (If desired) create an Ad Hoc Business License Penalty Review City Council Subcommittee and appoint two Council members thereto; and (3) provide direction to the City Manager as deemed appropriate.
BACKGROUND
The voters of Culver City passed Measure BL in the November 2022 general election to update CCMC Chapter 11.01 - General Licensing for businesses. Measure BL updated Culver City’s business license tax to either a flat tax up to $1,000, or 0.13%-0.35% of gross receipts (depending on business type), 4% for oil well operations, and an additional 0.01% for gross receipts over $100,000,000. Measure BL also exempts the first $200,000 in gross receipts and updates the business classifications.
CCMC Section 11.01.205 authorizes City Council to establish penalties for non-payment of business tax through City Council resolution. City Council adopted Resolution 2000-R101 on October 10, 2000, and it states:
“Pursuant to and in accordance with Section 11.01.205 (former §19-22) for failure to pay business tax or fee when due, the Tax Collector shall add a penalty of twenty percent (20%) of the business tax or fee on the first calendar day of the second month following the due date of the business tax or fee and on the first of each month thereafter. The penalty shall accrue each month the business tax or fee remains unpaid, provided, however, the amount of the penalty shall, in no event exceed the amount of the business tax or fee due”.
The Ordinance authorizing City Council to establish penalties for nonpayment of business tax and the Resolution establishing such penalties are included with this report as Attachments 1 and 2, respectively.
DISCUSSION
In the recent general election, Measure BL was approved by the Culver City voters to update Chapter 11.01 of the CCMC as this chapter had not been significantly updated since 1965. The chapter updates the business license tax rates for businesses that pay based on gross receipts or a flat tax. These new tax rates remain competitive with those of nearby cities. Additionally, the revised tax structure now offers a business tax exemption on the first $200,000 of gross receipts. As a result, around 60% of businesses will be exempt from paying business tax for each year that they report their gross receipts under $200,000. However, businesses that generate over $200,000 annually will experience an increase in their tax liability. To support these businesses and ensure that those receiving the exemption comply with regulations, staff is recommending City Council to review the current penalty rate structure for nonpayment of business tax and fees.
The current penalty rate for nonpayment of business tax and fee is twenty percent (20%) per month. The penalty increases to a hundred percent (100%) after non-payment of business tax and fee for more than five months. The business license tax penalty comparison between Culver City and other cities is as follows:
TABLE 1:
As noted on Table 1, Santa Monica and Hawthorne have penalties that go up to 100% of tax owed which is similar to Culver City. However, Santa Monica’s penalty does not reach 100% until the ninth month of delinquency. Cities such as Los Angeles, West Hollywood, and Beverly Hills have penalties that cap at either 40% or 50%; however, they also charge interest on the tax until the tax is paid. Inglewood has penalties up to 50%, but they do not charge interest. El Segundo is unique in that they charge a penalty up to 100% and interest on the tax until paid.
Ad Hoc Business License Penalty Review Subcommittee
As noted in Table 1 there are various penalty and fee options that can be considered. If City Council gives direction to move forward on revising the penalty structure for the nonpayment of business taxes, staff recommends that Council form an ad hoc subcommittee. This subcommittee would review the following information to make recommendations to City Council:
1. The penalty rate per month for unpaid tax;
2. The maximum penalty rate;
3. Decide if the City will cap the total number of months to charge the penalty;
4. Determine the tax penalty for late filing for businesses with gross receipts of $200,000 or less; and
5. Discuss the option of assessing interest on late tax payments.
FISCAL ANALYSIS
The revenue for Business License Penalties (Account No. 10114400.315120) is budgeted at $750,000 in the Adopted Budget for Fiscal Year 2023/2024. If the Fee resolution is approved to either reduce or increase the penalty/interest rates, that change would impact this revenue source accordingly.
ATTACHMENTS
1. Attachment_1_ORD 2000-021 - Business Regulations pertaining to Nonpayment of Business Tax
2. Attachment _2_Resolution 2000-R 101 - Establishing a Penalty for the Non-Payment of Business License Penalty
MOTIONS
That the City Council:
1. Provide direction on whether to review changes to the penalty structure for the nonpayment of business tax as per the Culver City Municipal Code Section 11.01.205;
2. (If desired) Create the Ad Hoc Business License Tax Penalty Review City Council Subcommittee and appoint two Council Members thereto; and
3. Provide direction to the City Manager as deemed appropriate.