Residential rentals in San Mateo are seeing an uptick in business license tax notices after the city determined its compliance process was not being applied consistently to all businesses, with some not in compliance.
In 2018, the city hired auditing firm HdL Companies to review business license tax compliance and found the city was not consistently applying it to everyone. HdL Companies completed a business tax audit for commercial lessors at the end of 2021 and a residential lessor audit in July 2022 to ensure equal application, according to city staff.
“This firm, in their initial review of the business license tax, brought to our attention that we didn’t appear to be applying the tax across all eligible businesses, which would be everything,” City Manager Drew Corbett said. “They specifically pointed out commercial and residential lessors.”
Corbett said the city consulted with the city attorney’s office and found the city had not been applying the tax consistently under the current ordinance guidelines. Corbett emphasized the notices are not a new tax. Instead, it is enforcing the current ordinance on the books for the last 90 years that has not been consistently and appropriately applied.
“Ultimately, this endeavor is 100% for the purpose of making sure we are applying the ordinance consistently and equitably across all businesses throughout the city,” Corbett said.
A business license tax requires any person or entity doing business in San Mateo to pay an annual business tax, sometimes called a business license. The tax is based on total annual gross receipts for the proceeding year. For example, annual gross receipts up to $30,000 generates around a $31 tax, with each $10,000 increase until $100,000 leading to a rise ranging from $8 to $20.
HdL Companies is now sending out letters to businesses asking for compliance with the city’s municipal code, with the city waiving all back taxes and penalties to assist businesses. HdL Companies has sent out around 600 letters to commercial lessors; for residential lessors, it was about 2,000. Corbett said if residential lessors who are property owners decided to pass the tax burden on to the tenants, the average rent would increase between $2.60 and $4 per month per unit. Finance Director Rich Lee said the tax would not be moving the needle in raising the city revenue and was instead about proper administration.
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“This is meant for compliance purposes and making sure we are equitably enforcing the provision,” Lee said.
Scott Campbell, a CPA with San Mateo accounting firm Galligan, Thompson & Flocas LLP, said around 30% of his clients would be affected by the tax, although he noted many of his clients have assets and do not represent all of San Mateo. Campbell said most of the new notices for his clients tend to have long-term rentals, with every rental now considered a business, a significant change.
“I don’t think these are going to kill anybody, these aren’t giant taxes, but still, it’s another thing that people need to be aware of,” Campbell said.
As a small Residential Landlord, I was caught by surprise about our city requiring me and others to apply for a Business Tax Application. The Business Tax was voted on in 1932 and was never implemented for this purpose.
I have requested historical documentation from the City Council on this measure, copy of original Ballot Measure, application form and more from archives.
The amount of the Tax is miniscule.
I also want to know if this Tax will be dedicated towards affordable hoising or paying down our Pension Liability and not a Slush Fund?
The Ordinance after 90 years should be Voted on by the Voters,
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(1) comment
Mr. Driscoll, thank you for your article.
As a small Residential Landlord, I was caught by surprise about our city requiring me and others to apply for a Business Tax Application. The Business Tax was voted on in 1932 and was never implemented for this purpose.
I have requested historical documentation from the City Council on this measure, copy of original Ballot Measure, application form and more from archives.
The amount of the Tax is miniscule.
I also want to know if this Tax will be dedicated towards affordable hoising or paying down our Pension Liability and not a Slush Fund?
The Ordinance after 90 years should be Voted on by the Voters,
Welcome to the discussion.
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Keep the discussion civilized. Absolutely NO personal attacks or insults directed toward writers, nor others who make comments.
Keep it clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't threaten. Threats of harming another person will not be tolerated.
Be truthful. Don't knowingly lie about anyone or anything.
Be proactive. Use the 'Report' link on each comment to let us know of abusive posts.
PLEASE TURN OFF YOUR CAPS LOCK.
Anyone violating these rules will be issued a warning. After the warning, comment privileges can be revoked.