SOLANA BEACH — The fate of a tax on Solana Beach businesses is now in the hands of city residents. At the Feb. 24 meeting, council members unanimously agreed on a six-tier model that will be presented to voters in the June 8 election.
A similar move failed with a 2-3 vote two weeks earlier. Four of the five council members had to support the measure for it to be placed on the ballot. If it passes, taxes would be due in October 2010. But council also agreed to phase in the tax, so businesses will only be required to pay 50 percent of the amount due for the first year.
City officials spent nearly a year working with members of the business community to develop a fair and simple plan that was acceptable to all sides. A five-tier model everyone seemingly agreed on was presented at the Feb. 10 meeting.
According to that plan, the highest tax bracket was for businesses making $2.5 million or more. Just before the vote, Councilman Mike Nichols made what he called a “last-ditch effort” to add an additional tier applicable to businesses with gross receipts of more than $5 million.
He and Councilwoman Lesa Heebner said some small-business owners felt they were paying more than their fair share. Councilmen Dave Roberts and Joe Kellejian said they feared the additional tier would result in a loss of support from the business community.
The model that will go before voters has an additional sixth tier for businesses making more than $5 million, but the numbers were adjusted to lower the tax burden in the lower brackets. Originally, businesses making less than $65,500 would pay a flat rate of $50. Businesses making more will have the option of paying a flat fee or a percentage of their gross receipts. That remains unchanged.
In the old five-tier plan, the flat rate ranged from $75 for businesses making more than $65,500 to $1,150 for those with gross receipts of $2.5 million or more. In the accepted model, the range is between $70 and $1,675 for businesses with gross receipts of $5 million or more. The multiplier for businesses that choose to pay a percentage was also decreased across the board. In many cases, that option could mean a lower tax, City Manager David Ott said.
The city received about a dozen letters and e-mails, more than half opposing any tax at all. The others were split nearly evenly on adding a sixth tier.
“The attempt to charge an extra amount to certain high volume businesses is a naked bit of wealth redistribution,” wrote Lynn Farrar, general manager of the Lomas Santa Fe Country Club, which falls into the highest bracket. “To single out 5 or so businesses and tax them differently is a miscarriage of justice and not in the spirit of community.”
At the meeting, about a dozen speakers — mostly small-business owners — said they supported the additional tier for higher-earning companies.
“The city’s always had a fair business fee structure,” said Ira Opper, who’s run a home business in Solana Beach since 1995. “I would rather pay a few dollars more to have the services that we have than have car lots and box stores to supplement that income.
“But the small businesses should not be the only ones to shoulder the burden,” Opper said. “The big businesses should also pay their fair share. With that, I think tier six comes with some bragging rights. I don’t think there’s a person in this room who doesn’t want to be in tier six.”
To keep the financial burden fair, he urged council not to “shed a ‘tier’ over this tax.”
Greg Petre a small-business owner, said no one ever willingly pays more taxes, but he understands it may be necessary. “I think what’s up there right now looks pretty good,” he said.
However, Carl Turnbull, who moved his business to Solana Beach 30 years ago, said the city should focus on reducing spending. Ott said the city has cut more than $1 million from its budget and is operating with a “lean” staff of 50 people — the same number it had nearly 20 years ago. Mayor Tom Campbell said the city is also prepared to use money from its undesignated reserve fund.
Only 6 percent of California cities do not currently have a business tax. Ott said Solana Beach, one of only three San Diego County cities without the tax, hasn’t seen “an onslaught” of businesses wanting to come into the city because it doesn’t have one. He also said other cities aren’t losing businesses because of it.
City officials estimate about 80 percent of businesses in Solana Beach make less than $1 million and would fall into one of the first three brackets. Property owners with more than five residential rental units will pay $25 per unit. Home-based businesses will pay $75. The city currently charges a nominal annual business fee that will be replaced by the tax if it passes.
It is estimated the tax would add about $500,000 annually to the city’s general fund. Council can waive or suspend the tax at any time.