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Home My WebLink About19 - One Year Waiver of Business License Tax Renewal for Businesses Required to Close by Order of the State of CaliforniaTO: FROM CITY OF NEWPORT BEACH City Council Staff Report March 23, 2021 Agenda Item No. 19 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL Scott Catlett, Finance Director/Treasurer - 949-644-3123, scatlett@newportbeachca.gov PREPARED BY: Scott Catlett, Finance Director/Treasurer, scatlett@newportbeachca.gov PHONE: 949-644-3123 TITLE: Resolution No. 2021-26: One Year Waiver of Business License Tax Renewal for Businesses Required to Close by Order of the State of California ABSTRACT: On March 9, 2021, Mayor Avery and Councilmember O'Neill requested, and the City Council approved, exploring a one-year waiver of the business license tax for those businesses impacted by the State's closure orders. Pursuant to that direction, staff have developed a program to implement such a one-year waiver. As the City of Newport Beach's business license tax is payable on a variable renewal date that is unique for each business, the proposed waiver would be in effect for renewals processed for a one-year period beginning on April 1, 2021, and concluding on March 31, 2022. Staff project that this program will result in a one-time total revenue loss to the General Fund of approximately $667,000, which can be offset using budget surplus funds on hand. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Authorize a one-year waiver of the business license tax renewal for businesses required to close by the State of California to be effective for renewals processed between April 1, 2021 and March 31, 2022; c) Direct staff to pay the required $4.00 per license fee to the Division of the State Architect for businesses for which the business license tax has been waived; and d) Adopt Resolution No. 2021-26, A Resolution of the City Council of the City of Newport Beach, California, Providing a One -Year Waiver of the Business License Tax Renewal for Businesses Required to Close by Order of the State of California. 19-1 Resolution No. 2021-26: One Year Waiver of Business License Tax Renewal for Businesses Required to Close by Order of the State of California March 23, 2021 Page 2 DISCUSSION: During the course of the COVID-19 pandemic, numerous businesses have been required to close at one or more times. These closures have had a significant negative economic impact on these businesses, which is made all the more challenging by the continued requirement to maintain proper licensing with the City of Newport Beach (City), County of Orange, and/or State. In an effort to assist businesses with reducing the financial impact of the pandemic, the proposed waiver of the business license tax would allow certain businesses that have been required to close at some point during the pandemic to maintain an active business license for a one-year period at no cost. To implement the waiver program in the most business -friendly way, staff has reviewed the various closure orders from the State and identified business categories that would fall under those orders using the Standard Industrial Classification (SIC) codes utilized to categorize businesses in the business license database. Staff will automatically waive the tax due in the monthly business license renewal mailings for businesses in the identified categories, as listed in Attachment B. The categories of businesses listed in the attachment include approximately 1,850 businesses out of a total of just under 9,000 commercially based businesses in the City. The City also licenses home-based businesses and businesses doing business in the City but located elsewhere. In total, there are just under 25,000 businesses currently licensed by the City. Recognizing that some businesses may have been miscategorized upon their initial registration with the City, or may have still been required to close although they are not in a business category identified by staff, an appeal process would be provided. Businesses that are sent a regular renewal will be notified of the program via an insert in their renewal paperwork pointing them to an online form to fill out to request review of their request for inclusion in the program. Staff will review these requests individually and the Finance Director will make a determination as to whether the business should be granted the waiver based on the information provided. In order to be eligible for the waiver, a business must demonstrate that it was required to cease operations due to an order from the State, could not conduct business virtually, meets the definition of "commercially based business" found in the Municipal Code, and is current in the payment of its business license tax. State law requires the City to collect $4.00 with each business license tax payment to be remitted to the Division of the State Architect. Payment of this fee is a requirement of AB 1379, which established a program to increase disability access and compliance with construction -related accessibility requirements. Staff proposes that the City pay this fee on behalf of the businesses granted a waiver of the business license tax so that they are not still required to submit a $4.00 payment to the City and will be completely free of any amount due for the one-year period. 19-2 Resolution No. 2021-26: One Year Waiver of Business License Tax Renewal for Businesses Required to Close by Order of the State of California March 23, 2021 Page 3 FISCAL IMPACT: Staff has estimated that the fiscal impact from the waiver will amount to a one-time revenue loss of $660,000. This amount includes $600,000 for the categories of businesses identified in Attachment B and a contingency of $60,000 to account for some additional businesses outside of these categories that may ultimately be granted a waiver upon examination of their request for review. Depending on the specific criteria by which the tax amount for a business is determined, the amount of the waived tax payment will vary. Approximately 58% of the identified businesses pay less than $250 per year in business tax, with 31 % paying less than $500 and 9% paying less than $1,000. The remaining 2% of businesses pay over $1,000 per year, with a maximum tax paid of approximately $6,000. The average tax paid across the identified businesses is $294 per year. For the period of April 1, 2021, through June 30, 2021, the current fiscal year's General Fund budget surplus is anticipated to be sufficient to backfill the projected revenue loss of $165,000. For the period of July 1, 2021, through March 31, 2022, the projected revenue loss of $495,000 will be backfilled from prior year budget surplus. As discussed, staff estimates that approximately 1,850 businesses will be eligible for the waiver program. The City would pay the $4.00 fee to the Division of the State Architect for these businesses, at a total projected cost of $7,400. The cost of paying these fees on behalf of the businesses would also be covered by General Fund surplus. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A —Resolution No. 2021-26 Attachment B — List of SIC Codes Deemed Eligible for the Business License Tax Waiver 19-3 ATTACHMENT A Resolution No. 2021-26 19-4 RESOLUTION NO. 2021-26 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA PROVIDING A ONE- YEAR WAIVER OF THE BUSINESS LICENSE TAX RENEWAL FOR BUSINESSES REQUIRED TO CLOSE BY ORDER OF THE STATE OF CALIFORNIA WHEREAS, Section 200 of the Charter of the City of Newport Beach ("City") vests the City Council with the authority to make and enforce all laws, rules and regulations with respect to municipal affairs subject only to the restrictions and limitations contained in the Charter and the State Constitution, and the power to exercise, or act pursuant to any and all rights, powers, and privileges, or procedures granted or prescribed by any law of the State of California; WHEREAS, the City requires all businesses operating or conducting business within the City to obtain a business license pursuant to Newport Beach Municipal Code ("NBMC") Section 5.04.020 (License and Tax Payment, and Fingerprinting Fee Requirements); WHEREAS, NBMC Chapter 5.08 (License Fee Categories) provides that businesses shall pay an annual business tax as established by resolution of the City Council; WHEREAS, on January 31, 2020, the United States Secretary of Health and Human Services announced a nationwide public health emergency, in response to the COVID-19 outbreak; WHEREAS, on March 4, 2020, Governor Gavin Newsom declared a State of Emergency to make resources available, formalize emergency actions, and help the State of California prepare for the broader spread of COVID-19; WHEREAS, as a result of COVID-19, Governor Newsom mandated the closure of various businesses throughout this past year; WHEREAS, California Government Code Section 4467(a)(2)(A) requires cities that issue business licenses to collect a state fee of $4.00 from any applicant for a business license or renewal thereof ("State Fee"), to benefit disability access and compliance with construction -related accessibility requirements and to develop educational resources for businesses to facilitate compliance with federal and state disability laws, as specified therein; and 19-5 Resolution No. 2021 - Page 2 of 3 WHEREAS, the City desires to help alleviate the impact of these closures for those businesses impacted by Governor Newsom's closure orders who maintain a current Newport Beach business license. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City does hereby waive the business license tax and agree to pay the State Fee for those categories of businesses identified in Exhibit "A," which is attached hereto and incorporated herein by reference, that are current with their business license tax payments. The waiver and payment of the State Fee provided herein shall commence on April 1, 2021 until March 31, 2022. Section 2: A business that does not fit within a category identified in Exhibit "A" may request a waiver from the City's Finance Director. Waivers may be granted to a business, where the owner or operator demonstrates the business ceased operations due to Governor Newsom's closure orders, could not conduct the business virtually, and the business is current with their business license tax payments. For example, professional service firms that may have closed their doors to the public, but were still able to operate or meet with their clients remotely, would not qualify. The Finance Director's decision whether to grant or deny a waiver shall be final. In the event a waiver is granted pursuant to this Section 2, the City agrees to pay the business' State Fee. The waiver and payment of the State Fee provided herein shall commence on April 1, 2021 and continue until March 31, 2022. Section 3: To qualify for the waiver and payment of State Fee provided herein, a business must be commercially based, as that term is defined in Section 5.08.005(C) (Business Tax — Definitions), in the City of Newport Beach. Section 4: Refunds shall not be provided as a result of a business' change of status or a change in the number of employees from the previous year. Section 5: The recitals provided in this resolution are true and correct and are hereby incorporated into the operative part of this resolution. Section 6: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. 19-6 Resolution No. 2021 - Page 3 of 3 Section 7: The City Council finds the adoption of this resolution is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Division 6, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 8: This resolution shall take effect on April 1, 2021, and the City Clerk shall certify the vote adopting this resolution. ADOPTED this 23rd day of March, 2021. Brad Avery Mayor ATTEST: Leilani I. Brown City Clerk APPROVED AS TO FORM: CITY ATTORNEY'S OFFICE Aaron Harp City Aft rney Attachment(s): Exhibit A - Newport Beach Business License Categories 19-7 EXHIBIT 7241 7231 BARBER SHOPS BEAUTY SHOPS 5181 BEER & ALE 5942 BOOK STORES 5441 CANDY, NUT & CONFECTIONERY STO 8351 CHILD DAY CARE SVCS 5641 CHILDRENS & INFANTS WEAR STORE 5145 CONFECTIONERY 7911 DANCE STUDIOS, SCHOOLS & HALLS 5311 DEPARTMENT STORES 5813 DRINKING PLACES, BARS, COCKTAI 5812 EATING PLACES, RESTAURANTS 7929 ENTERTAINERS & ENTERTAINMENT G 5651 FAMILY CLOTHING STORES 5139 FOOTWEAR, SHOES 5712 FURNITURE STORES 5947 GIFT, NOVELTY & SOUVENIR SHOPS 5945 HOBBY, TOY & GAME SHOPS 5023 HOME FURNISHINGS, FURNITURE 5094 JEWELRY & PRECIOUS STONES 5944 JEWELRY STORES 7997 MEMBERSHIP SPORTS & RECREATION 5136 MENS & BOYS CLOTHING 5611 MENS & BOYS CLOTHING STORES 2024 MFG OF ICE CREAM & FROZEN DESE 7999 MISC AMUSEMENT & RECREATION SV 2389 MISC APPAREL & ACCESSORIES MFG 5399 MISC GENERAL MERCHANDISE STORE 5719 MISC HOME FURNISHING STORES 7299 MISC PERSONNEL SVCS 5999 MISC RETAIL STORES 8299 MISC SCHOOLS & EDUCATIONAL SVC 8249 MISC VOCATIONAL SCHOOLS 2339 MISC WOMENS & MISSES OUTERWEAR 7812 MOTION PICTURE & VIDEO PRODUCT 8412 MUSEUMS & ART GALLERIES 7991 PHYSICAL FITNESS FACILITIES, G 5461 RETAIL BAKERIES 5661 SHOE STORES 4725 TOUR OPERATORS 4724 TRAVEL AGENCIES 5932 USED MERCHANDISE STORES 4499 WATER TRANSPORTATION SERVICES 5137 WOMENS & CHILDRENS CLOTHING 5632 WOMENS ACCESSORY & SPECIALTY S 5621 WOMENS CLOTHING STORES 19-8 ATTACHMENT B List of SIC Codes Deemed Eligible for the Business License Tax Waiver 19-9 List of SIC Codes Deemed Eligible for the Business License Tax Waiver 7241 7231 5181 5942 5441 BARBER SHOPS BEAUTY SHOPS BEER & ALE BOOK STORES CANDY, NUT & CONFECTIONERY STO 8351 CHILD DAY CARE SVCS 5641 CHILDRENS & INFANTS WEAR STORE 5145 CONFECTIONERY 7911 DANCE STUDIOS, SCHOOLS & HALLS 5311 DEPARTMENT STORES 5813 DRINKING PLACES, BARS, COCKTAI 5812 EATING PLACES, RESTAURANTS 7929 ENTERTAINERS & ENTERTAINMENT G 5651 FAMILY CLOTHING STORES 5139 FOOTWEAR, SHOES 5712 FURNITURE STORES 5947 GIFT, NOVELTY & SOUVENIR SHOPS 5945 HOBBY, TOY & GAME SHOPS 5023 HOME FURNISHINGS, FURNITURE 5094 JEWELRY & PRECIOUS STONES 5944 JEWELRY STORES 7997 MEMBERSHIP SPORTS & RECREATION 5136 MENS & BOYS CLOTHING 5611 MENS & BOYS CLOTHING STORES 2024 MFG OF ICE CREAM & FROZEN DESE 7999 MISC AMUSEMENT & RECREATION SV 2389 MISC APPAREL & ACCESSORIES MFG 5399 MISC GENERAL MERCHANDISE STORE 5719 MISC HOME FURNISHING STORES 7299 MISC PERSONNEL SVCS 5999 MISC RETAIL STORES 8299 MISC SCHOOLS & EDUCATIONAL SVC 8249 MISC VOCATIONAL SCHOOLS 2339 MISC WOMENS & MISSES OUTERWEAR 7812 MOTION PICTURE & VIDEO PRODUCT 8412 MUSEUMS & ART GALLERIES 7991 PHYSICAL FITNESS FACILITIES, G 5461 RETAIL BAKERIES 5661 SHOE STORES 4725 TOUR OPERATORS 4724 TRAVEL AGENCIES 5932 USED MERCHANDISE STORES 4499 WATER TRANSPORTATION SERVICES 5137 WOMENS & CHILDRENS CLOTHING 5632 WOMENS ACCESSORY & SPECIALTY S 5621 WOMENS CLOTHING STORES 19-10