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
John Albi, Management Analyst
Josh Grady, Lead Account Specialist
SUBJECT:Title
Conduct a Public Hearing to Consider the Introduction of an Ordinance Amending Sections of the Manhattan Beach Municipal Code Chapter 6.01 Business Licensing Regulations; and Provide Direction on the Business License Modernization Plan (No Budget Impact) (Finance Director Bretthauer).
(Estimated Time: 1 Hr.)
A) CONDUCT PUBLIC HEARING
B) INTRODUCE ORDINANCE NO. 26-0005
C) DISCUSS AND PROVIDE DIRECTION
Body
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RECOMMENDATION:
Staff recommends that after conducting a public hearing, the City Council: (1) introduce Ordinance No. 26-0005 amending sections of the Manhattan Beach Municipal Code Chapter 6.01 Licensing Regulations; and (2) discuss and provide direction on the Business License Tax Modernization Plan.
FISCAL IMPLICATIONS:
There are no immediate fiscal implications associated with the recommended action. However, the research and planning activities related to a Business License Tax Modernization Plan would result in costs associated with specialized legal services, financial analysis, polling services and other miscellaneous costs associated with placing a ballot measure on the November 2026 election. A budget appropriation of $202,400 was approved with the Mid-Year Budget Report presented at the February 17, 2026, City Council Meeting. This budget appropriation includes $52,400 in Specialized Legal Services, $60,000 for a Financial Analysis/Tax Study and $90,000 for Polling and Consultant Services.
Impacts to the City’s Business License Tax revenues would be determined through the Financial Analysis/Tax Study before the potential ballot measure is put forward to voters.
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. The purpose of the tax is to ensure that businesses comply with local regulations and contribute to public services, of which they benefit.
The tax is most commonly based on gross receipts or levied at a flat rate but is sometimes based on the quantity of goods produced, number of employees, number of vehicles, square footage of the business or some combination of factors. Tax rates are set at each city’s discretion but may not be discriminatory or confiscatory.
Cities can tax businesses that do business both inside and outside the cities’ jurisdictional boundaries. The apportionment must be based on a measure that fairly reflects that proportion of the activity which is conducted within the taxing jurisdiction.
Based on available data in the California Municipal Revenue Sources Handbook (Fifth Edition) by the League of California Cities, more than 95 percent of cities and counties in California impose a business operations tax. On average, the business license tax provides around 3 percent of city revenues (standard deviation 4.2 percent). However, in some cities, the business operation tax provides as much as 30 percent of General Fund revenues. Business License Tax collections vary across cities based on the size of their commercial and residential areas and business mix.
The City of Manhattan Beach has imposed a Business License Tax since 1971. In 2026, this Tax provides about 5% of the General Fund revenues for the City (approximately $6 million).
History of Business License Tax in Manhattan Beach
Business Licensing regulations are codified under Manhattan Beach Municipal Code (MBMC) Chapter 6.01, which was first enacted in 1971. Since then, the following modifications have been applied to the Code:
• 1975 - Added Chapter 6.08 Garage or Lawn Sales
• 1978 - Added Chapter 6.12 Games of Skill and Science
• 1985 - Added Chapter 6.16 Fortune-Telling
• 1998 - Added Chapter 6.20 Temporary Film Permits
• 2006 - Amended §6.10.010 & §6.10.020 for Clearer Definitions and License Requirements
• 2019 - Added Chapter 6.24 Sidewalk Vending
The way business is conducted today looks fundamentally different from the world of 1971 - e-commerce, remote work, and entirely new business models simply did not exist when the City’s Business License Code was written. After more than 50 years without a comprehensive review, an update to the Business License Tax Code is long overdue. Additionally, the City’s outdated Code creates equity issues between small and larger businesses, administrative issues for staff, and reporting challenges for businesses that operate primarily online or whose employees operate remotely.
MBMC Chapter 6.01 requires all businesses operating in the City to pay an annual Business License Tax. Some businesses pay a flat Business License Tax. Most businesses pay the Business License Tax based on their prior calendar year gross receipts, which includes a base tax plus a percentage based on the total gross receipts collected in the previous calendar year.
To communicate the need for updating the City’s Business License Tax Code, staff met with representatives from the Chamber of Commerce and Downtown Business and Professional Association (DBPA) on October 23, 2025. Additionally, staff presented the Business License Tax Modernization Plan to the Finance Subcommittee on November 6, 2025.
DISCUSSION:
Staff began working with specialized legal counsel (“Special Counsel”) to conduct a comprehensive review of the existing Business License Tax (MBMC 6.01) to identify areas for improvement. These efforts aim to create a fair, equitable, and simple tax system that attracts, retains, and encourages business expansion in Manhattan Beach.
The primary goals are to Simplify, Clarify and Modernize the Code, with a Fair and Equitable tax structure that maintains long-term Fiscal Sustainability. The attachment titled Business License Priorities includes 22 priorities that aim to streamline administration, increase transparency, align with modern code language and best practices, address emerging business models, and support small businesses, while also protecting current tax revenues that fund essential City services.
To illustrate the potential inequities, attached is an Analysis of Current Business License Tax, which compares the different tax payments based on varying levels of gross receipts. With the current cap on business license tax ($12,156), businesses with annual gross receipts of $4.5 million pay the same tax amount as businesses with higher annual gross receipts (e.g. $5 million, $10 million, or more).
Any Code change or action that could potentially increase or change the business license tax for any individual or business would require voter approval. Therefore, staff has grouped the 22 priorities listed in the attached Business License Priorities based on the following:
• 10 priorities require an Ordinance to be approved by City Council;
• 10 priorities require voter approval;
• 2 priorities require no action.
Based on these groupings, staff has coordinated the recommended activities into two phases:
• Phase 1: (TONIGHT’S RECOMMENDED ACTION) That the City Council consider introducing Ordinance No. 26-0005, drafted by Special Counsel, which will address administrative and language clean-up of the Code.
• Phase 2: (TONIGHT’S RECOMMENDED DIRECTION) Direct Staff, with the assistance of Special Counsel, to draft an Ordinance and ballot language that requires approval by voters at the November 2026 election. This second Ordinance will address the Code amendments that trigger any tax changes and require voter approval. This phase can be accomplished during the City Council meetings tentatively scheduled in April/May 2026, as identified in the timeline below. At the April/May 2026 meeting, Staff will present the results of the Financial Analysis, Community Polling and Information Sessions.
o As part of this phase, the Financial Analysis/Tax Study will provide options for modern tax structures and categories, along with fiscal impacts to the City and to businesses.
o The Analysis will include a comparison of business license tax rates in other cities including: 1) Redondo Beach, 2) Hermosa Beach, 3) El Segundo, 4) Torrance, 5) Beverly Hills, 6) Culver City, and 7) Santa Monica.
o In June 2026, staff will return to City Council and present the final Ordinance and ballot language to be considered for the November 2026 election.
Phase 1: Ordinance No. 26-0005 Code Amendments
Ordinance No. 26-0005 modifies several sections of MBMC Chapter 6.01 to address outdated language and current best practices. The attached Legislative Digest (Strikethrough Version) identifies significant changes in the following sections:
• 6.01.030 Authority to impose license fees and taxes.
• 6.01.040 License tax a debt.
• 6.01.060 License year.
• 6.01.070 License tax due dates.
• 6.01.090 Tax Refunds.
• 6.01.100 Transfer of license fee. (Deleted)
• 6.01.110 Duplicate license fee. (Deleted)
• 6.01.160 Revocation and suspension.
• 6.01.190 Application - First License.
• 6.01.210 Statement and records.
• 6.01.220 Failure to file statement or corrected statement.
• 6.01.230 Information confidential.
• 6.01.240 Appeals.
• 6.01.250 Rules and regulations - Licensing Authority.
• 6.01.260 Enforcement.
• 6.01.270 Penalty.
• 6.01.280 Exemptions.
• 6.01.290 Requirements of general builder or engineering contractor or owner/builder.
• 6.01.320 Consumer Price Index (CPI) adjustments.
Other sections had minimal grammatical edits that were not substantive in nature.
Tentative Timeline for Business License Modernization Plan:
Past meetings and initial steps include:
1. Met with Chamber & BIDs to receive feedback on priorities and plan - October 23, 2025
2. Met with Finance Subcommittee to receive feedback and plan - November 6, 2025
Efforts currently underway include:
3. Coordinate Fiscal Analysis and Polling for the Community - February/March 2026
4. Initial City Council Meeting (PHASE 1) - March 3, 2026
a. Present key goals of business license tax changes
b. Introduce First Reading of Ordinance for Administrative Code amendments on March 3, 2026 with the Second Reading on March 17, 2026
c. Outline immediate fiscal impacts
5. Conduct Tax Study, Polling and Research - March - April 2026
Next steps include the following efforts leading up to a potential ballot measure in November 2026:
6. Present to City Council (PHASE 2) - April/May 2026
a. Present results of community polling
b. Present results of fiscal analysis
c. Outline future/long-term fiscal impacts
d. Confirm/approve key goals for business license tax changes
7. Initial business community meeting(s) and resident information session(s) - 2Q 2026
8. Present to Council for approval (PHASE 2) - June 2, 2026
a. Present Ordinance/ballot language
b. Present Resolution to call the Election
c. Present Resolutions for Ballot Measure submission, calling of the Election as well as arguments for and against
9. Submit Ballot Measure 120 days prior to November 2026 Election - June 2026
10. General Election - November 3, 2026
In summary, staff recommends that after conducting a public hearing and receiving comments from the public, introduce Ordinance No. 26-0005 amending sections of the Manhattan Beach Municipal Code Chapter 6.01 Licensing Regulations. Furthermore, staff recommends the City Council discuss and provide direction regarding the priorities and timeline of the Business License Tax Modernization Plan.
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 and were pleased with the tentative timeline.
Staff will develop a webpage specifically for the Business License Tax update with key information before any community meetings take place. Tentatively scheduled for the second quarter of 2026, staff will hold business community meetings with various business types, the Downtown and North Manhattan Beach Business Districts and a Resident Information Session. The Chamber of Commerce has also scheduled a Business License Tax Forum during the month of March 2026.
Additionally, an informational brochure will be prepared and mailed to all registered voter households within the City in advance of the November 2026 election.
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 has approved the draft ordinance as to legal form.
ATTACHMENTS:
1. Ordinance No. 26-0005
2. Legislative Digest (Strikethrough Version of Ordinance)
3. Business License Tax Modernization Plan Priorities
4. Analysis of Current Business License Tax
5. PowerPoint Presentation