Santa Cruz County, along with eight other counties of similar population, has implemented a transient occupancy tax (TOT). Santa Cruz County is one of only two of these counties that have not implemented a business license fee or tax in its unincorporated area. This report concludes it would be beneficial to implement a regulatory business license rather than a revenue-raising business license.
The state budget package of 1990-1991 reduced county revenues. In exchange, the state granted counties the authority to levy a business license tax, among other taxes and fees. Transient Occupancy Tax (TOT) and Business License fees represent two potential sources of local tax revenue that the state neither mandates nor takes away from local government.
Santa Cruz County initiated its TOT in 1964. Today it represents over 8% of County tax revenues.
The tax or fee may be levied for two purposes:
· “Regulatory” fees may be levied only to cover the costs of regulation. In this case no voter approval is required.
· “Revenue” raising tax fees require a vote of the public.
If the proceeds are earmarked for general revenue purposes,
a majority vote is required for approval. If the proceeds are earmarked for
specific purposes, a two-thirds vote is required for approval.
The business license fee is used by many communities as a tool to manage zoning, ensure predictable land use, cross check sales tax and TOT accounts, as well as to assist the community in promoting and marketing its business opportunities.
Santa Cruz County has enacted a Business License Tax in its unincorporated areas. On June 28, 1991 the Santa Cruz County Board of Supervisors unanimously approved Ordinance No. 4138 and a County Code Chapter 4.02, which imposed a Business License Tax for businesses operating in the unincorporated areas of the County. However, the County never put this license tax into effect. This license tax was enacted to raise revenue for general governmental purposes of the county and not for regulatory purposes.
At the same time the Supervisors enacted, and the county put
into effect, a Utility Tax without voter approval. A long line of cases held
that Article II, Section 9 of the California Constitution excluded from the
voters' right of referendum any referendum to repeal local taxes. Several cases
specifically held that the voter approval provisions of Proposition 62 violated
this Constitutional provision with regard to local, general and special taxes.
Ultimately the California Supreme Court ruled that both utility taxes and
business license taxes require approval by the voters. Voters reinforced this
by passing Proposition 218 in 1996.
Therefore, the county cannot put into effect the existing
revenue-raising Business License under Chapter 4.02 without voter approval.
All incorporated cities in Santa Cruz County have revenue-raising business licenses for general use.
Because of the importance of and sensitivity to tax policy, particularly during economic downturns, the Grand Jury chose to:
· Examine and compare the policy, fee structure and enforcement of TOT and business license fees and taxes of Butte, Marin, Merced, Monterey, Placer, San Luis Obispo, Santa Barbara, Santa Cruz and Tulare counties.
· These counties have similar population sizes as Santa Cruz County.
· Solicit the views of local business organizations.
· Review the issues of Santa Cruz County and its Business License and TOT policy with county officials.
Interviewed:
Butte County officials.
Marin County officials.
Merced County officials.
Monterey County officials.
Placer County officials.
San Luis Obispo County officials.
Santa Barbara County officials.
Santa Cruz County officials.
Tulare County officials.
Reviewed:
Marin County Web site.
Merced County Web site.
Santa Cruz County Web site.
Santa Clara County Web site.
David Biddle, "Enforcement of Commercial Recycling," Recycling Today,
August 19, 2001.
Runyan Associates, Survey for the California Tourism Bureau.
Dan Runyan Associates, California Transient Occupancy Tax by Jurisdiction, 2002.
Mid County Post, 12 August, 2003.
Pillsbury Wintrop, State/Local Tax Bulletin (December 1996).
1. All nine counties reviewed collect TOT and have similar collection policies and results. TOT varied from 8% to 10.5% in the counties surveyed.
Response:
Santa Cruz County Board of Supervisors CANNOT RESPOND.
The County has
not conducted a survey of other Counties, and therefore can only confirm that
the Transient Occupancy Tax Rate (TOT) for the County of Santa Cruz is
currently 10%.
2. Policies on Business Licenses vary considerably from county to county. For example, no Business License is required in Santa Cruz County or Monterey County; a nominal “regulatory” Business License fee of $15 per year is charged in San Luis Obispo, while a sophisticated revenue-raising tax in Marin County has a schedule determined by the type of business and annual sales.
Response:
Santa Cruz County Board of Supervisors NEITHER AGREES NOR DISAGREES.
The County has not conducted a survey of
policies on Business Licenses.
3. Merced County recently initiated a Business License. The supervisors of Merced County determined that a regulatory license would better enable the county to keep track of businesses in its unincorporated area. Through the use of data obtained from the administration of a regulatory business license, the county can offer marketing and promotional information to its businesses.
Response:
Santa Cruz County Board of Supervisors CANNOT RESPOND.
The County has no information on the Merced
County business license.
4.
A county’s decision to implement a TOT or a Business License
fee is influenced by the population and business density of unincorporated
areas. Many California counties have their dense urban populations located
almost entirely within the boundaries of incorporated cities and have no
significant urban or commercial areas within their unincorporated area.
Response: Santa Cruz County Board of
Supervisors NEITHER AGREES NOR DISAGREES.
5. Santa Cruz County has several dense or suburban population centers in its unincorporated areas with a significant number of businesses ranging from retail, services, industrial to home-based. Aptos, Ben Lomond, Boulder Creek, Felton, Live Oak and Soquel are examples of such unincorporated areas of the county. It is not unusual to find similar kinds of businesses where one must pay for a Business License in a city and another, a few blocks away, does not because it is in an unincorporated area.
Response:
Santa Cruz County Board of Supervisors AGREES.
6. A significant percentage of Santa Cruz County businesses are outside incorporated city boundaries. This information is based largely on membership addresses obtained from business associations established to serve local neighborhoods or countywide businesses.
Response:
Santa Cruz County Board of Supervisors AGREES.
7.
Most business associations in the county view any new
tax or fee on local businesses with caution. Some businesses are struggling to
survive. Data indicates that the new
growth of businesses is expected to be largely in the unincorporated areas as
opposed to incorporated cities.
Response:
Santa Cruz County Board of Supervisors NEITHER AGREES NOR DISAGREES.
The County has not surveyed business
associations in the county.
8.
Presently Santa Cruz County administrators get much of the
business data for planning purposes from the State Employment Development
Department. It regularly publishes information about California’s labor market.
This includes economic development and planning information, industry and
occupational characteristics, trends and wage information. Specific county
information is consolidated without separating unincorporated areas. The county
issues land use permits whose limits are determined by the particular zoning
restrictions. Other sources of data include United Way’s Community Assessment
Project, Small Business Administration and private sources such as Dunn and
Bradstreet.
Response:
Santa Cruz County Board of Supervisors AGREES.
In addition, the County receives information
from firms which conduct tracking and audits of sales tax trends and receipts,
as well as information collected as part of the County’s CareerWorks programs,
and other workforce related programs directed by the County’s Workforce
Investment Board. Other information is also collected from additional sources
as needed.
9. The comparison of nine counties is summarized in approximations in the following table.
|
County Population (total) |
TOT |
# of Bus. |
Annual TOT Revenues |
Business License |
# of Licenses |
Annual
Business License Revenues |
|
Butte (208,800) |
9.2% |
21 |
$36,800 |
$49 |
regulatory 20 |
$980 |
|
Marin (248,900) |
10% |
100 |
$1,579,000 |
$15
to $4,500 |
revenue 6,300 |
$981,494 |
|
Merced (216,400) |
10% |
6 |
$629,681 |
$55-$175 Number
of employees |
regulatory 1200-1500
est. |
$250,000 est. |
|
Monterey (408,000) |
10.5% |
75 |
$13,475,750 |
No
general business license |
NA |
NA |
|
Placer (261,500) |
8% |
378 |
$8,200,000 |
$107
-- $127 $16
renewal |
Revenue 7,600 |
$249,000 |
|
San
Luis Obispo (252,000) |
9% |
160 |
$4,600,000 |
$15/yearl |
Regulatory 3,800 |
$57,000 |
|
Santa Barbara (405,700) |
10% |
30 |
$5,145,000 |
Type
of Business &
Gross Receipts $25-$1,200+ |
Regulatory 850 |
$80,000 |
|
Santa Cruz (258,500) |
10% |
113 |
$3,889,000 |
No
General Business
License |
NA |
NA |
|
Tulare (375,800) |
10% |
46 |
$878,271 |
No
General License: Special
Licenses |
Regulatory 63 |
$6,400 |
Response:
Santa Cruz County Board of Supervisors NEITHER AGREES NOR DISAGREES.
The County has
not surveyed the counties.
10.
Marin County uses Business Licenses to cross reference TOT
rolls and its sales tax accounts.
Response:
Santa Cruz County Board of Supervisors AGREES.
The County agrees with the finding that the
County of Marin has a Business License Tax Ordinance in effect, but cannot
comment on how the County of Marin uses the confidential information collected
on each business.
11.
The Midcounty Post reported on August 25, 2003 an example of a
business in Capitola that was several years delinquent in paying its TOT
obligation. Capitola had previously filed a lien against the property. When
Capitola withheld the Business Permit/License it was successful in collecting
the delinquent TOT.
Response:
Santa Cruz County Board of Supervisors CANNOT RESPOND.
The County cannot comment on the Transient
Occupancy Tax collection procedures utilized by the City of Capitola.
12.
Existing Santa Cruz County Ordinance No. 4138 and County Code
Chapter 4.02 do not allow for collection of business related information and
regulation.
Response:
Santa Cruz County Board of Supervisors DISAGREES.
The County’s ordinance does not prohibit the
County’s collection of business-related information.
13.
Santa Cruz County cannot put into effect the existing
revenue-raising Business License under Chapter 4.02 without voter approval.
Response:
Santa Cruz County Board of Supervisors AGREES.
14. Santa Cruz County has restrictions and requires special permits for selected special businesses in the unincorporated area. The most common businesses that require permits from county departments include ambulance service, card rooms, day care, hazardous materials/waste, kennels, nursing homes and public pools/spas/camps. These permits are generally obtained at initiation of the business one time and are not renewed annually.
15. Santa Cruz County issues use authorizations or permits in accordance with regulation of a zone district. Approval is required for certain uses including agriculture, residential, industrial and commercial. Generally the Planning Department issues approval permits as part of applications to construct buildings such as a barn, or residence or commercial building. Permits are issued once without requiring annual renewal. Fees are charged on an hourly basis if the site is previously not permitted. Otherwise user approvals for existing master occupancy permit locations or new businesses replacing an existing similar business may be renewed over the counter for a nominal fee and are required once in the life of the business.
16. Several communities throughout the U.S. require the completion of a recycling plan as a requirement of the annual Business License.
1. The Santa Cruz County Board of Supervisors should rescind the existing Business License Ordinance No. 4138 and County Code Chapter 4.02.
Response: Santa Cruz County Board of
Supervisors CANNOT RESPOND.
This
recommendation requires further analysis.
The Board of Supervisors may wish to consider this recommendation in
conjunction with any corrective review of the County Code which may be
conducted at a time in the future.
2. The Board of Supervisors should implement a regulatory Business License for all businesses in the unincorporated areas of the county. It should be emphasized that this recommendation assumes a nominal fee to cover administrative costs only as opposed to a revenue generating tax.
Response:
Santa Cruz County Board of Supervisors DISAGREES.
The County will
not implement this recommendation at this time because a regulatory Business
License program has not been identified as a desired outcome for the
unincorporated area’s businesses. After
the adoption of the Business License Tax Ordinance, which has not been
implemented, several amendments were added to clarify and improve the
administration of the tax, a number of which were based on input from the
business community and other interested parties. One of the proposed amendments clarified that the purpose of the
chapter is enacted “solely to raise revenue for the general governmental
purposes of the County and not for purposes of regulation or of raising
revenues for regulatory purposes (underline reflects clarification language
in amendment).
3. Data gathered from a regulatory Business License including types, names and locations of businesses should be made available to all interested individuals and business associations. The Board of Supervisors should encourage private business associations to use this data for their own marketing and promotion activities.
Response:
Santa Cruz County Board of Supervisors PARTIALLY AGREES.
While the
specific recommendation to implement a regulatory Business License program will
not be considered at this time, were such data collected, it would be
considered public information and would be made available to the public.
4. The information obtained about the type, size and growth of businesses in the unincorporated area of the county should be considered when developing the County General Plan.
Response:
Santa Cruz County Board of Supervisors AGREES.
This
recommendation has been implemented.
Business type, size, and growth are addressed in the County’s current
General Plan. The Land Use Element of the County’s General Plan adopted by the
Board of Supervisors on May 24, 1994 includes the goal “to provide adequate
facilities to meet the shopping, service, and employment needs of County
residents and area visitors in a manner compatible with adjacent residential
development, availability of public facilities, protection of natural
resources, and maintenance of environmental quality and high standards of urban
design”.
5. If the Board of Supervisors is unsure of local support for the recommended regulatory business license it should consider a ballot initiative to affirm its support.
Entity |
Findings |
Recommendations |
Respond Within |
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Santa Cruz County Board of Supervisors |
1 - 13 |
1 - 4 |
90 days (September 30, 2004) |
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