TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Finance Director
Emy-Rose Hanna, Financial Services Manager
Toni Page, Revenue Services Supervisor
Josh Grady, Lead Account Specialist
SUBJECT:Title
Consideration of Polling Results on a Potential Business License Ballot Measure and Direction to Schedule the Consideration of Resolutions to Present to the Voters the Finalized Ballot Measure Updating the Business License Tax for the August 4, 2026, City Council Meeting (No Immediate Revenue Impact) (Finance Director Bretthauer).
(Estimated Time: 1 Hr.)
PROVIDE DIRECTION
Body
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RECOMMENDATION:
Staff recommends that the City Council:
1. Discuss results from recent Polling on a potential Business License ballot measure;
2. Provide direction and select a final Tax Model for the Measure;
3. Direct staff to return at the August 4, 2026, City Council meeting with the required resolutions to place a ballot measure applying the selected gross-receipts rate equally to all businesses, lowering the flat rate, and raising the cap for large businesses at the November 3, 2026, General Municipal Election.
FISCAL IMPLICATIONS:
There are no immediate fiscal implications associated with the recommended actions. The impact to the City’s business license tax revenue would vary depending on the Tax Model that is selected for the ballot measure, and would be realized only if approved by voters at the November 3, 2026, General Election. Should the City Council direct staff to return at the next meeting to call the election to update the business license tax structure, the City will incur costs associated with placing a ballot measure. Sufficient funds are currently budgeted in Fiscal Year 2026-2027 to conduct the election and include a ballot measure.
BACKGROUND:
A Business License Tax is imposed on persons or entities for the privilege of conducting business within a city. For most cities, business license taxes are generally a major source of revenue and the licensing process allows cities to regulate the types of businesses that can legally operate and conduct activities. For the City of Manhattan Beach, the tax currently generates approximately $6 million annually, representing about 5% of General Fund revenues, which helps fund essential City services that support a safe, well-maintained, and business-friendly community.
On March 3, 2026, the City Council received the Business License Tax Modernization Plan (Plan), which established five primary goals, which are to: Simplify, Clarify and Modernize the tax code, and create a Fair and Equitable tax structure that supports the City's long-term Fiscal Sustainability. The Plan consists of 22 individual priorities to be completed in two phases.
• Phase 1 (Completed) - Administrative Clean Up of the Code: City Council adopted Ordinance 26-0005 on March 17, 2026, which was drafted by Special Counsel, amending sections of the Manhattan Beach Municipal Code Chapter 6.01 Licensing Regulations. This Ordinance modified several sections of MBMC Chapter 6.01 by removing outdated language, improving clarity, and incorporating current best practices.
• Phase 2 (In Progress) - Perform Tax Study, Identify Alternative Tax Structures, Obtain Community Input, Conduct Polling & Explore Ballot Measure: City Council directed staff to proceed with a Financial Analysis/Tax Study to provide options for modern tax structures along with fiscal impacts to the City and to businesses. Phase 2 addresses the Code amendments and substantive policy updates that require voter approval. The last step of Phase 2 is to present polling results and consider placing a ballot measure on the November 3, 2026, General Election.
At the May 21, 2026, City Council meeting, the City’s consultants from HDL presented the results of the Tax Study, which includes available data through the 2025-2026 licensing year reflecting approximately 5,200 businesses and $5.4 million in Business License Tax revenue. The presentation discussed inequities with the current tax structure, presented a survey of other city business license taxes and explored four alternative Tax Models that aligned with the five goals of the Plan.
During this meeting, the City Council directed staff to proceed with community polling using Tax Model No. 3, which includes:
• A minimum (flat) annual Business License Tax of $100 for up to $100,000 in gross receipts;
• A tax rate of $2.60 per $1,000 of gross receipts above $100,000; and
• A maximum annual Business License Tax (Cap) of $100,000.
Following this direction, staff began working with True North Research Inc., to develop and conduct a statistically valid survey of voters to assess the feasibility of a potential business license tax measure.
Any increase to the Business License Tax must first be approved by the City Council through at least a two-thirds vote of all members (4 out of 5 Councilmembers) and then a simple majority vote in the next municipal election in November 2026.
DISCUSSION:
Polling Results Findings
True North Research, Inc., conducted a poll using a stratified and clustered random sample of likely voters and asked questions related to the feasibility of adopting Tax Model No. 3. The survey was administered between June 16 and June 24, 2026, to a random sample of 459 voters in the City of Manhattan Beach who are likely to participate in the November 2026 election. The survey followed a mixed-method design that employed multiple data collection methods including email, text, and telephone.
The results of this feasibility survey are attached in the Polling Results PowerPoint Presentation. True North Research, Inc, details the findings of the survey and highlights the key the questions asked throughout the polling. In summary, the report posed the following pertinent question to likely voters:
“Shall the measure to simplify City of Manhattan Beach’s business license tax, lower taxes for 75% of local businesses, and ensure large business pay their fair share for general city services such as paving streets, parking management and 911 response, by applying a 0.26% gross-receipts rate equally to all businesses, lowering the flat rate and raising the cap for large businesses, generating $800,000 annually in locally controlled funding for city services until ended by voters be adopted? If the election were held today, would you vote yes or no on this measure?”
After analysis, True North Research, Inc. concluded the following:
“Manhattan Beach voters have a high opinion of the quality of life in the City and value the services they receive from the City of Manhattan Beach. Together, these sentiments translate into solid natural support (59%) for the business license tax measure applying a 0.26% gross-receipts rate equally to provide funding for city services in Manhattan Beach, such as fixing streets and potholes; keeping parks and playgrounds safe, clean, and well-maintained; providing quick responses to 911 emergencies; improving e-bike traffic enforcement, traffic safety, and manage congestion; provide parks and recreation programs for all ages; manage parking and provide economic initiatives that support local businesses and create good paying jobs. The results of this survey indicate that business license tax measure is feasible for the November 2026 ballot provided that it focuses on the projects and services that voters identify as their priorities and is accompanied by robust communication and outreach.”
The final ballot test, conducted after educating the sample voters, resulted in 64% of the voters supporting the potential measure.
The polling results also indicated that 96% of respondents rated the overall quality of life in Manhattan Beach to be “excellent” (63%) or “good” (32%).
Proposed Business License Tax Model
A gross receipts-based business license tax is designed to provide a fair, equitable, and flexible method of taxing businesses of varying sizes and industries. Because business models differ significantly from retail stores and restaurants to professional services, contractors and commercial property owners, a uniform gross receipts model allows the tax to scale with the level of business activity. This framework accommodates businesses of all types while ensuring each contributes proportionately to the municipal services and infrastructure that support a healthy business environment.
Deviating Businesses
The current tax structure is complex, challenging to administer and difficult to understand for new and existing businesses because there are a variety of ways the tax is assessed based on the different business types. For example, while a majority of businesses pay a flat tax plus a gross receipt tax, there are certain business categories that are assessed using different factors such as Hotels and Dwelling Units that pay based on a per room/per unit tax, Administrative Offices that pay a flat tax plus a per employee tax, Commercial Property that pay either on Gross Receipts or Square Footage, and Contractor, Subcontractor and PO Box businesses that pay a flat tax.
To make the City’s Business License Tax more equitable, the proposed uniform tax structure ensures all businesses are taxed the same rate. Therefore, businesses currently taxed on other factors will be impacted as low tax categories would see increases and other higher taxed categories would see decreases.
Avoiding Double Taxation
The proposed business license tax structure is designed to ensure that the same business activity is not taxed more than once. The following topics are included to address questions and comments received from the business community:
Real Estate: Under the current and proposed tax structure, a real estate brokerage would pay a business license tax for its brokerage operations while agents acting solely under that brokerage would not be separately taxed for the same brokerage activity. However, a licensed real estate agent operating as an independent business may be subject to a separate business tax because the agent is conducting a distinct business. To ensure accurate reporting of gross receipts, the Broker and Agent shall include:
A. All commissions, fees, charges, monies, or compensation of any character, received by such person and/or entity for performing in the capacity described in the business license ordinance.
B. All other monies received by such person and/or entity in connection with the sale of real or personal property, except those monies received and placed in a segregated account or escrow for the benefit of a third party, and not subject to such person and/or entity’s use or control.
Commercial Property: Similarly, the current and proposed tax structure requires commercial property owners to obtain an annual business license. Both landlords and their tenants are each taxed only on their own separate business activities, preventing double taxation while ensuring all businesses contribute equitably based on the services they provide. Since the landlord and tenant are two separate business entities, there is no duplicate tax on the same license.
Franchise Agreements with Public Utilities: The current tax structure allows public utilities to be exempt from paying the gross receipt rate when there is a Franchise Agreement in place, however, it still requires a flat tax to be paid. For example, under the current tax structure:
1. Public Utilities not subject to franchise fee shall pay $313.88 per annum for the first $91,661.00 of gross receipts and $2.80 per $1,000.00 in excess thereof not to exceed $12,156.00.
2. Public Utilities subject to franchise fee - shall pay $313.88 per annum (flat tax only).
Staff recommends maintaining this exception to the gross receipts basis only if a Franchise Agreement is in place under which Franchise Taxes are paid. An example under the proposed tax structure is as follows:
1. Public Utilities not subject to franchise fee shall pay $100.00 per annum for the first $100,000.00 of gross receipts and $2.60 per $1,000.00 in excess thereof not to exceed $100,000.00.
2. Public Utilities subject to franchise fee - shall pay $100.00 per annum (flat tax only).
Pass-Through Revenue: Certain industries collect and remit funds on behalf of third parties that do not represent revenue earned by the business. Excluding these pass-through amounts from gross receipts ensures the Business License Tax is based on actual economic activity rather than monies collected for others. This approach promotes equity by preventing businesses that process large volumes of third-party funds from being disproportionately taxed.
Apportionment: Business License Tax should be proportional to business operations that occur within the City; therefore, a business only needs to report gross receipts generated in Manhattan Beach. An example of apportionment is when a business operates in three different cities (Manhattan Beach, Hermosa Beach and Redondo Beach) and generates $1,000,000 in gross receipts collectively. If the amount earned in each city is $333,333, then the business only needs to report and pay tax on the $333,333 amount earned in Manhattan Beach. Apportionment prevents a business from having to pay double or triple in taxes, as it factors in the taxes paid to other jurisdictions.
Alternative Tax Model Options
Staff actively reached out to business groups and key stakeholders to gain feedback on the overall Business License Tax Modernization Plan. Based on this feedback, the main concerns revolve around two main points:
• Increasing the CAP from $12,156 to $100,000 means businesses generating over $5 million in gross receipts will see increases.
• Applying a uniform tax upon all business types means certain categories will see more noticeable increases.
With these concerns in mind, staff considered additional alternatives that could mitigate the increases affecting impacted businesses. The attached Alternative Tax Model Options compares the current tax, the proposed Tax Model 3, and three new alternatives, including Option A, Option B, and Option C. The attached comparison summarizes both the impact on businesses and the fiscal impact on the City.
CURRENT TAX STRUCTURE
• A minimum annual Business License Tax of $313 for most business types for the first $91,661 of gross receipts
• A tax rate of $2.80 per $1,000 of gross receipts over $91,661
• A maximum annual Business License Tax (cap) of $12,156 for most business types, while Research and Development and Commercial Property that pay on square footage basis have cap of $251,168
• Variable tax rates depending on Business Type
Business Impact:
• No change to business community or City revenue.
• Maintains complex and inequitable tax structure.
SELECTED TAX MODEL 3 OPTION - (Based on May 12, 2026, Council Meeting)
• A minimum annual Business License Tax of $100 for up to $100,000 in gross receipts;
• A tax rate of $2.60 per $1,000 of gross receipts over $100,000; and
• A maximum annual Business License Tax (cap) of $100,000.
Business Impact:
• 75% of businesses would see a Decrease in taxes.
• $816,630 in estimated additional City revenue.
• The uniform gross receipts model achieves goals of simplicity, fairness, and equity.
• Businesses with gross receipts under $4,735,000 would see a decrease in taxes.
OPTION A
• A minimum annual Business License Tax of $100 for up to $100,000 in gross receipts;
• A tax rate of $2.50 per $1,000 of gross receipts over $100,000; and
• A maximum annual Business License Tax (cap) of $100,000.
Business Impact:
• 75% of businesses would see a Decrease in taxes.
• $636,252 in estimated additional City revenue.
• Businesses with gross receipts under $4,920,000 will see a decrease in taxes.
OPTION B
• A minimum annual Business License Tax of $150 for up to $100,000 in gross receipts;
• A tax rate of $2.40 per $1,000 of gross receipts over $100,000; and
• A maximum annual Business License Tax (cap) of $100,000.
Business Impact:
• 66% of businesses would see a Decrease in taxes
• $713,625 in estimated additional City revenue
• Businesses with gross receipts under $5,100,000 million will see a decrease in taxes.
OPTION C
• A minimum annual Business License Tax of $150 for up to $100,000 in gross receipts;
• A tax rate of $2.25 per $1,000 of gross receipts; and
• A maximum annual Business License Tax (cap) of $100,000.
Business Impact:
• 68% of businesses would see a Decrease in taxes
• $443,059 in Estimated City Revenue
• Businesses with gross receipts under $5,400,000 will see a decrease in taxes.
In all Options, businesses with gross receipts greater than $5.4 million would see an increase in business license tax primarily because they currently benefit from the existing maximum tax (cap) of $12,156 in place. A business with $10.0 million in gross receipts would see an increase of $13,684 in Model 3 versus an increase of $10,269 in Option C due to raising the cap. Increasing the cap to $100,000 ensures all businesses are paying the same tax rate across all business sizes and ensures there is no preferential treatment to certain business groups.
For further consideration, staff examined the impact of reducing the proposed cap from $100,000 to $75,000. This cap reduction would result in revenue decreases in the range of $260,000 to $275,000 to each scenario depending on the Tax Model/Option and would benefit the top range of 12 to 15 businesses in the City.
CONCLUSION:
Staff recommends the City Council discuss and provide direction regarding the polling results, selection of a final Tax Model, and whether to proceed with placing a ballot measure on the November 3, 2026, election.
If approved, the next steps will be to return to the August 4, 2026, City Council Meeting to present:
• A draft Ordinance amending Chapter 6 of the Manhattan Beach Municipal Code related to business license tax;
• Present a Resolution to Call the Election;
• Confirm the official ballot language;
• Present Resolutions for Ballot Measure Submission and Filing of Rebuttal Arguments; and
• Select the Ballot Letter Designations for the Measure (tentative letter designations include Measure BL or Measure MBL).
PUBLIC OUTREACH:
On October 23, 2025, staff held a meeting with representatives from the Chamber of Commerce and Downtown Business and Professional Association (DBPA). The meeting was informative, collaborative and staff received positive feedback on commencing this initiative. Overall, the representatives agreed with the need to prioritize the business license code update.
On November 6, 2025, City staff presented the Business License Tax Modernization Plan to the Finance Subcommittee to receive feedback on the overall plan.
On March 3, 2026, City staff presented the Business License Tax Modernization Plan to the City Council to receive feedback on Phase 1 and 2 of the Plan and next steps.
On April 23, 2026, the City, in partnership with the Manhattan Beach Chamber of Commerce, held the Business License Tax Forum in the City Council Chambers and via Zoom. This Forum was advertised in The Beach Reporter on April 16, 2026, and email invitations were sent on two occasions to about 5,000 email accounts associated with active businesses licenses.
On April 27, 2026, the City sent another email to 5,000 licensed accounts with a recap of the Business License Tax Forum along with an opportunity to still cast a vote through May 1, 2026, to allow results to be presented at this City Council Meeting.
From June 16, 2026, through June 29, 2026, True North Research, Inc. contacted 459 sample voters by phone, text and email to conduct polling on the potential Business License Tax Measure.
During the week of July 15, 2026, staff sent another email to 5,000 licensed accounts to keep the business community up-to-date regarding the polling results and next steps along with information on how to attend the City Council Meeting on July 21, 2026.
Pending the results of the July 21, 2026, City Council meeting, staff will coordinate with consultants from TeamCivX, LLC to send out informational mailers to all registered voters with information regarding the proposed ballot measure.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that there is no possibility that the activity may have a significant effect on the environment; therefore, pursuant to Section 15061(b)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
Special Counsel has reviewed this report and determined that no additional legal analysis is necessary and is preparing a draft ordinance that will reflect the recommended changes to the tax structure.
ATTACHMENTS:
1. PowerPoint Presentation - Polling Results Provided by True North Research, Inc.
2. PowerPoint Presentation - Business License Tax Modernization Plan Update
3. Alternative Tax Model Options