Business Tax Panel's Plan Moves Forward

The Hermosa Beach Business License Tax Review Committee’s  is one step closer to being included on the Nov. 8 municipal election ballot.

On Tuesday, the Hermosa Beach City Council voted 4-1 to consider a resolution to place the proposed ordinance, with some changes, on the ballot. The resolution is to be considered at the next council meeting on July 26.

An proposed by Hermosa Beach resident Jim Lissner, which had gathered 698 local signatures in support, has already been approved for the ballot.

While the council has publicly opposed Lissner's measure, the majority of council members were in full support of the Business License Tax Review Committee's proposal Tuesday.

Councilman Jeff Duclos cast the dissenting vote.

“What’s painfully clear to me tonight is that this is not a ballot-ready initiative,” he said at the council meeting, arguing that the council should spend more time reviewing the proposal and gathering public input. “I’m nervous that the stakes are so very high that it’s imperative on us that the ballot measure we put forward as a city be the best one we can put forward.”

The measure (see accompanying tax plan under photo) proposes to increase revenue from the city’s business license tax by about $200,999 each year—adding up to about $1,058,362 total.

Lissner's proposal would bring an estimated $4.7 million in additional revenue for the city by dramatically raising taxes for restaurants in town that serve alcohol.

“Some of Hermosa’s restaurants and bars have been making extraordinary, and increasing, demands on city services, while the city’s business license tax on the categories including the largest and most intensively developed restaurants and bars is a flat $2,268 annually," according to the proposed ordinance, which focuses mainly on changing the tax structure for alcohol-serving establishments.

Some local restaurant owners have argued that the tax hikes under Lissner's proposal would put them out of business.

The Business License Tax Review Committee's proposal also increases taxes for restaurants, but seeks to encourage business development, according to the city—such as, it exempts new businesses from paying the business license tax during their first year of operation.

The proposal “is one page, simple, easily understood,” said Councilman Kit Bobko, who served on the tax review committee along with three local business owners and Councilman Peter Tucker. 

The measure proposed a flat-rate, general business license cost of $175 plus additional fees, depending on how a business fits into subcategories: automobile and boat dealers; state-licensed professionals; lodging; restaurants; retail; contractors; and “other” (which ranges from hospitals and mortuaries to food trucks and phone companies.)

Many business owners in the restaurant category raised concerns before the council about some of the proposed tax increases under the measure. 

For example, drive-through restaurants in Hermosa Beach, such as Starbucks or McDonald's, now pay a total of about $573 in business license taxes. Under the proposed tax plan, they would pay a total of about $12,000. There are three drive-through businesses in the city.

“Just because we have a drive-through, I don’t think we should be penalized, and a drive-through is not necessarily an indication of a successful business,” said Dick Blade, who owns the McDonald’s on PCH, at the council meeting. “I operate in El Segundo, Manhattan Beach, Hawthorne. … I would be paying four to five times the business tax I would be paying in Hermosa Beach compared to other cities.” 

Business License Tax Review Committee member Andrea Jacobsson said that the panel raised the tax for drive-through restaurants because “we felt they should pay their fair share” when compared to smaller businesses in town, she said.

But, after hearing business owners' concerns, Bobko motioned to amend the proposed ordinance to base the tax for drive-through restaurants on gross receipts and then cap that number.

While late-night alcohol-serving restaurants located in either the downtown Pier Plaza or upper Pier areas see additional fees, he also suggested that the proposal include a 5 percent surcharge for such establishments not included in those areas.

He also suggested including a clause in the proposal to address the possible case of business owners not reporting accurate hours or gross receipts to the city for tax purposes.

All council members except Duclos agreed to move forward with Bobko's proposed amendments and prepare the committee's proposal for the November ballot. 

"The council and the [Business License Tax Review] Committee sought to strike a balance between the need for additional revenues to ensure critical services to the community and protecting the jobs and commerce generated by our local businesses," said Mayor Howard Fishman in a statement Wednesday.

Changes to the business license tax model under the proposed November ballot measures would be the first in 23 years in Hermosa Beach, according to the city.

"The voters will have the final say on these proposed changes, and we want to be sure they are fully informed," Fishman said. "We thank the business community for their willingness to shoulder a greater tax burden to ensure the city’s ongoing fiscal health."