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: a) Resolution No. 26-0087 Placing a Ballot Measure on the November 3, 2026, General Municipal Election to be Conducted by the Los Angeles County Registrar - Recorder/County Clerk that Would Update/Simplify the Business License Tax; b) Resolution No. 26-0088 Providing for the Filing of Rebuttal Arguments for the City Measure; and c) Selection of a Ballot Letter Designation for the City's Ballot Measure to Update/Simplify the Business License Tax (Revenue Budget Impact) (Finance Director Bretthauer).
(Estimated Time: 1 Hr.)
A) CONSIDER ADOPTING RESOLUTION NO. 26-0087
B) CONSIDER ADOPTING RESOLUTION NO. 26-0088
C) SELECT BALLOT LETTER DESIGNATION
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RECOMMENDATION:
Staff recommends that the City Council consider the following actions:
1. Adopt Resolution No. 26-0087 approving an Ordinance and ordering that a Measure be submitted to the voters of the City at the General Municipal Election to be held on November 3, 2026, to consider updating/simplifying the business license tax structure;
2. Adopt Resolution No. 26-0088 providing for the filing of rebuttal arguments for a City Measure submitted at the November 3, 2026, General Municipal Election; and
3. Direct the City Clerk to inform the County of its preferences for a ballot letter designation for the City’s ballot measure.
FISCAL IMPLICATIONS:
Following various public meetings, community outreach, and final direction from the July 21, 2026, City Council Meeting, the proposed tax structure Model 4 was selected and is expected to increase the City’s business license tax revenue by approximately $550,000 annually, if approved by voters.
Sufficient funds are currently budgeted in the Fiscal Year 2026-2027 budget to conduct the election for the inclusion of a ballot measure. Based on the estimated $141,000 cost provided by the Los Angeles County Registrar-Recorder/County Clerk, the ballot measure accounts for approximately $17,000 of our total election cost. Additional expenditures related to the Fiscal Analysis, Polling, Consulting, and Legal Services in the amount of $202,400 were approved by City Council on February 17, 2026, at the FY 2025-2026 Mid-Year Budget Update.
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 & Consider 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 consider placing a ballot measure on the November 3, 2026, General Election.
At the May 12, 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 included a minimum (flat) charge of $100 for the first $100,000 in gross receipts, plus an additional uniform charge of $2.60 per each $1,000 of gross receipts above $100,000, up to a maximum annual tax (cap) of $100,000.
At the July 21, 2026, meeting, the City Council received the polling results of the Business License Tax Feasibility Survey and took the following action:
• Directed staff to return at the August 4, 2026, City Council Meeting with the required resolutions to place a ballot measure at the November 3, 2026, General Municipal Election.
• Directed staff to proceed with Tax Model No. 4, which includes a variable tax rate structure (as opposed to Model 3’s uniform rate) as follows:
o A minimum (flat) annual Business License Tax of $100 for up to $100,000 in gross receipts;
o A tax rate of $2.00 per $1,000 of gross receipts above $100,000 for the General Retail Category;
o A tax rate of $2.80 per $1,000 of gross receipts above $100,000 for all other Categories (Contractor, Professional, Property Rental, and Services and Other); and
o A maximum annual Business License Tax (Cap) of $100,000.
DISCUSSION:
Based on direction from the July 21, 2026, City Council Meeting, staff was directed to proceed with Tax Model 4, which would update the tax structure to allow for:
• Variable gross receipts rates based on business type
• A small flat-rate tax
• An increased cap to $100,000
• A simplified Model with five base categories (Contractor, General Retail, Professional, Property Rental, and Services and Other) and an Exempt category
The outcomes of Tax Model 4 include:
• Six (6) categories are easier to navigate than the current structure
• The low flat rate supports small businesses and micro-enterprises
• More concentration of revenue from particular industries
• Slightly increases revenues for City services
• Creates a more uniform gross receipts basis for all business types
• Lowers Gross Receipts Tax Rate for General/Retail category to help support local brick and mortar businesses based in Manhattan Beach
The Ordinance included as an Exhibit to Resolution No. 26-0087 defines the six categories of Contractor, General Retail, Professional, Property Rental, Services and Other, and Exempt. A summary is also included in the attached PowerPoint.
Other Considerations Included in the Ordinance
Franchise Agreements with Public Utilities: The Ordinance maintains the exemption currently in place for Public Utilities to only pay the flat tax (and not pay Gross Receipts basis) if there is a Franchise Agreement in place where Franchise Fees are paid.
Pass Through Revenue: The Ordinance does not recognize Pass Through Revenue as part of Gross Receipts. The code amendments contained within the proposed Ordinance update the definition of “Gross Receipts” to exclude “monies received and / or placed in a segregated account or escrow for the benefit of a third party and not subject to the taxed party’s control.”
Future Policy Considerations (Post-Ballot Measure)
Real Estate: There are no proposed changes to the Code with respect to Real Estate professionals; however, future discussions may be considered to:
• Provide an exception that allows Brokers to deduct commissions paid to agents from their Gross Receipts calculation.
• Evaluate whether to continue the current practice of not enforcing the business license tax on individual agents or consider applying the tax across all business types to promote equitable treatment.
o Currently, there are 46 licensed agents, brokers and real estate professionals that maintain a business license in the City.
Commercial Properties (Common Ownership): The Ordinance does not change the existing requirement for a business license; however, future discussions may be considered to:
• Evaluate whether to allow an exemption to Business License Tax if the commercial property owner and tenant are the same legal entity.
Ballot Measure
Staff and special counsel have drafted the necessary resolutions and ordinance to place a ballot measure at the November 3, 2026, General Municipal Election. Resolution No. 26-0087 orders a ballot measure to be submitted to voters and includes Exhibit A containing the Ordinance voters would consider for the Business License Tax Measure. The Resolution also specifies the proposed ballot language as follows:
“City of Manhattan Beach Business License Tax Update and Simplification Measure. Shall the measure to update/simplify City of Manhattan Beach’s business license tax, lower taxes for approximately 73% of businesses operating in Manhattan Beach, and ensure large businesses pay their fair share for services such as maintaining streets, parks, playgrounds, and 9-1-1 emergency response by applying rates up to 0.28% of gross receipts (as described in the ordinance), lowering the minimum flat rate, and raising the cap for large businesses, generating $550,000 annually until ended by voters, be adopted?”
Arguments For or Against the Measure
Section 6 of Resolution No. 26-0087 provides that the City Council may authorize up to five Councilmembers to file arguments for or against the measure (Elec. Code, § 9282). If any Councilmembers would like to file an argument in accordance with the attached Arguments and Rebuttals Form, the City Council may (but is not required to) approve that request by motion.
Pursuant to Elections Code Section 9285, the City is required to outline the procedure for filing rebuttal arguments related to a ballot measure; therefore, Section 3 of Resolution No. 26-0088 describes the process for preparing and submitting a rebuttal argument for inclusion on the attached Arguments and Rebuttals Form.
Ballot Measure Letter Designation
The City Council may request the Los Angeles County Registrar-Recorder to assign a particular letter to the City-initiated ballot. The attached form allows the Council to choose a first, second, and third letter designation as well as letter choices that the Council does not want assigned to its measure.
Staff discussed ideas for designating ballot measure letter(s) and settled on six options with slogans/acronyms for Council consideration. These options include:
1. BL - Business License
2. BLS - Business License Simplification
3. MBL - Modernize Business License
4. MBT - Modernize Business Tax
5. BLT - Business License Tax
6. BTM - Business Tax Modernization
Staff recommends the City Council direct the City Clerk to inform the County of its preferences for a ballot letter designation for the City’s ballot measure and specify which options are preferred as first, second and third. Also, the City Council should decide which ballot letter designations they do not want.
CONCLUSION:
Staff recommends that the City Council consider the following actions:
1. Adopt Resolution No. 26-0087 approving an Ordinance and ordering that a Measure be submitted to the voters of the City at the General Municipal Election to be held on November 3, 2026, to consider applying the selected variable gross-receipts rate based on business type, lowering the flat rate, and raising the cap;
2. Adopt Resolution No. 26-0088 providing for the filing of rebuttal arguments for a City Measure submitted at the November 3, 2026, General Municipal Election; and
3. Direct the City Clerk to inform the County of its preferences for a ballot letter designation for the City’s ballot measure.
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.
Additionally, staff has coordinated 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, determined that no additional legal analysis is necessary, and prepared the Ordinance that reflects the recommended changes to the tax structure.
ATTACHMENTS:
1. Resolution No. 26-0087 - Ballot Measure Submission
2. Resolution No. 26-0088 - Filing of Rebuttal Arguments
3. Ballot Letter Designation Form
4. Arguments and Rebuttals Form
5. PowerPoint Presentation