Costa Mesa may have voters decide next year if they want to impose higher taxes for hotel guests and business licenses to raise more revenue.
A council majority this week asked city staffers to explore placing two tax increase measures on the ballot for the Nov. 3 election — Councilmembers Mike Buley and Jeff Pettis were opposed. The proposal focuses on increasing the city’s business license fee and transient occupancy tax, commonly referred to as a hotel tax, to raise general fund revenues for public services. Both taxes lag those of neighboring cities, supporters said.
The transient occupancy tax collects a percentage of the rate for a night’s stay in a hotel room, which is added to a guest’s final bill. Costa Mesa’s rate is 8%, the lowest among surrounding Orange County cities. Anaheim’s rate is the highest at 15%.
A 1% increase in the hotel tax could generate roughly $1 million more for Costa Mesa coffers, according to projections from city staffers in a report to the council.
Councilmember Manuel Chavez said he supported the idea of a hotel tax increase because residents tend to be more willing to tax visitors. A sales tax approach, he said, wouldn’t work because it burdens poorer residents, and telling voters to tax themselves does not make a popular ballot measure.
Costa Mesa’s business tax is a fixed annual fee based on revenue and hasn’t changed since 1985, officials said. Businesses making more than $500,000 in revenue pay a minimum fee of $200, while businesses that make less than $25,000 pay $25.
Other Orange County cities generate significantly more revenue from their business license tax, officials said. A business making $5 million in revenue, for example, would pay $475 in Anaheim; in Santa Ana, it would pay $3,314. Business license fees generate $700,000 in revenue for Costa Mesa, far less than the $17.5 million raised in Santa Ana.
Mayor John Stephens agreed that the business license tax rate is in urgent need of an update.
“If the community wants excellent service, then we need to have commensurate revenue to pay for that,” he said. “It just seems like we’re basically subsidizing very large businesses, which I think is not fair to the Costa Mesa taxpayers regarding the business license tax.”
Buley supported the hotel tax, but expressed concern that increasing the business license tax would drive major corporations such as South Coast Plaza, Schneider Electric to other cities.
“To the extent we’re recognized as a business-friendly city, I like that,” Buley said. “As anyone who’s presently following the current state of the nation, the state of companies moving out of states into other states, it’s usually taxes that are driving them out of there.”