TO: LINDA REICH, CITY MANAGER
FROM: KIM SAO, DIRECTOR OF FINANCE
SUBJECT
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Business License Tax Study and Recommendation.
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RECOMMENDATION
recommendation
Staff recommends that the City Council review the Business License Tax Study and offer direction regarding whether to focus on the Single Gross Receipts Model or the Variable Gross Receipts Model for modernizing the City’s business license tax structure. Based on Council’s input, staff will explore the feasibility of including the Business License Tax on the November 2026 General Municipal Election ballot.
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FISCAL IMPACT
Updating the City’s business license tax structure could produce materially different revenue outcomes depending on the model selected. Under the City’s current 1987 framework, annual business license revenues total approximately $1.098 million based on the City’s existing business license tax structure.
The Single Gross Receipts Model applies one uniform gross-receipts tax rate to all taxable businesses while maintaining a $25 minimum tax for businesses reporting up to $25,000 in gross receipts. Based on total taxable gross receipts of $9.40 billion across 4,656 licensed businesses, estimated revenues under this model could range from $3.634 million to $11.773 million annually, depending on the rate selected.
The Variable Gross Receipts Model applies tiered rates across five business categories: Contractor, General/Retail, Property Rental, Professional, and Services, while retaining an exempt category and a $25 minimum tax. When these tiered rates are applied to the City’s business profile of 4,656 businesses and $9.40 billion in estimated taxable receipts, the model generates an estimated $5.893 million in annual revenue. This represents an increase of $4.795 million over the current 1987 framework. The model aligns tax obligations with business activity type and captures revenue proportionate to economic scale.
Both proposed models are estimated to substantially outperform the current structure and expand the City’s long-term revenue capacity to support essential municipal services, capital planning, and fiscal sustainability.
Business License Revenue Comparison - Current vs. Proposed Models
|
Revenue Scenario |
Annual Revenue (Est.) |
Net Change vs. Current |
|
Current Revenue (1987 Structure) |
$1,098,000 |
- |
|
Single Gross Receipts Model - Option 1 (Low Rate) |
$3,634,000 |
+$2,536,000 |
|
Single Gross Receipts Model - Option 2 (Mid-Range Rate) |
$5,588,000 |
+$4,490,000 |
|
Single Gross Receipts Model - Option 3 (High Rate) |
$11,773,000 |
+$10,675,000 |
|
Variable Gross Receipts Model (Five-Category Rate Structure) |
$5,893,000 |
+$4,795,000 |
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES
The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
• Financial Stability
• Responsible Long-Range Planning
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Revenue: |
Expenditure: |
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BACKGROUND
The City’s current Business License Tax ordinance was last significantly updated in 1987 and has remained unchanged for nearly four decades. During that time, the City’s business community has expanded and diversified, while the tax structure has continued to rely on capped gross receipts categories that do not accurately reflect modern business activity.
Over the past five fiscal years, annual business license tax revenue has remained relatively flat, ranging from $982,825 to approximately $1.1 million despite steady economic growth within the City. The City currently has approximately 4,656 active businesses across multiple sectors, including construction, retail, services, medical, transportation, and professional industries.
A review of the business license structure shows that economic activity is concentrated among the largest reporting businesses. The top 100 businesses account for 6.29% of reported employees, 65.29% of all reported gross receipts, and 12.45% of total taxes charged, with the remaining making up the balance of each category. This imbalance demonstrates that the current system does not scale effectively with business size and that the majority of revenue is generated by small and mid-sized businesses, even though larger businesses account for most of the economic activity.
Regional comparisons show that peer cities such as Ontario, Redlands, Pomona, Upland, and Whittier generate significantly more revenue per business under modern gross-receipts-based tax systems. Chino’s revenue per business remains among the lowest in the region, which further emphasizes the need for a comprehensive update.
ISSUES/ANALYSIS
The City’s current business license tax system is an outdated, capped structure that no longer reflects the scale or diversity of Chino’s modern business environment. Because the ordinance was last updated in 1987, tax obligations have not kept pace with business growth, changes in industry mix, or regional economic conditions. The result is a system in which small and mid-sized businesses shoulder most of the tax burden, while larger, high-volume enterprises contribute disproportionately less relative to their economic footprint.
The analysis conducted for this study demonstrates several structural issues:
1. Revenue Imbalance Between Business Size and Contribution
The top 100 businesses report approximately 65% of all gross receipts yet generate only 12% of total tax revenue. This indicates that the current capped system does not scale with business activity and does not allow the City to capture revenue in proportion to economic output.
2. Regional Competitiveness Concerns
Peer cities using modern gross receipts models such as Ontario, Redlands, Pomona, Upland, and Whittier, generate significantly more revenue per business. Chino ranks among the lowest in the region despite having a large and diverse business base.
3. Structural and Administrative Limitations
The current ordinance contains numerous legacy categories, special rules, and capped formulas that complicate administration. These elements reduce transparency for businesses, increase opportunities for misclassification, and limit staff’s ability to apply consistent standards across a growing registry of more than 4,600 businesses.
4. Evaluation of the Two Modernized Models Single Gross Receipts Model
• Boosts revenue for City services.
• Same rate for all businesses, which is more equal.
• Low base rate supports microenterprises.
• Does not adjust for business type or other local tax contributions.
Variable Gross Receipts Model
• Uses only five categories, making the structure easier to navigate.
• Boosts revenue potential.
• More equitable because it accounts for differences in contribution to the City’s tax base.
• Low base rate supports microenterprises.
• Category definitions may be unclear for certain business types.
• Multi-type businesses may need multiple licenses.
• Businesses may perceive favoritism or penalty in the rate design.
5. Policy Considerations Moving Forward
Selecting a new business license tax model requires balancing equity, simplicity, fiscal stability, and business impact:
• The Single Rate Model maximizes simplicity and revenue potential.
• The Variable Model maximizes fairness, revenue potential, and proportionality.
Both models modernize the City’s revenue system, but the appropriate choice depends on the City Council’s policy priorities and the degree of alignment with community expectations.