HomeMy WebLinkAbout1996-12-17; City Council; 13970; AMEND BUSINESS LICENSE TAX PENALTIESAMEND BUSINESS LICENSE TAX
PENALTIES
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RECOMMENDED ACTION:
Introduce Ordinance No. /W- 38'3 amending Municipal Code 5.04.020, to modify
the delinquent penalty charged to businesses for late payment of business license tax.
ITEM EXPLANATION:
On November 19, 1996, the Finance department reported to City Council on a review of
the city's penalties for late payment of business license tax. The review included a
survey of nearby cities' policies on late payment of business license tax. The survey
found that 1) only Carlsbad charges late penalties to a new business; 2) at 60 days
late, renewal penalties are higher than average; and 3) maximum penalties are lower
than average. See Exhibit 2 Review of Business License Tax Penalties. Staff
presented recommendations to Council and a business owner recommended additional
city contact for late renewal and staff discretion to waive late fees.
Council directed staff to return to Council with:
0 Modifications to simplify the existing business license ordinance.
0 Recommendations for increased customer service to businesses during initial
licensing and renewal of a Carlsbad business license.
Amendment to Business License Ordinance
Businesses would still be required to obtain a business license before conducting business in
the City of Carlsbad and the tax would remain due and payable before opening a business.
Ordinance No. N s- 389 will simplify the penalties charged to businesses for late payment of
business license fees. The ordinance incorporates the following amendments:
1. Late penalties are charged to new businesses after one year free penalty period or after
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notification of the City business license requirement.
2. Late penalties charged to new and existing business are 25% at 60 days delinquent and
50% at 90 days delinquent.
3. Late penalties may be waived under certain circumstances at the discretion of the Finance
Director.
The changes to the ordinance will be effective 30 days after Council adopts the ordinance. Staff does not recommend retroactive application of the changes.
Page 2 of Agenda Bill # 9; 77 0 0
Increased Customer Service
Council discussed several possible changes to current business license processing which would
provide increased customer services to businesses during the initial licensing or renewal of a
businesses, reminder notices, and a business license inspection program.
Carlsbad issues licenses for approximately 5,000 businesses each year, of which 4,400 are
located within the City. An additional 600 companies are located outside of Carlsbad bul
conduct business within the City. The recent Harmony Grove fire has increased applicationt
from contractors considerably. New licenses average 100 each month and 30 to 50 telephone
queries are fielded each day. The current program is handled by one clerk. Additional
information on Carlsbad business licenses can be found in the attached Business License Fact
Sheet.
Based on the changes suggested by Council, staff will analyze methods to provide increased
customer service, improve notification of businesses, and implement a business license
inspection program. Staff recommendations based on the analysis will be brought back for
Council consideration during the 1997-98 budget workshops.
Carlsbad business license. Council spoke on follow-up telephone calls to late renewal
FISCAL IMPACT
City business license tax is an important source of revenue to support General Fund
services and programs. In fiscal year 1995-96, companies and home-based businesses
paid the City of Carlsbad almost $1.5 million in business license tax. Almost $400,000
has been collected in the first four months of this fiscal year.
The recommended simplification of late renewal penalties and modification of late
penalties for new businesses will not have a significant impact on General Fund
revenues.
Exhibits:
1. Ordinance No. NS- 387 ' , amending Municipal Code 5.04.020.
2. Review of Business License Tax Penalties
3. Survey of penalties for late payment of business license fees
4. Business License Fact Sheet
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ORDINANCE NO. NS-389
AN ORDINANCE OF THE CITY COUNCIL OF THE
CITY OF CARLSBAD, CALIFORNIA AMENDING
TITLE 5, CHAPTER 5.04 TO MODIFY BUSINESS
LICENSE TAX PENALTIES
The City Council of the City of Carlsbad, California does ordain
follows:
SECTION I: That Title 5, Chapter 5.04 of the Carlsbad Municipal Cod4
amended by the amendment of the first paragraph of section 5.04.020 to read
follows:
"5.04.020 License required.
A. There are imposed upon persons engaged in the specil
businesses in this title, within the city limits, license taxes in the amou
hereinafter prescribed. The license tax shall be due and payable bef
the commencement of any new business. A penalty charge shall acc
to any new business without a license upon the expiration of one year
after receiving written notice of this requirement, whichever occurs fi,
Notification shall be in writing and proof of receipt shall be retained on
by the license collector. The tax shall be increased by a penalty of 2!
of the license tax 60 days after it is due, and increased by a penalty
50% of the license tax 90 days after it is due.
B. For all previously licensed businesses the license tax st
be due and payable annually in advance on the first day of the montl-
which the business was originally established. In the event any per:
fails to pay a license renewal tax, the tax shall be increased by a pen:
of 25% of the license tax 60 days after it is due, and increased b)
penalty of 50% of the license tax 90 days after it is due.
C. The Finance Director or his/her designee shall have 1
discretion to waive all or a portion of penalties imposed for failure
obtain or renew a business license upon a showing of good cause.
D. Nothing contained in this section shall be construed
permitting the operation of a business, which is intended to be operat
for only a limited period of time and on a nonpermanent basis, such
athletic events, carnivals, etc., without having first obtained a busine
license. Each such license shall show the number of such license, t
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period of time covered thereby, the name of the person to whom issL
and the location or place where such business is to be commencec
conducted, and upon a detachable portion of such license, shall 3
show the number of such license and the amount of the fee paid there
No error or mistake on the part of the license collector or any 01
person in the determination, stating or collection of the amount of t
license tax shall prevent or prejudice the collection by or for the city
what shall be actually due from anyone commencing or conducting t
business subject to a license tax, nor shall the issuance of any licer
under this title authorize the commencing or conducting of any businc
in any zone, district or location within the city, contrary to the provision$
any zoning or other ordinance of the city."
EFFECTIVE DATE: This ordinance shall be effective thirty days after
adoption, and the City Clerk shall certify the adoption of this ordinance and cause it
be published at least once in a newspaper of general circulation in the city of Carlsb
i within fifteen days after its adoption.
I I ' INTRODUCED AND FIRST READ at a regular meeting of the Carlsbad City Cour
I on the 17 th day of DECEMBER , 1996, and thereafter
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1 I1 PASSED AND ADOPTED at a regular meeting of the City Council of
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i City of Carlsbad on the day of , 1996, by the following vote
wit:
AYES:
NOES:
ABSENT:
APPROVED AS TO FORM AND LEGALITY
RONALD R. BALL, City Attorney
CLAUDE A. LEWIS, Mayor
ATTEST:
4
ALETHA L. RAUTENKRANZ, City Clerk
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November 19,1996
REVIEW OF BUSINESS LICENSE TAX PENALTIES
The Finance department began a review of the City's penalties for late payment of
business license tax in response to complaints from several businesses. Existing late
penalties for'a City of Carlsbad business license may be perceived by businesses as
conflicting with the goals of Council and the Economic Development department to
attract new industry, business and investments to the city and promote economic
development in the ity. The Finance department review included a survey to determine
if Carlsbad's penalties were comparable with other cities.
Current Business License Penalties:
A new business in Carlsbad, even though voluntarily submitting a business license
application, may be penalized for late payment of the tax. Late penalties are also
Penalties imposed for late payment of business license tax are included in Chapter
5.04.020 of the Carlsbad Municipal Code (Exhibit 1) and summarized below. The
existing penalties have been in place since 1967, when Council adopted a business
license ordinance.
New Business:
The Municipal code requires that a new business must pay City business license tax
before conducting business within Carlsbad. The tax is delinquent if not paid within 30
days of opening a new business in the city. In general, most businesses voluntarily
comply with the ordinance by directly contacting the Finance department before or
shortly after opening a business in the city. In other cases, new businesses are notified
of Carlsbad's business license tax requirement by either Finance or Building
departments.
The code calls for 25% penalty if business license tax is delinquent more than 30 days,
and increasing 1% per day up to a maximum 50% penalty. (See Exhibit 2, Timeline -
Business License Penalties).
Renewal of a Business License:
Penalties are also assessed when a company conducting business in the City of
Carlsbad fails to renew a business license. Licenses renew throughout the year
depending on when a business originally located in the city. The first week of the
imposed on businesses for failure to renew a business license and pay the tax on time.
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month preceding the month of license expiration, a renewal notice is mailed to a
business. A company would thus have a minimum of 30 days to remit payment. If
payment is not received within 120 days of the initial mailing, the business receives a
delinquent notice.
Delinquent penalties for business license renewal are 25% of the amount owed if more
than 40 days late. The penalty increases 1% per day up to a maximum 50% penalty.
(See Exhibit 2, Timeline - Business License Penalties). The business license
delinquent notice mailed at I20 days shows the 50% penalty due.
Business License Survey:
In order to determine if City of Carlsbad business license penalties were comparable
with other agencies, a survey was taken of nine nearby cities. The cities surveyed
included: 'Dei Mar, Encinitas, Escondido, Moreno Valley, Oceanside, Poway, San
Marcos, Temecula, and Vista. With the exception of Encinitas' registration fee, each
agency requires businesses to pay business license tax. The survey focused only on
penalties and enforcement procedures associated with late payment .of business
license tax.
The survey found no other agency charging late penalties to new businesses. At 60
days, the other agencies report late penalties to an existing business ranging from
none to 50%, with 33% the average of those charging late penalties. At 65 days,
Carlsbad's late penalty tops out at 50% of the tax owed. Carlsbad's 50% maximum for
late payment is low when compared to other cities surveyed. Of the agencies reporting
any late penalty, the average maximum charged was 78%. Maximum penalties ranged
from none (Encinitas, Poway and Temecula), to 100% (Del Mar, Escondido, Moreno
Valley and San Marcos). Survey responses are shown in detail in Exhibit 3.
Carlsbad's current penalty for late payment of business license tax by an existing
business is commensurate with other cities surveyed. The survey showed that the City
of Carlsbad late renewal penalties accrue more quickly than other agencies, but have a
lower maximum penalty.
Summarized results of the survey:
'Only the City of Carlsbad charges business license tax penalties for late
payment of the initial business license.
City of Carlsbad renewal penalties are significantly higher than the average
of other cities when a business is 60 days delinquent.
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9 City of Carlsbad maximum penalty for late renewal is considerably lower than
the average of other cities which have a penalty for late renewal. The survey
showed maximum late renewal penalties racging from none to 100%.
Recommendafions resulfinrr from survery:
@ Modify late penalty to new business
Simplify late penalties for business license renewal
Staff recommends modifying the current penalty charged to a new business in
the City of Carlsbad for late payment of business license tax. No other nearby
city imposes a delinquent penalty on a new business. The small revenue
obtained from the penalty is not sufficient to offset the loss of goodwill when
'penalties are imposed on a new business locating or relocating with the City of
Carisbad.
Businesses would still be required to obtain a business license before
conducting business in the City of Carlsbad and the tax would remain due and
payable before opening a business. However, new businesses failing to obtain
a business license would be charged late penalties only after a one year free
penalty period or after notification of the City business license requirement.
Staff recommends that late penalties may be waived under certain
circumstances at the discretion of the Finance Director. New business late
penalties would be applied using the following simplified schedule recommended
for business license renewal penalties.
Penalty recommendations for lafe renewal of an exisfincr business license:
Retain no penalty at 30 days.
Decrease penalty from 45% to 25% at 60 days.
Change maximum 50% penalty to 90 days delinquent.
The simplified penalties are approximately the average of surveyed cities at 60
days and 90 days delinquent. Late charges are difficult to explain to the
business community and unwieldy to administrate since Carlsbad's penalties
begin on the 1 Oth of the month following the date due and accrue at 1 % per day
thereafter. Simplification of late renewal penalties should result in greater
voluntary compliance by Carlsbad's existing businesses.
The recommended changes to penalties for late payment of business license tax
would comply with the 1996 Council Goals and Objectives to evaluate new and
existing policies, practices, and standards to ensure compatibility with economic
goals and objectives.
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Conclusion:
City business license tax is an important source of revenue to support General Fund
services and programs. In fiscal year 1995-96, approximately 4,400 companies and
home-based businesses paid the City of Carlsbad almost $1.5 million in business
license tax.
In calendar year 1996, 16 new businesses paid $3,000 in late penalties and 66 existing
businesses paid penalties totaling $1 1,000 for late renewal of their business license.
The recommended simplification of late renewal penalties and modification of late
penalties for'new businesses would not have a significant impact on General Fund
revenues.
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h!Uib\patbus lic facts
BUSINESS LICENSE FACTS
ANNUAL AVG PER
TOTAL MONTH
NEW LICENSES 1,250 100
RENNVAL NOTICES MAILED 5,000 400
RENEWALS PROCESSED 3,600 300
50
45
' DELINQUENT NOTICES 600
CLOSED LICENSES 530
MONTHLY
RANGE
65 - 135
350 - 975
215 - 430
25 - 210
2 -40
TOTAL NO.
CARLSBAD BUSINESSES ' 4,400
OUT OF CITY BUSINESS LICENSES 600
TOTAL 5,000
b
DAILY
WALK IN CUSTOMERS 10 - 20
APPLlCATiONS MAILED 5- 10
TELEPHONE QUERIES 30 - 50
CLERICAL SUPPORT 1 FTE
,