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Harlan: Business tax spike would not hurt city

August 04, 2012|By Jeffrey Harlan

Late in the evening July 17, after the Costa Mesa City Council voluntarily handcuffed the community to an unconscionable contract with Newport Banning Ranch LLC, the council quietly tightened its grip by purposeful inaction.

This time, the council majority chose not to put on November's ballot a proposal to adjust the city's business license tax. This inaction effectively prevented the community from voting on an opportunity to increase the city's revenue. The result is that we will not get to consider this issue again for at least two more years, in the 2014 general election.

Costa Mesa's business license tax has not changed since 1985; not surprisingly, it's the lowest among Orange County cities. Generally based on a sliding scale tied to gross receipts, Costa Mesa businesses pay between zero and $200 (the maximum for businesses grossing more than $500,000).

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This tax applies to about 9,000 general businesses, and the city collects about $800,000 annually. That's less than $90 per business. In fact, almost 65% of these businesses gross less than $200,000 annually and pay only $65 each year.

By comparison, Newport Beach and Santa Ana, which have different methods of calculating taxes, annually collect about $4 million and $9 million, respectively.

So what's wrong with adjusting the tax, so it reflects today's economics, not those of 1985?

At first, it appeared that the council recognized the importance of making an adjustment and bringing Costa Mesa into the 21st century. The council had directed staff and its consultant to review best-practices locally, and recommended a handful of options to modify the business license tax and increase the city's revenue. The recommendations included different tax structures that would provide annual net revenues from $1.4 million to $3.4 million.

But that's as far as it went. On July 17, we heard from our councilmen — businessmen by trade — that increasing the tax would be an undue burden on existing businesses and stifle our community's economic growth. That's totally bogus.

New businesses certainly do not choose to locate in Costa Mesa simply because of the business tax. It may be a small factor in the decision-making process, but it's not the determinative one. More importantly, existing businesses do not consider locating elsewhere because the tax may be marginally higher.

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