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City makes decisions on business tax

SOLANA BEACH — After a two-and-a-half-hour discussion at the Oct. 14 meeting, council members agreed the city should implement a tax that would apply to all retail, service, outside and home-based businesses as well as rental properties with five or more units. Since voter approval is required, they were also unanimous in their decision to include the measure in the June 2010 primary election because a mail ballot would cost about $50,000 more.
The only issue council members couldn’t decide on was what model to use to implement the tax. In previous discussions, several options were presented. With input from the business community, models based on gross receipts, square footage and number of employees were rejected.
At the Oct. 14 meeting, staff presented a flat-rate option that was considered to be the most accurate but not necessarily the fairest method since a business that grosses $10 million would pay the same as one that makes $100,000. Of the approximately 1,600 businesses operating in the city, about half earn $500,000 or less and 70 percent gross less than $1 million.
Several revenue-based tiered options were also presented. While seemingly more fair, there were concerns about administrative costs for businesses and the city.
Several small-business owners, mostly from the Cedros district, said implementing a tax now, when they are already struggling, could be the beginning of their end.
“I call this business tax the nail-in-the-coffin tax,” said Patty Goldfarb, who has owned Hands on Cedros functional art gallery for six years.
Christine Nottingham, who opened Moana Designs seven years ago, said she is surviving mainly from repeat customers.
“Imposing this tax now is probably the worst time for us,” Nottingham said. “We’re barely making ends meet this year. We’re losing money. A tax at this time will only speed the demise of those of us who are just hanging on.”
Dean Roemmich, a 25-year Solana Beach resident, said he’s never seen businesses closing down like they are now. “The retail sector is really hurting and it simply doesn’t make sense to add a tax burden onto businesses that are losing money,” he said.
Not all speakers opposed the tax. In fact, some saw it as a necessary evil. “This is a terrible crisis that we’re in,” David Carroll, president of the Solana Beach Chamber of Commerce said. “We’ve got to do something. … We’ve got to come up with some money. And the most fair and equitable way is a business tax.”
Peter House, president of the Highway 101 Village Walk Association, said most local business owners he spoke with preferred a flat tax between $300 and $400, with a surcharge for businesses with significantly larger gross revenue.
“A tiered tax is a gross receipts tax by another name,” he said, adding that if the city did adopt the tiered system, the three-tiered model would be preferred. In that model, businesses making less than $100,000 would pay $75 annually. Those making between $100,000 and $999,999 would pay $400 and those making more than $1 million would pay $775.
With declining sales and property tax revenue, and the state intending to borrow $650,000, the city is seeking to raise $500,000 through the business tax. City Manager David Ott said that amount would cover less than half of the expected shortfall.
Before considering the tax, the city cut more than $1 million from its $14 million budget. While some staff positions were eliminated, furloughs aren’t an option for contracted employees. All businesses currently pay a $75 licensing fee and $16 annually after that. The business tax would replace that fee.
Businesses owners, city staff and council will continue discussions at upcoming meetings and workshops. To ensure the measure is included on the June ballot, a decision must be made by February.
If it passes, it would be at least a year or more before the city started collecting the tax.