Plan to modernize City’s business operating tax moves forward, heads to March 5 ballot

A proposal to update Sacramento’s business operating tax has been approved by the City Council and now will go in front of voters in March.

The City’s non-cannabis BOT was last updated in 1991, said Pete Coletto, finance director the City, during a Nov. 14 presentation to Council.

As levels in the tax have eroded with inflation over the decades, “we have received multiple recommendations to modernize” it, Coletto said.

The City’s current tax structure charges most businesses an annual $30 flat tax plus 0.04% of gross receipts over $10,000.

Under the new proposal, most businesses would pay an annual flat tax of $50 plus 0.04% of gross receipts over $100,000.

Currently, the City has a $5,000 cap on how much BOT a business pays annually. Under the new plan, that cap would increase to $125,000, phased in over the next five years.

The new proposal would also increase the flat tax on certain types of licensed professionals to $684 annually.

Hotels, motels and short-terms rentals would see their flat rate increase to $114 annually with a per unit rate of $2.85.

The proposed BOT changes would bring in approximately $3.7 million in additional revenue for the City in its first year, Coletto said. The amount would increase to $6 million by the fifth year when the maximum cap is fully phased in.

The ordinance will appear on the March 5 ballot. It will need a majority vote to pass. If it does, it would go into effect July 1.

The City’s business operating tax was first enacted in 1975. Minimum payment, maximum payment and gross receipt thresholds have not been adjusted for more than 30 years.

Management Partners, a consulting firm hired by the City, recommended a modernization of the BOT in 2010 and again in 2020 as part of its Citywide Innovation and Efficiency Assessment.

During the most recent fiscal-year budget hearings, Council directed staff to develop a plan to update the business tax.

“The City budget is forecast to be in structural deficit with expense growth outpacing revenue growth,” a City staff report stated. “The General Fund revenues generated from the modernization of the BOT will be used to fund essential City services that will benefit residents and businesses.”

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