The County of Santa Clara
California

Report
88317

Direct Administration to develop a Business License Program for businesses in unincorporated Santa Clara County. (Office of the County Executive)

Information

Department:Office of the County ExecutiveSponsors:
Category:Report

Attachments

  1. Administration Responses to Questions Posed by Supervisor Simitian (This file has not yet been converted to a viewable format)
  2. California County Business Licenses

Body

COMMITTEE RECOMMENDATIONS

The Finance and Government Operations Committee (FGOC) received this report at its May 11, 2017 meeting, and Supervisors Simitian and Chavez provided the following comments:

 

·        Supervisor Simitian encouraged the Administration to conduct robust community outreach in the development of the business licensing program, and suggested a special meeting of FGOC to receive community input.  To avoid selective enforcement, Supervisor Simitian suggested the final Program ordinance include a comprehensive, objective process for how and when an adverse action may be taken against a business.

 

·        Supervisor Chavez requested that future reports reflect the Administration’s intent to encourage compliance over strict enforcement, and that the Administration would work with businesses to assist them with compliance before taking adverse action.  Supervisor Chavez also suggested the Administration consider the City of San José’s research relating to its business license tax and the application of fees to businesses of varying size.

 

The Children, Seniors, and Families Committee (CSFC) received this report at its September 13, 2017 meeting, and Supervisors Chavez and Cortese provided the following comments:

 

·        Supervisor Chavez suggested that the initial fee for a business license be low or free and increase over time closer toward cost recovery.  Supervisor Chavez also encouraged the Administration to explore the potential onboarding at a later time enforcement of sexual harassment and assault judgments using the business license, in addition to the enforcement of labor standards.

 

·        Supervisor Cortese requested that the Administration examine the possibility that any fee for a business license be nominal or subsidized at the outset to avoid creating an expense for businesses that discourages registration.  Supervisor Cortese also provided general direction to make registration and licensing as easy as possible for businesses.

 

FGOC considered this matter a second time at its September 14, 2017 meeting at the request of the Committee to engage business interests in the unincorporated areas.  Representatives of The Silicon Valley Organization, the Silicon Valley Association of Realtors, and the San Martin Chamber of Commerce expressed an interest in working with the Administration in the development of a business licensing program

 

Supervisors Simitian and Chavez also provided the following comments:

 

·        Supervisor Simitian requested that the Administration consider a minimum threshold of economic and/or employment activity to provide a de minimis exemption to businesses, such as, sole proprietorships and single-person S corporations. 

 

·        Supervisor Chavez suggested that the Administration be consistent with other local jurisdictions as to minimum thresholds of economic and/or employment activity for a licensing requirement.

 

 

REASONS FOR RECOMMENDATION

This report presents a proposed business license program for the unincorporated areas of Santa Clara County.  The purpose of the report is to obtain input and guidance from the Board of Supervisors with respect to the function and structure of the Program before the Administration and Counsel invest considerable time and effort to design a fully considered program and budget.

 

 

 

Executive Summary

A business license program would offer numerous benefits to the County including the ability to more effectively communicate with businesses regarding proposed requirements or in the event of an emergency, have reliable information on the numbers and types of businesses to monitor trends and patterns in economic activity, enforce local regulations including zoning compliance, and other purposes.

 

Some board members have also expressed a desire to advance policy goals by using a business license as an enforcement mechanism for wage and hour laws. Counties have broad authority to regulate businesses through business licensing requirements, and other jurisdictions use that authority to suspend or revoke a business license as a means to enforce a judgment, decision, determination, or order related to a wage and hour violation.  It is recommended that this program be structured to accomplish this purpose, with the understanding that the goal of the Administration is to always encourage compliance and to assist businesses in fulfilling their obligations, and to use the County’s enforcement powers as a last resort failing all other means to obtain compliance.

 

The Administration preliminarily estimates an 18-to-24 month implementation period from the point of adoption of a Program.  This period is necessary to procure, install and configure, and train on the enterprise software service to support the Program, identify appropriate job classifications, hire and train staff, develop and execute an engagement plan to affected businesses (before and after the program effective date), fund and hire hearing officers for due process hearings, as well as other requirements.  The Program is intended to be a business registration and enforcement tool, not a business tax.

 

Administration Efforts To-Date

To date, the Administration has reported to FGOC and CSFC with a general overview of a business licensing proposal to receive input into the design of a program.

 

Since reporting to FGOC in May, County Counsel prepared a draft ordinance including major features of a business licensing program as herein described.  This draft ordinance is currently under review by a County Business License Work Group.  The Work Group convened on August 31, 2017 to review the draft ordinance, and is scheduling a subset of the Work Group to devote more time to policy considerations.

 

The Administration also met with staff from the City of Palo Alto to learn from its recent experiences in developing and implementing a business registration system.  The City has a relatively new system of business registration, whereas most jurisdictions have had a program in place for decades.  This has given the Administration the opportunity to benefit from the City’s efforts to build a system from the ground up, and to learn the City’s lessons from its experience.

 

In addition, a Request for Statement of Qualifications (RFSQ) for Hearing Officers has been drafted and is currently being reviewed by County Counsel.  It is planned that the RFSQ will be issued in approximately a month’s time.

 

Lastly, the Office of the County Executive met with the Planning and Development Director and the Procurement Director to determine whether the County could acquire the business license module of an enterprise software system that is being deployed by the Planning and Development Department.  The Procurement Director confirmed that the County could acquire the business license module through Planning’s solicitation rather than undertake a separate solicitation.

 

Background and Context for Program Proposal

For several years, the Administration has been preparing a proposal for a business license program for businesses in unincorporated Santa Clara County[1].  The impetus for this proposal is that successive Boards of Supervisors have taken policy leadership positions to help create momentum for state- or federal-level policy changes through the enactment of local laws:

 

·        A menu labeling ordinance in 2008 affecting chain restaurants. Menu labeling was subsequently passed into law by the State and was later incorporated into the Affordable Care Act.

·        Banning toys and other promotions that come with high-calorie children's meals unless the restaurants meet nutritional guidelines in 2010.

·        Establishing a Tobacco Retailer Permit in 2010, which required all retailers in the unincorporated areas to obtain and maintain an annual permit to sell tobacco products.

·        Banning single use plastic bags and most single use paper bags in 2011.

·        Restricting distribution of expanded polystyrene food and beverage containers for prepared eat-in or take-out food and beverages. It applied to all food vendors including food catering trucks and all snack bars and became operative on February 1, 2013.

·        Passing an Ordinance in 2015 to make pharmaceutical companies responsible for collection and disposal of unwanted over-the-counter and prescription drugs.

 

With each proposal, the Administration has to aggregate data from multiple departments (Assessor, Environmental Health, etc.) to create a spreadsheet to identify the number and type of affected businesses for the purpose of communication, input on draft policies, and compliance.

 

Using a Business License to Further Board Policy Objectives

At the September 15, 2015 meeting, the Board directed the Administration to prepare gender and ethnicity pay equity policies that would apply to both the County as an employer and the agencies with which the County contracts.  At the October 6, 2016 FGOC meeting, the Committee requested that a report be made with recommendations related to pay equity and directed the Administration to provide additional information and options for business license requirements to ensure pay equity and compliance with other County standards. 

 

On February 8, 2017, CSFC received the report on pay equity.  CSFC requested that the Administration and County Counsel return within 90 days with a draft ordinance on a proposed business license that would be used for enforcement when businesses in the unincorporated areas do not comply with pay equity and wage theft prevention laws. 

 

At the March 14, 2017 Board meeting, the Board approved revisions to nondiscrimination and wage theft language in County contracts, and directed the Administration and County Counsel to report-back on a proposed ordinance on a business license requirement and/or other use of the County’s regulatory authority to ensure that businesses in the unincorporated areas are in compliance with laws on pay equity and wage theft prevention. Supervisor Simitian requested that a report be made to FGOC to address the following matters:

 

·        What is the goal of a business license, and what are we trying to achieve?

·        What is the cost of implementation?

·        What fee will be charged for a business license?

·        What are the experiences of other counties, and how many other counties have a business license?

·        What are the legal limits of a fee, and at what point does a fee become a tax?

·        Will a business license be used to enforce state law or a county ordinance(s), and if a county ordinance(s), which?

·        What additional responsibilities would the County be taking on for enforcement?

 

The responses to these questions have been aggregated in an attachment for ease of review.

 

Existing Wage Theft and Pay Equity Complaint Processes

Federal, state, and local laws set requirements regarding wage and hour and pay equity standards.  Wage theft occurs when an employer does not pay a worker the wage and/or benefits to which the worker is legally entitled, and pay equity complaints arise where an employer pays a worker(s) of one sex more than a worker(s) of the opposite sex for “substantially similar” work unless a specific exception is applicable

 

The California Equal Pay Act also prohibits an employer from paying any of its employees at wage rates less than the rates paid to employees of another race or ethnicity unless a specific exception is applicable.

 

Workers who wish to make a complaint in these areas may file a complaint with the relevant state or federal agency, or file a lawsuit against their employer.  Pursuing a recovery of wages in court or through a complaint with the relevant agency requires significant time and effort, and is often difficult and impractical for low-wage workers with limited resources. 

 

Moreover, prevailing does not guarantee the recovery of unpaid wages.  For example, recovery rates on claims filed with the Division of Labor Standards Enforcement (DLSE) are low: statewide, between 2008 and 2011, 83% of workers who prevail in DLSE hearings received no payments[2] because, in some cases, by the time a judgment is entered, the business owners have disappeared or shut down operations and re-organized as a new entity.

 

Local Enforcement through Licensing of Businesses

One way to discourage wage theft and promote pay equity would be to establish a compliance incentive for existing state and federal wage and hour laws.  Various jurisdictions allow for the refusal, suspension, or revocation of a business license or permit based on non-compliance with local, state, or federal law.  The distinction between a license and a permit within various jurisdictions’ ordinance codes is not always clear, as they are used almost interchangeably.  In general, however, a license acts as an authorization to do or use something, and permit requirements tend to apply where public safety or health is involved. 

 

Some larger jurisdictions, such as, the Cities of Los Angeles and San José, and the City and County of San Francisco, also use their licensing and permitting authorities to encourage compliance with federal, state and local laws and regulations.

 

County of Riverside

The County of Riverside enacted its business registration ordinance in 2006 as part of an effort to identify businesses located in its various watersheds and increase their compliance with the National Pollutant Discharge Elimination System permit program.  In addition to creating a census of businesses in that county, the registration requirement was adopted to enhance public safety and achieve compliance with federal, state, and local water quality regulations.

 

City and County of San Francisco

In the City and County of San Francisco, all businesses are required to have a registration certificate to operate, and certain businesses also must have a permit or a license.  The City and County’s Office of Labor Standards Enforcement (OLSE) is empowered to use the City and County’s registration and licensing requirements to encourage compliance with labor standards.  Specifically, OLSE can request revocation or suspension of any registration certificate, permit, or license when a business fails to comply with relief ordered by OLSE for violations of certain San Francisco employment laws.

 

City of Los Angeles

The City of Los Angeles issues police permits to specific types of businesses, and all businesses must hold a tax registration certificate.  Action may be taken against a permittee for a wide range of violations, including violating any provision of any statute relating to the permitted activity, or where the permittee has been found to have violated any wage or labor law in the California Labor Code or the Los Angeles Minimum Wage Ordinance (Los Angeles Municipal Code, Chapter X, § 103.35).

 

City of San José

The City of San José issues permits and licenses to businesses falling into categories specified in Title 6 of the San José Municipal Code.  The City also charges a tax on all businesses located in the city, and every business is required to register for and pay the tax. 

 

At the May 24, 2016 San José City Council meeting, the Council approved an ordinance amending Title 6 to specifically authorize the denial, suspension, or revocation of a permit or license issued thereunder, including certain business permits, based upon a final judgment by a court or a final administrative action of an investigatory government agency that a violation of wage or hour laws occurred and had not been remedied.

 

The City’s Office of Equality Assurance (OEA) monitors and administers the City of San José Wage Policies to ensure that businesses pay their employees the correct wage and benefit rates.  The OEA operates on a complaint basis for minimum wage and wage theft cases, which can be made against any employer in San Jose.  To date, initial informal processes have proved successful in encouraging compliance with wage and hour laws.

 

Proposal for County of Santa Clara Business License

Currently, County ordinances require permits for specific business types including restaurants and massage parlors, which are used to regulate the manner of operation of those businesses.  Although the County does not have a means to accurately assess the number of businesses in the unincorporated areas, there were approximately 5,525 businesses in operation in the unincorporated area as of 2012, according to U.S. Census data.  This number includes all non-farm businesses filing Internal Revenue Tax forms as individual proprietorships, partnerships, or any type of corporation, and with receipts of $1,000 or more. 

 

The Features of a Proposed Business License

The Administration is proposing that the County institute a license on certain businesses in the unincorporated areas, including activities that are conducted, transacted, or carried on for commercial purposes.

 

It is important to underscore that as the Administration refines its Program proposal as new information becomes available through interviews of other jurisdictions or from business input, these features are subject to change or may be discarded.

 

·        The business license would be required for each applicable business or, in the case of a business with multiple locations, for each location.

 

·        The license would be renewable annually and conspicuous display of the license at the place of business would be required.

 

·        The business license would be non-transferable.

 

·        The business license would be issued in the name of the business owner, corporation, partnership, or other entity holding ownership over the business.  In the case of a professional partnership or association, such as, a law firm or medical group, one license would be required for the firm or group. 

 

There are two goals for this proposal - the first would be to institute a business registration, providing the Board and relevant departments with accurate data on commercial activity:

 

·        Economic information

o       Identify and observe trends in business activity.

o       Reliable information on the numbers and types of businesses and their geographic locations.

·        Emergency Response

o       Assist in the coordination of emergency response systems.

o       Accurate contact information for businesses and business owners in the event of an emergency.

·        Increased communication

o       More effectively communicate with the business community.

o       Coordinate County staff processes relating to businesses.

o       Inform land use and planning decisions, and facilitate zoning enforcement.

o       Cross-check and update business data already held by County departments.

 

The second purpose would be to enhance enforcement of federal, state and local laws relating to labor standards.  It is proposed that applicants for business licenses would self-certify their compliance with all applicable federal, state, and County laws.  This self-certification is consistent with existing contracting policy on Equal Opportunity / Nondiscrimination and Wage Theft Prevention in the Board Policy Manual.

 

Where the holder of a license is found by a court or by final administrative action of an investigatory government agency to have violated applicable wage and hour laws, the County could take steps to suspend or revoke the business license to enforce compliance with the judgment, decision, determination, or order after exhausting efforts to encourage voluntary compliance.  Such an adjudication could also be used in the evaluation of an applicant for a business license and may be grounds for rejection when the applicant has failed to comply with a judgment, decision, determination, or order.  There would be an opportunity to appeal the denial of a business application or suspension or revocation of a business license to a hearing officer.

 

Wage and Hour Violation Database

The Office of Countywide Contracting Management (OCCM) has an informal agreement with the California Labor Commissioner for access to DLSE case files on hearing decisions.  OCCM also has an MOU in place with the Federal Department of Labor for access to its case files. These case files populate a database of wage and hour violations to assist in the assessment of potential contractors and vendors.  OCCM is planning to create a similar database for pay equity determinations.  These databases could also assist in evaluation of license applicants and continuous enforcement of applicable state and federal laws.

 

Business License Fees

The Board of Supervisors is authorized under its police powers to adopt and implement a business license program.  The County may charge a “fee” to cover the reasonable regulatory costs associated with administering the business license program.  The fees would not exceed the reasonable cost of providing the service or regulatory activity, and would not be levied for general revenue purposes.  The Administration is not proposing a business license tax.

 

In contrast to a business license fee, some jurisdictions – for example, the City of Sunnyvale – have imposed a business license tax to generate revenue to pay for street maintenance, police and fire protection, and other general fund services that benefit businesses and the public.

 

Administrative Structure for Program

The Administration proposes that a business licensing program be established in the Permit Center within the Department of Planning and Development (Planning).  The Administration believes that Planning would be a useful starting point for the evaluation of business license applications.  Staff in the Permit Center would be trained to inform an applicant of the necessary permits required by the County to operate the business.  The applicant would be instructed to return to the permit center for issuance of a business license upon successfully acquiring all other necessary permits.

 

Applicants could also access information online through a web portal established exclusively for this purpose.  The portal would provide data on business-specific permit requirements, contact information for permit-issuing departments, and an application form.

 

Work Plan and Timeline

The Administration is preliminarily estimating an implementation period of 18-to-24 months. 

 

Phase One (Prior to Ordinance Adoption):

·        Administration identifies and procures a software solution to support Program;

·        Administration identifies staffing resource requirements and cost;

·        Administration conducts a time study to establish the County’s regulatory costs;

·        Administration prepares a report on any developments or refinements in the proposed structure of the program; and

·        Administration sends notices and conducts workshops and establishes a working group for unincorporated businesses to provide information and receive input about the proposed business license program.

 

Phase Two (Post-Ordinance Adoption, but prior to the Ordinance Effective Date):

·        Administration implements software solution and integrates data with existing County systems;

·        Administration hires and trains Program staff; and

·        Administration implements an outreach and marketing plan for unincorporated businesses.  Communication would be through direct mail and community meetings.

 

Implementation of a business licensing module as part of Planning and Development’s selected but not yet configured enterprise system, which is scheduled to go live in June 2018, is estimated to require an additional 12 to 14 months.

 

All communications in the outreach plan would include information in multiple languages relating to business licensing requirements, how to obtain a license, deadlines for registration, and other pertinent information.

 

Phase Three (Implementation of the program upon the Ordinance Effective Date):

·        The Permit Center would begin processing applications and issuing licenses.

 

It is anticipated that during the implementation of the program, extra help or unclassified staff would be required to contribute to administrative efforts to build the proposed business database using existing department data, cross-check existing department data against new licenses, and implement the outreach plan.

 

BACKGROUND

The following table (Table 1) includes the ten most populous counties in the state (and the County of San Mateo for context). Counties with general registration require that all businesses register and receive a license, and the business owner will normally pay a flat, nominal fee.  (Attachment B is a chart that depicts all fifty-eight counties.)

 

Other counties charge businesses based on gross receipts or payroll.   Counties that charge against gross receipts may not issue a license, but do require that all businesses register for taxation.  Counties that charge businesses based on payroll may charge based on the number of employees or gross payroll expenditures.  Those counties that issue a license generally require that applicants be in compliance with all local, state, and federal regulations governing business activities.

 

Of the fifty-eight counties in California:

·        Twenty-one counties require general business registration;

·        Six counties charge businesses based on gross receipts or payroll; and

·        Thirty-one counties do not have a business license, although they require specified types of businesses to obtain a permit or license, such as, a pawnbroker’s license.

 

Table 1 – Business License Status of Ten Most Populous Counties

 

County

Total Population*

Unincorporated Population*

General Business Requirement

Fee

Notes

Los Angeles

10,241,335

1,051,989

 

 

License required for specific businesses

San Diego

3,288,612

511,119

 

 

License required for specific businesses

Orange

3,183,011

125,420

 

 

Permit or license required for specific businesses

Riverside

2,347,828

364,413

General registration

$45

 

San Bernardino

2,139,570

309,759

 

 

License required for specific businesses

Santa Clara

1,927,888

87,352

 

 

Permit or license required for specific businesses

Alameda

1,627,865

149,821

Gross receipts or payroll

Varies**

License is for revenue purposes only

Sacramento

1,495,297

485,683

General registration

$146-166

General licenses valid for three years, special licenses valid for one year

Contra Costa

1,123,429

171,122

Payroll

$100 + $10 per employee

 

Fresno

984,541

174,611

 

 

License required for specific businesses

San Mateo

766, 041

65,201

 

 

License required for specific businesses

*Source: California Department of Finance Report E-5, Population and Housing Estimates for Cities, Counties, and the State, January 1, 2011-2016, with 2010 Benchmark.

**Charge is $0.10 - $1.50 per $1,000 of gross receipts or gross payroll depending on business classification.  Some classifications are charged a flat rate.

 


[1] Some jurisdictions also have a business license tax that is used to raise general revenues in addition to a regulatory business license program.  The proposed County program is currently structured solely as a regulatory business license program, and not a business tax.

[2] Hollow Victories: the Crisis in Collecting Unpaid Wages for California’s Workers, Cho, et al., National Employment Law Project, UCLA Labor Center, 2013

Meeting History

Oct 3, 2017 9:30 AM Video Board of Supervisors Regular Meeting

Held to October 17, 2017 at the request of Supervisor Chavez.

RESULT:HELD [UNANIMOUS]Next: 10/17/2017 9:30 AM
MOVER:Cindy Chavez, Supervisor
SECONDER:Ken Yeager, Supervisor
AYES:Mike Wasserman, Cindy Chavez, Dave Cortese, Ken Yeager, S. Joseph Simitian