Calculating the risk
Council to consider a sixth tax tier
At the last possible moment before a final version of the long-awaited business tax for the June ballot was approved, the Solana Beach City Council entered into a contentious debate that will almost surely carry any decisions over into next month.
The question is whether to add a separate category for the estimated 44 Solana Beach-based businesses that earn $5 million or more in gross receipts each year, something several of the city’s business executives are against.
Under the multitiered model that was on the brink of approval, all businesses grossing more than $2.5 million would owe at least $1,000 each year. A separate tier is now being considered that would require businesses generating $5 million or more to pay at minimum $1,500 annually.
“The basis of that is fairness,” said Deputy Mayor Lesa Heebner. “Why cut it off at businesses that make $2.5 million and above when we know there are businesses that make as much as $20 million in Solana Beach?”
The problem lies in the support of what some are referring to as the “business community,” a concept that comes from meetings with the city’s business liaison committee. This was an effort to keep lines of communication open between the council and larger commercial representative organizations such the Cedros Merchants Association and Village Walk Association. When the city decided to pursue a business tax, it consulted this group to talk about options.
“I don’t think losing the support of the business community for a couple of thousands of dollars is worth it at this time,” said Councilman Dave Roberts, who worked with the business liaison committee on constructing this tax model.
At minimum, it is estimated only eight of the applicable 44 city businesses would have to pay in the highest tier, meaning Solana Beach would be guaranteed at most $4,800 in extra tax revenue. In a best-case scenario for the city, a 6th tier could increase the tax revenue, already estimated at more than $500,000, by $30,000.
To get out of paying the maximum, each company would have to open its books to city staff to prove it made less than $5 million in Solana Beach, which is the only income the city can tax.
Pat Dougherty said his Solana Beach-based contracting company generates $12 million in gross receipts each year, but less than $1 million within the city. That means he drops two or three tiers down and will only have to pay $325 in tax once he opens his books.
However, of the estimated 1,600 businesses in Solana Beach, more than 80 percent are small enough to pay between $50 and $325. The outcome of the five- versus six-tier debate will have no effect on what they would be taxed.
Deborah Beard, owner of the Out of the Blue on South Cedros Avenue, said the city should be promoting retailers like her instead of adding a financial burden.
“It would benefit them to help us create more sales, though it seems like they are doing everything opposite of that,” she said.
Solana Beach, one of the last cities in San Diego County that does not levy this kind of tax on its local businesses, currently charges a $75 license fee upon opening and $16 each year after for inspection.
The city is trying to make up for a $1.2 million loss in its major revenue sources, including a $600,000 decrease in sales-tax revenue from two years ago.
The council will reconsider the higher-grossing tiers at its Feb. 24 meeting. It has until March 10 to approve a measure for the June ballot.
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