HomeMy WebLinkAbout1990-05-22; City Council; 10643; Challenge Systems, Inc. business liceanse appealVB'
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CITWF CARLSBAD - AGENDWILL d ?/ 4
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CITY AI BY CHALLENGE SYSTEMS, INC.
DEPT. H TITLE:
DEPT." CITY M(
MTG, 5/_113-/90 APPEAL OF BUSINESS LICENSE APPLICATION
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RECOMMENDED ACTION:
Deny the request for appeal of business license classification by Challenge Systems, Inc. and designate Classification "B'l miscellaneous as appropriate for taxat i on purposes.
ITEM EXPLANATION:
This business license appeal has been initiated by Dean Samuels, Corporate Administrator of Challenge Systems, Inc. for consideration of appropriate c7assification for taxation purposes.
Chall enge Systems conducts a training program consisting of one week of classroom instruction on how to be successful in real estate investing. Participants pay a fee of $5,000 for the classroom session which also entitles them to one year consultation with Challenge System representatives.
Challenge Systems asserts that their primary business is consulting services and they should therefore pay the flat $50 license fee under the code section regulating professional licenses, 5.08.160. The City has determined that the primary business of Challenge Systems is educational in nature and that the license fee associated with private education institutions of $.35 per thousand dollars of gross receipts would apply. The City has based its determination of several points.
1. The primary focus of the Challenge Systems business is training or educating the participant in the business of real estate investment.
2. The fee paid is generally seen as payment for the class. The consulting services are offered at no charge following completion of the class.
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3. A true consultant holds him/her self to be an expert in a specific field. Any services provided by the consultant generally bind, ob1 igate or expose the consultant to some responsi bi 1 i ty for services performed. The Chall enge Systems consulting agreement specifically states that the company is not 1 iable for anything that may result from following the advice received from the company. It further states that the Challenge Systems staff is not representing itself to be financial ? real estate or legal experts.
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Page Two of Agenda Bi 11 No. )e/ bqg
BACKGROUND
Following an October 18, 1989 field review, the City of Carlsbad Auditor recommended to the Finance Director that Challenge Systems be classified based on gross receipts as provided for in Section 5.08.010 (a) Classification A. "Persons engaged in the businesses listed in this subsection shall pay a license tax of twenty-five dollars plus forty cents for each thousand dollars of annual gross receipts or portion thereof, from the business. I'
The Auditor for the City of Carlsbad sent a Notice of Determination-Business License Tax Classification letter, dated November 13, 1989, to Dean Samuels of Challenge Systems. The determination concluded "that your business should be classified as an instructional service within the "A" class of business license code." The applicant was notified of the taxation rate and given 10 days to complete and return forms in accordance with the finding.
The Assistant City Attorney advised the Finance Director in December 1989, that Challenge Systems "be classified in Classification 'B' of Section
5.08.010" of the Municipal Code. The provisions states "Any business for which a business license tax is not provided herein, shall be taxed upon its gross receipts as if classified in Classification B of this section."
On January 3, 1990, the City of Carl sbad prepared another Notice of Determination-Business License Tax Classification letter to Mr. Samuels of Challenge Systems, Inc. indicating that in reviewing the City Ordinance, "we should classify your company as C1 ass B Miscellaneous; this is a Gross Receipts measure for taxation at a rate of $ .35 per thousand." An additional 10 days was provided for completion of business license forms and appl i cat i on.
The City Manager received a Federal Express delivery on March 19, 1990 of a letter dated February 27, 1990 from Mr. Samuels. Challenge Systems was requesting an appeal to the City Council for a correction of the business license fee.
If Challenge Systems is found to be in violation of the Carlsbad Municipal Code the following sections could apply:
Section 5.04.020 License required states that "The license tax shall be due and payable before the commencement of any new business and delinquent on and after the thirty-first day after commencement of a new business." It goes on to state that ''In the event any person fails to pay license tax before it becomes delinquent, his tax shall then automatically be increased by a penalty of twenty-five percent of the license tax and thereafter increase one percent per day for each additional delinquent day' provided however, that the amount of such automatic increase over the usual tax shall in no event exceed fifty percent of the amount of the usual 1 icense tax due. 'I
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Page Three of Agenda Bill No. i0/6Y3
Staff recommends that the Council find that the proper license classification for Challenge Systems is the gross receipt category which would apply to private educational institutions. Further, staff recommends that the Finance Director be authorized to waive penalties related to failure to obtain a license due to the status of the appeal during this period .
FISCAL IMPACT:
A determination for business use as a private educational institution would place Challenge Systems in a Classification B (Section 5.08.010). This would result in a business license fee of $25 plus $.35 per thousand of annual gross receipts. The total 1 icense fee due has not been calculated since information on gross receipts has not yet been provided to the City.
EXHIBITS:
1. Seminar Guidelines and Release for Challenge Systems, Inc.
2. Report of Field Review dated 10/18/89.
3. Letter to Mr. Samuels from City of Carlsbad Auditor, dated 11/13/89. 4. Letter to Mr. Samuels from City of Carlsbad Auditor, dated 1/3/90. 5. Letter to City Manager from Mr. Samuel s, dated 2/27/90.
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THE CHALLENGE SYSTEMS, INC.
SEMINAR GUIDELINES AND RELEASE
I acknowledge that I am responsible for my actions and I hereby release Robert Men, Challenge Systems, lnc. and
any of their employees, officers or agents free fmm liability for any of my actions or oomnts as the same might be affected
or influenced by the Challenge Systems, Inc Seminar. I am in good health, have kly chosen to attend this seminar, and I
acknowledge that 1 am liable and responsible for my own physical, emotional and financial well bei~~g.~ChalIenge Systems,~ Inc and its participants axe responsible solely for the efficient and orderly presentation of this seminar. J
I understand that the seminar is designed to provide currently available information in regard to the motivational
subject mattels covered. It is sold and 1 have enrolled in this seminar with the explicit undmtandhg that the p~esenters and’ ’publishers are not engaged in rendering legal, accounting, investment, hand or other professional setvices. . I understand that upon my providing in writing a “quaWd mn for not attending the seminar, after my having
made payment but before the actual commencement of the seminar, that the tuition for the seminar can be transkned to
another Challenge Systems seminar, ever& or product only; and that othenvise there will be M cash refunds I assign all of my rights and interests to the seminar presentation and my participation, and any information and
material related thereto (including but not limited to audio recordings, video recordings, slides, photos, intellectual ideas,
written material and seminar transcripts) as ultimately are included in the seminar to Challenge Systems Inc 1 understand
that such information and material is and shall be the sole property of Challenge Systems lnc, to sell, transfer, edit or publish at
its discretion
I agree that all materials that Challenge Systems Inc dishhte or use at the seminar are or maybe under copyright and I ’
I shall not use the list of names of my fellow participants for marketing, or any other business or financial venture, other
then my own pers~nal real estate and per~onal support system.
1 expressly release Challenge Systems lnc, its principak and agents from any liability or obligation for any actions or
investments taken by me abne, or with any participant or speaker at the seminar. 1 disclaim and release Challenge Systems,
lnc., its principals, and Robert Allen from any obligation or liability for my per~onal business or finandal investments and the
wisdom and soundness of my own life style and investment decisions during or after the Seminar.
participants, representatives, suctessors and assigns from any and all liability, damages, claims, demands, actions and causes
of adion, whatsoever, both in law and in equity in any way mlting from or arising out of the seminar or any of its associated
activities, including without limitation any claims or liabilities for ~CISOMI, physical psychological or emotional injuries,
distms or death. This release and discharge from liability includes a release and discharge frum any and all loss, damage or
injury, including special and consequential damages, resulting from the conduct of Challenge Systems Inc and its agents,
principals and assigns. This is a full and final release applying to an known, unknown and unanticipated consequences,
injuries and damages arising out of or in any way connected with or mlting from my attendance at the seminar, and
expressly includes a waiver of any rights or benefits that I might have under California Civil Code section 1542 kraown as to
unsuspectcd claim.
shall continue in full force and effect. Without limiting the foregoing, it is expressly aped that each and every provision of
this guideline and release which provides for a limitation of liability, disclaiiner or exclusion of damages is intended to be
severable and independent of any other provision to the extent necessary to allow and permit the enforcement thereof.
Further, it is expressly understood and agreed that in the event any remedy hereunder is determined to have failed of its
essential purpose, all limitation of liability and exclusions of damages set forth herein shall still remain in effect.
: shall not reproduce them in any form. I
I hereby fully and forever discharge and release Challenge Systems Inc, its offiirs, agents, empIoyees, course
I acknowledge that in the event that any provision hereof is found to be unenforceable or invalid, that the remainder
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Wealth Training"
Wealth Trainers, Fh "" ".. . . - , ."".l .""" "-"" ope you enjoyed thesexrst four days of you"WG1tR
,FTraining experience. [We at Challenge Systems are looking !forward to the next ninety days of close association and fifty
,one weeks of the course in helping you to achieve your finan:
; cia1 objectives. It is our purpose to provide the guidance and
information you need to help you maintain the balance, orga-
nization and purpose in your life so that you may truly enjoy
the fruits of your labors.
Could I ask each of you a favor. Would you please give
us your assessment of these first four days you have just spent
with us. We will be asking you to give us a similar assess-
ment at the end of the ninety days. By completing the
following survey, you'll help us to improve future trainings.
Thanks, your friend,
Robert Allen
P.S. I am looking forward to meeting with you again. Perhaps at
a future Wealth Training as one of the Mentors or our
Millionaire's Circle of assistant trainers.
1. Please check as many of the following statements as you wish:
These first four days of the year long Wealth Training were:
a. the best four days of my life.
b. one of the best four days of my life.
c. already worth what I paid for it.
d. worth at least times what 1 paid for it.
e. contained much more valuable information than I
f. was less than what I had hoped for or expected.
g. gave me the "kickstart" I needed to help me reach my
expected.
objectives.
2. What one idea from the first two days of the training will be the
most helpful to you in the
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REAL ESTATE INFORMATION
AND CONSULTATION POLICY STATEMENT
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Challenge Systems Inc. and/or Wealth Enformation Network, each California corporations,
respectively provide up to one year real estate information or research service for certain Wealth
Training and/or home study partiapants.
:The purpose of'this service is to assist students in understanding &iou investment techniques and
:philosophy as outlined in the "Robert G. Allen Nothing Down System of real estate investment".- I
Challenge Systems and Wealth Training consultants are prepared to offer the most accurate and
:authoritative information currently available on this subject.] 6'
It is not the intent of Challenge Systems or Wealth Information Network or Robert G. Allen or the
employees and/or counselors of each respective organization to engage in rendering legal, financial
or speafic real estate advice. It is the responsibility of the Wealth Training or Home Study partici-
pant to be independently satisfied regarding the legal and economic ramifications of any investment
transaction entered into as a result of his or her participant status in any Challenge Systems or
Wealth Training program. We arenotvow real estate agent, personal account, legal or financial
advisor. We donotfunction as your title company or escrow agent for closing. Where applicable,
we encourage the participant to seek advice from competent professionals. To the extent any real
estate, financial or other research, information or advice has been rendered by Challenge Systems,
Inc., or "WIN" consultants, the participant is further advised to obtain independent confirmation
that his or her investment activity is in conformity with the participant's local prevailing real estate
law and practice, and the participant's own financial circumstance.
I hereby acknowledge that I have read the Challenge Systems seminar guidelines and release and
I fully, understand their contents and by attending the seminar and/or signing below I agree to be
bound by their terms and conditions.
Date Signature
Printed Name
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Money Back Guarantee
Challenge Systems, Inc.
If in one year from the last day of the participanf’s Challenge Systems Wealth
Training, the Wealth Training participant has not acquired Real Estate equity values triple the cost of the training through investing, Challenge Systems, Inc.
agrees to refind the participant’s WeaZth Training tuition less rm, board and administrative charges subject to the following conditions:
The Wealth Training participant shall ...
1. Complete an on-site viewing of 150 properties, each of which is ac-
companied by a completed BargainFinderTM.
i 2. 3Write thirty bonafide offers to purchase that have been presented to
sellers.
3. Provide evidence of buyer and property qualification with each
submitted offer to purchase.
4. Contact Challenge Systems real estate advisors by telephone twice
monthly and once a month by mail by completing the Challenge
A.B.C. (Activity Balance Check) form and mailing it to:
Support Group Team 4
Challenge Systems, Inc.
2010 Jimmy Durante Blvd.
Del Mar, California 92014
3. Challenge Systems, Inc. reserves the right to verify participant’s supporting documenta-
tion.
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Bur. LIr".-. a113ra2 HCENSE
- j-!ELC REy;Ey; (;f= APpLlCApjT
To: James F. EIiiolt
r..- "_ rrutr:. 81 E. Cap~chit~o
Date: CIcraber 18, i9Y4
TI f nr ir cngLLEfiJGE P3 I* S'{~TEf~~, IfXjC.
Sa~~di-a kim-an arrd I -&ired ?he Chafjange S-ptm-t~, Inc. dffice at 5531
Priei;ti.~ &+:e, S&e 8; in Cartstad, itaiifomia. The purpase of the
- C,t~:l _._" ~~~a; to &ia;" ii .".._ 5- :.-x- .."_ .. .r: -::uuy.: ;r::utsrietigt> ~FI .the opei-3tiot-t~ sf tk~ coit:pt-iy
iki gpdep ta prcps$-&Z ciZ&=sif)f ti-.;@f-;j fEr taY=tfjE?3- "fe abt=iped tf>a i$-;for-
t31ati2i-i fKii31 DeatI %tIlLiek, Ph.fi.; the COWp3IIf5 fii2Zt;Ce Illatlager.
535ica;F: ti-& ga?i> *rf" s&:s a p fi.J<q 30 SjitcceeiI; Package" ii-; real Es?ate
f fs- "-3
itwest3ent5. The package inciudes:
D A 4 day seiisjt-;at-, including fcrcd &i itjdying.
D Siipp!iSs? z.&:i&h ii-iciLide kI5i~UG~iCft-i b5Bk5, 53iilFIe fOi'iii5
~~~rksh~ets, SaMp!S !e@ conr~~ci~~~~reementsi at-rd a
Fa;".zipat;i7s i-iandhok.
0 1 '{ear S~~pp~it fiEt-egi>-aetit, p;.hici-, pr~~ides a"" "i5taf-iee -d fo ti-:.. paiticipant in ;-ea&,jnn ti-;= 5J;t>ii-2ac's 5i!~~e~s Y
ctijmies.
The seiiing price of the package is $5,OQCt.08.
The cotl-tpatiy ~lait~rs IO dl approxitt~at~fy 600 packages pet- t1-jot-ttt-s natian-
u:jde; rqi-lich wouici yiefd ar-lnuai gr-ass receipts cf $36 !>-Ti 1 f on. ..
The taxpayer wishes to be taxrd as a Gon+i:.ftaftt 3t the $56 anfiiiai fiat
rate.
in perusing the company's brochure, hadbook and guideliner; WE have bet1
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coi-a;Jinced i;>at ii;tst j&r-.i- . L I 4-i " 3~ "ij u uy L- - the cot3-:pai-<Y is fr ;7 pd~~t" ~e>-:I@r-
ed aratd the personal sc~c~ess ai Mr. F.&ett Allen, founder of the
c~c~pany am! authisi of the trjisk entitld "The Challange". The thatlje of
tt:e set3>i$?ar7 "&yyE&j?. Tr&t>jt-q ~ a5 t::s!{ 35 the tert-:-*s i.;-f the 3 =i$ccz=s
ytiaraiitee'.: -5"- "
~ :r;rit 33 based 0th ?he coi-ttit~i~d sLippot2 of the c-oixpany far
cne year falicrwing the 5.emit1at-, cat-:lbifteci r&b the patiicipar:;'s strict
adhe~ei?ce irj conditiotis sei foi<t-# jn ?he agreemei>i pi-e--judes us from
ciassiiying the CCMpaty'S 5ewIces a5 ccrnsuittiion. The scmpai>y has
ef-;tjt!2d "fo;j~~s+~p ~~~-&&' a5 cg;.nsu&;.ng sgf-+jce5, ttsr 5p~ciiical)ij
ijmii ?heir purpose to :Jassjsi sitidenis it-, ~g~-~de~-sijrf~ipy yarious invest-
i-rlEr3t tectrniqtres and phil~~~pihf 5s Etutiksed in the "Rotefl G. A;ie:-:
Ncrthing Down ai real estate in~ed~ent", and 3ccordingty "JE tefieve that
these service5 are only an mtmsiot-1 of the semkar-
uy r~.;urrlf:iet~datjcli;l-l ." - - " is to dey thet-rj the c~t>suftant~ classification; and
classify them a5 "i!h5tritctors.'.' at the rate of $40 per thousand.
Eespectfufly sLttrt-zhli?ted,
Af E. Capt&ino: Audi.tar
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1200 ELM AVENUE CARLSBAD, CA 92008-1989
aitg df aarlsbnb
FINANCE DEPARTMENT
November 13, 1989
TELE
(619) 4
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Mr. Dean Samuels, Ph.D.
Challenge Systems
5931 Priestly Drive
Carlsbad, CA 92008
NOTICE OF DETERMINATION
BUSINESS LICENSE TAX CLASSIFICATION
I have completed my review of your operation. This in- cluded the perusing of the documents that define your
company's primary goal6 and objectives.
I have concluded that your business should be classified
as an instructional services within the "A" class of the
business license code. This is a Gross Receipts measure
for taxation at a rate of $.40 per thousand.
Please note that I have discussed your classification with Mr. James F. Elliott, City of Carlsbad Finance
Director, and he affirmed my finding.
Please complete the enclosed application and related
forms in accordance with the above finding and return to our office within ten days.
Please contact this office directly by telephoning (619)
434-2884 if you have further need of any additional
information about this notice.
CITY OF CARLSBAD
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A1 Cap d chino, Auditor
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1200 ELM AVENUE CAALSBAD, CA 92008-1989
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FINANCE DEPARTMENT January 3, 1990
Hr. Dean Samuels, Ph. I>. Challenge Systems 5931. Priestly Drive
Carlsbad, CR 92UU8
NOTICE OF DETERt4INATIOtJ
BUSINESS LICENSE TAX CLASSIFICATION
llr. James F. Elliott, Finance Director, and I have met
with Mr. Ronald R. Ball, Assistant City Attorney to
discuss the proper blxsiness license classif ica-tion for
your company. Mr. Ball has informed us that we were
correct in not classifying your company as a consultant.
However, in reviewing the city ordinance, he did note
that we should c.l.assify your company as Class B Iliscell- aneous; this is a Gross Receipts measure for taxation at
a rate of $.35 per thousand. 8' We apologize for the delay
in finalizing this ma-tter.
Please comple-te your business license application and
related forms in accordance with the above finding and
return to our office within ten days.
Please contact this office directly by telephoning (619)
434-2881 if you have further need of any additional
informa-t ion abou-t this notice.
CITY OF CARLSBAL, /,+I) 11 ' Ap i'. /" ir '1 e
AI Capdchino, Auditor
cc: James F. Elliott, Finance Director Ronald R. Ball, Assistant City At-torney
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February 27, 1990
Ray Patchett, City Manager
1200 Elm Avenue
Carlsbad, CA 92008
Dear Mr. Patchett:
Challenge Systems, Inc., a consulting company involved in Real Estate Investment, has applied for a City Business License in the City of Carlsbad. Eiahtv Percent E more of - our business & consultinq. Representatives from the City, A1 Cappucino and others have visited our facilities and could see that the major part of our operation and the majority of our employees are Real Estate Investment Consultants.
Before our recent move from Del Mar, CA, Challenge Systems, Inc., paid a flat fee of less than $100.00 per year for the Business License to the City of Del Mar. We do offer some seminars and provide most of our tapes and literature to the consultees & no cost, however, a very small percentage of our business (1%) involves the sale of some of these items.
It appears that 80-90% of our business should fall under the flat fee of consulting and only 10-20% could be labeled as non consulting out of the fixed rate category. In asking the City of Carlsbad to provide a fair and equitable interpretation, it appears that we are being told by your city that a minor speck of our business falling outside of consulting has nullified us from the category of consulting
Are the professional business's in Carlsbad such as a Doctor's office exempt from the professional status simply because they have vending machizes to ascor;?n;odate their patients? Are Attorney's? Are CPA's disallowed their professional status when a CPA firm accepts feels from software companies for the recommendation of software to
their clients or actually engage in the occasional installation of the computer system when sold to their customers? I would think not.
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CHAI I ENGE SYSTEMS 593 I Priestly Drive. ~arlst-mcj. r.1 9ZUUR 15 I 91
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I am sure that there are many other business Owners and Other
corporations in this City concerned about the same issue.
With the maioritv of our business qualifying us as a consulting business, I am appealing to the City Council for a correction to the determination of the status Of our category.
If the correction is not forthcoming, then please contact me at my office SO that I can arrange a Convenient time to be included on the agenda at the City Council meeting to discuss
this matter.
” Sincerely,
Dean Samuels, Ph.D. Corporate Administrator
cc: Carlsbad City Finance Department
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City of C:arlsbad
El m Avenue Car 1 shad , I,:& '32(:><:)8
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"I"I:I Whom I: t May Cctncern:
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The request for a meeting with the City Csmcil was requested
because insufficient infclrmat ion has been given with regard ts the classification of Challenge System$, Inc. , and the
imprcsper ~~~~~~~~~~~~~~~~1 by the Administration and the
Assistant City Attorney and the finance director and
specifically the Kity Attorney.
INTENT
It has always been the intent of Challenge Systems, 1nce9 to
comply with a11 laws and provisicms relating "co the EcJ,sine!.;s
License. At ~ICI time has C:hallenge Systems, Inc, t refused to
apply fcv a Business License. Wha% started nut to be a
simple quetitilrtn tI-1 the city relating tu the amount to be paid
for the Business lieen-se has evolved intn a lengthy and
dissatisfying response frclm .the city administratiun.
A simple quest isn asked by Challenge Systems, Inc., from the
very beginning was and still is "On what basis doesi the city make its de%t.rmina% ion that we are not a ccmsulting cumpany".
Nearly 3.1.1 of our sales are uutside of the city of 1:::arlsbad
and cutside of the State of Cal ifornia.
What Challencje Systems, Inca, hasi received in respclnse from
the city, covers statements from a clerk:: in the clffilre
sta2;:i.ng 'I That is the way we have always dlme it". Again, a
very vaq\..\e and meaningless determination by the City Attwney
and City Manager. Wherein, in Item 3, Page 1, under Hem
Explanation we read again that any services provided by the
ccmsul tant
A~%I:I~ the ICity Attorney says that "The city had determined
that the primary husincsc, ~f Challenge Systems, Inc., is
Ec3ucat iun in nature". C:hsl lsnge Systems, lnlr e y has available a letter f'rclrn the state department of educatiun stating the
oppclsite. The State Department of. Educaticln states that
Challenge Systems, Inc., dces not tcme under their
.jurisdicticm as a sclmpany funct iclning in education.
In add it imy w-1 page 3 of the same reptrwt , we have been
imprlrlperly classified as a private educaticmal instituticln.
79 <under 1 in ing added :) I
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Again, this is in clppusiticm ts the determination rendered by
the State Department of Educat icm.
F:EC:CJMMENDED SOLUT I UNS BY CHALLENGE SYSTEMS, IN:.
1. Due tc~ its 8(X4 involvement with Icclnaultinng we shcluld be
allc~wed “co pay the $50.00 flat fee 1:Ir a clxnbinatiIm c1.f the
.Flat fee and a propI:lrticmal amount paid for nctn-consi..~lt ing,
which is the remaining 2W..
da “That Challenge Systems, IRC. , pay rjcs mme than the %a 35 .-.
per thclutiand rate :IF their grclss sales cln the 3.0% of %he
bt.isin~m ‘1;bat; js - -. .. A-p&W
3. Put the amol.tnk un hnId till. the ci%yVcan clarify its
pasitisn related ~IZI the prclblems addressed in this matter.
DICTATED AND ’ NOT READ
Dean Samuel s1 F’h e Dm \:t:tr pclv at e Acim i n i st r at clir .
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