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Home My WebLink About2009-12-08; City Council; 20067; Appeal Bus License Class Pacific Shores ProduceCITY OF CARLSBAD - AGENDA BILL 16 AB# 20.067 MTG. 12/8/09 DEPT. FIN APPEAL OF BUSINESS LICENSE CLASSIFICATION BY PACIFIC SHORES PRODUCE LLC DEPT. HEAD O^- (• CITY ATTY. (^^ CITYMGR. (x/--~ RECOMMENDED ACTION: Adopt Resolution No. 2009-311 by Pacific Shores Produce, LLC. ITEM EXPLANATION: denying the appeal of the business license classification The City of Carlsbad requires all businesses that wish to commence, carry on or engage in any business within the corporate limits of the city to have a valid business license. The business license fee is generally based on one of two calculations: • Gross receipts - Based on a fee per $1,000 of gross sales. • Flat fee - Based on a flat fee per professional. Chapter 5.08 of the Carlsbad Municipal Code lists various types of business and the associated fee calculation for each business type. Staff uses the information listed on the company's application, as well as the company's Standard Industrial Classification (SIC) to determine which fee classification the business falls under. The SIC is a United States government system for classifying industries. The Carlsbad Municipal Code does not distinguish between the size of a company's building or facilities. Pacific Shores Produce, LLC is appealing its business classification, for consideration to be reclassified from wholesaler to professional. In the attached letter Kevin Marcella, co-owner of Pacific Shores Produce, LLC, asserts: • It is the "middleman" for fresh produce. • It brings no product into Carlsbad. • It has no infrastructure other than a small office with six desks in Carlsbad. • It leaves only a "small footprint" in Carlsbad. • Its business is high volume, extremely competitive, with low profit margins compared to large gross sales. DEPARTMENT CONTACT: Colette Wengenroth 760-602-2430 colette.wengenroth@carlsbadca.gov FOR CITY CLERKS USE ONL Y. \S COUNCIL ACTION: APPROVED M DENIED ' DN CONTINUED D WITHDRAWN D AMENDED D CONTINUED TO DATE SPECIFIC CONTINUED TO DATE UNKNOWN RETURNED TO STAFF OTHER - SEE MINUTES D D D D Page 2 Staff classified Pacific Shores Produce, LLC as wholesaler based on the following: • It indicated its business to be wholesales on its license application. • Its SIC indicates that it is an establishment primarily engaged in the wholesale distribution of fresh fruits and vegetables. The Carlsbad Municipal Code, Section 5.08.010 (d) says "Persons engaged in businesses listed in this subsection shall pay a license tax of twenty-five dollars plus twenty cents for each thousand dollars of annual gross receipts or portion thereof, from the business, but in no event shall the license tax be less than thirty dollars." Wholesalers are listed under this section. Section 5.08.160, Professional Licenses says "Each person engaged in the rendering of professional or semiprofessional services for compensation shall pay the sum of fifty dollars per year per person so engaged. The professional or semiprofessional services shall include but not be limited to these: Appraiser, chiropodist, optician, orthopedist, pathologist, radiologist, surveyor, osteopath, doctor of veterinary medicine, chemist, chiropractor, physiotherapist, optometrist, bacteriologist, accountant, engineer, architect, attorney, dentist, physician, surgeon, occultist, real estate broker, dental technician and fortuneteller." In July 2009, Pacific Shores Produce, LLC appealed to the Finance Director, the City's license collector, to be reclassified from wholesaler to professional. After reviewing Pacific Shores Produce's application, SIC and speaking with its representative, the Finance Director concluded that it was correctly classified as a wholesaler and denied the appeal. The Municipal Code does not give the Finance Director the authority to subjectively change a company's classification. Section 5.04.090 of the Carlsbad Municipal Code allows that in the event of a difference of opinion between the applicant and City Staff regarding the classification of any business, the applicant may appeal to the City Council to hear and determine such matter. The Finance Director recommended this course of action to Pacific Shores Produce, LLC. In order to fairly and consistently apply business license classifications throughout the City, using a company's application and SIC, staff recommends that the Council find that the proper license classification for Pacific Shores Produce, LLC is the wholesaler classification and deny its appeal. FISCAL IMPACT: Pacific Shores Produce, LLC has estimated its business license fee to be $6,000 based on the gross receipts calculation for wholesalers. Under the professional license flat fee category, it would pay $50 per professional. If all six members of its office were professionals, the total fee would be $300. ENVIRONMENTAL IMPACT: Pursuant to Public Resources Code Section 21065 and CEQA Guidelines Section 15378, this does not constitute a "project" within the meaning of CEQA and, therefore, does not require an environmental review. 2 PageS EXHIBITS: 1. Resolution No. 2009-311 denying the appeal of the business license classification by Pacific Shores Produce, LLC. 2. Letter from Pacific Shores Produce, LLC dated October 7, 2009. Exhibit 1 1 RESOLUTION NO. 2009-311 2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, ON THE BUSINESS LICENSE 3 CLASSIFICATION OF PACIFIC SHORES PRODUCE, LLC 4 5 WHEREAS, the City has received a request to appeal the business classification 6 for Pacific Shores Produce, LLC from wholesaler to professional; and 7 WHEREAS, an appeal hearing was held before City Council; and 8 WHEREAS, City Council considered the argument, evidence and testimony of all a persons interested in the matter, weighed the evidence in this matter and after careful 10 consideration of the matter; 11 RESOLVES, as follows: 12 1. That the above recitations are true and correct. 14 2. The Council finds that the business is properly classified as a wholesaler. 15 3. That the appeal of Pacific Shores Produce, LLC to change its business 16 classification to professional be denied without prejudice. 17 18 19 20 21 22 23 24 25 26 27 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 8th day of December. 2009, by the following vote to wit: AYES: Council Members Lewis, Kulchin, Packard, and Blackburn. NOES: Council Member Hall. ABSENT: None. ^CLAUDE A LEWIS, Mayor ATTEST: Exhibit 2 Pacific Shores Produce, LLC 6102 Innovation Way Carlsbad, CA 92009, 760-438-4443 October 7, 2009 City Council of Carlsbad 1200 Carlsbad Village Drive Carlsbad, CA 92008 Re: Account # 1225904. Business license classification. Dear City Council: We recently filed for our business license when we purchased a building in Carlsbad and moved from Encinitas. This letter is to express our concern regarding the cost of our business license. It is our belief that it is easy to misclassify our type of business because it is not well understood. The intent of this letter is to shed some light on what we do and how we do it. We are the classic "middleman" for fresh produce. Our business is buying and selling produce across the nation but never bringing it into Carlsbad. We have no coolers, trucks, store front or infrastructure aside from an office and six desks. Our true value is in the quality of the information we provide. The method by which a business license fee is calculated is not clear to us. If it is at all based upon the city resources the business utilizes in its daily operation we use very little. We leave the same "footprint" as any other small office, in fact we are located adjacent to an attorney's office and we have less foot traffic. Our license fee is currently based on our gross sales. Fresh produce is a high volume and extremely competitive environment, the profit margins are low when compared to the large gross sales numbers. We are currently classified as a wholesaler. The Carlsbad Municpal Code, Chapter 5.08 License Taxes, section 5.08010 (d) says "persons engaged in businesses listed in this subsection shall pay a license tax of twenty-five dollars plus twenty cents for each thousand dollars of annual gross receipts or portion thereof, from the business, but in no event shall the license tax be less than thirty." Wholesalers are listed under this section. We are not a "wholesaler", we are actually a distributor. L Exhibit 2 Any business that moved just up the road from Encinitas and saw its business license fee increase from $35.00 to over $6,000.00 per year would want to inquire about a re- classification. It is out understanding that our license fee is based upon our business code classification reflected on our tax return. We don't feel that the code precisely represents what we do and how we do it and that there are exceptions to rules. Upon reviewing the various license categories we would like to request re-classification: unfortunately we are unable to find 3. shoe that fits. Please review our situation and help us to settle upon an equitable resolution. We are very interested in resolving this issue in an amicable fashion and look forward to your response. Sincerely >.evin Marcella Co-owner 7 Pacific Shores Produce, LLC Business License Appeal Business License Requirement •All companies conducting business in Carlsbad are required to be licensed •Tax contributes to the City’s infrastructure and public safety •Business license tax calculation •Flat tax •Gross receipts License Classification •Classification criteria •Company’s application •Standard Industrial Classification (SIC) •Carlsbad Municipal Code lists taxes associated with business types Pacific Shores Produce, LLC Classification Appeal •Classified as a wholesaler •Tax based on gross receipts •Appeal to change to professional •Middleman for fresh produce •Brings no product into Carlsbad •Small office –six desks •Business high volume low profit margins Recommendation •Pacific Shores Produce’s application indicates wholesaler •Standard Industrial Classification indicates wholesaler •Fair and consistent application of classifications •Staff recommends that wholesaler classification is correct Pacific Shores Produce, LLC Business License Appeal