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New taxes for city’s businesses

SOLANA BEACH — Few people are ever eager to give up a portion of their hard-earned money to Uncle Sam. But Solana Beach seems to have come up with a business tax that is somewhat palatable to those who will be paying it.
At the Nov. 18 meeting, City Council unanimously approved a “fix/tiered” tax model and directed staff to proceed with its implementation. The fate of the tariff will now be decided by residents during the June 2 primary election because state law requires voter approval for new taxes.
A business tax was one of five revenue enhancement options presented in February as a means to partially address the city’s long-term financial sustainability. Residents and business owners had myriad opportunities to weigh in on the topic during several council meetings and workshops throughout the year.
While most business owners opposed any sort of tax — many said it could put them out of business — some saw it as a necessary evil as the city tries to maintain services and keep a balanced budget with declining hotel and sales tax revenues. The city cut more than $1 million from its current fiscal year budget.
Under the approved tiered model, businesses with gross revenues up to $66,499 would pay an annual flat tax of $50. Those making more than $66,500 could also pay a fixed amount that ranges from $75 to $1,150, depending on gross revenues. The highest amount is for businesses that make $2.5 million or more annually.
They would also have the option of computing the tax by multiplying their gross revenue by either .00075, .0005 or .0004 — depending on total revenues. For example, if a business grossed $400,000 in one year, the owner could pay a flat tax of $325 or calculate the tax by multiplying $400,000 times .00075 and pay $300.
In each tier, there is a breaking point at which it would be less costly to pay the flat rate. Businesses earning gross revenues in the higher end of each tier would likely pay less using the multiplier.
“Each business owner would have complete discretion on which option they choose for reporting and paying their taxes,” the staff report states.
Owners of rental property with five or more units will also be required to pay $25 per unit.
Although several business owners addressed council at previous meetings, Peter House, president of the Highway 101 Association, was the only one who spoke Nov. 18.
“Things are tight in the business community,” House said, speaking on behalf of several business owners. “We wanted something simple and you gave it to us.”
House read from a letter signed by almost two dozen members of the business community, including the executive directors of the Chamber of Commerce, Cedros Design District Association and Highway 101 Association.
“The proposed tax must not make even worse the already difficult business climate that Solana Beach businesses are experiencing, especially those on the verge of closing,” House read. “The business tax had to be simple both for the city to administer and for the business community to calculate and to pay. The tax proposal before you today says that you listened to our petition. It does protect our small and struggling businesses and it does give us the flexibility, certainly, and simplicity that we asked for.”
Councilman Tom Campbell, who owns a small business in the city, said he felt the model addressed the issues of fairness and equity. “I’m going to be paying this,” Campbell said. “I don’t think these numbers … (are) unreasonable.”
About 80 percent of the businesses in Solana Beach have gross revenues of less than $1 million, putting them in one of the first three tiers. More than half would fall into the first two tiers, or those with gross revenues less than $100,000 annually.
Solana Beach, Encinitas and Poway are the only three cities in San Diego County that don’t currently charge some form of a business tax.
Council members also unanimously agreed the vote should take place during the upcoming June election. That will cost the city about $13,000, as opposed to sending out a mail ballot, which would cost approximately $62,000.