HomeMy WebLinkAboutStaff Report 2312-232720.SECOND READING: Adoption of an Ordinance Amending Chapter 2.30 (Contracts and
Purchasing Procedures) and Chapter 2.37 (Business Tax) of the Palo Alto Municipal Code
to Correct Clerical Errors and Clarify Procedures for Administering the Business Tax.
CEQA Status -- Not a project. (FIRST READING: December 4, 2023 PASSED 7-0)
City Council
Staff Report
Report Type: CONSENT CALENDAR
Lead Department: City Clerk
Meeting Date: December 18, 2023
Report #:2312-2327
TITLE
SECOND READING: Adoption of an Ordinance Amending Chapter 2.30 (Contracts and
Purchasing Procedures) and Chapter 2.37 (Business Tax) of the Palo Alto Municipal Code to
Correct Clerical Errors and Clarify Procedures for Administering the Business Tax. CEQA Status --
Not a project. (FIRST READING: December 4, 2023 PASSED 7-0)
BACKGROUND
This was heard by the City Council on Decembre 4, 2023 for a first reading and was approved 7-
0. No changes were made to the ordinance; it is now before you for a second reading.
ATTACHMENTS
Attachment A - Ordinance Amending Chapters 2.30 Contracts and Purchasing Procedures and
2.37 Business Tax
APPROVED BY:
Mahealani Ah Yun, Interim City Clerk
*NOT YET APPROVED*
1
Ordinance No.
Ordinance of the Council of the City of Palo Alto
Amending Chapter 2.30 (Contracts and Purchasing Procedures) and Chapter
2.37 (Business Tax) of the Palo Alto Municipal Code to Correct Clerical
Errors and Clarify Procedures for Administering the Business Tax
The Council of the City of Palo Alto does ORDAIN as follows:
SECTION 1. Findings and Declarations. The City Council finds and declares as follows:
A. In November 2022, Palo Alto voters approved Measure K, adopting a general tax on
businesses operating in the City of Palo Alto. The business tax is codified at Chapter 2.37 of the
Palo Alto Municipal Code.
B. Section 2.37.270(a) of Chapter 2.37 allows the Council to amend Chapter 2.37
without the approval of the electorate, provided the amendment does not increase the amount of
tax that any person would pay.
C. The Council finds it appropriate to amend Chapter 2.37 to correct clerical errors
and clarify procedures to administer the tax. The Council also finds it appropriate to amend
Chapter 2.30 to authorize the City Manager to approve contracts implementing business tax
offsets, and to adopt an uncodified provision clarifying how the business tax cap will be calculated
for calendar year 2023. None of these amendments will increase the amount of tax any person
would pay.
SECTION 2. Section 2.30.210 (City Manager Contract Award Authority) of Chapter 2.30
(Contracts and Purchasing Procedures) of the Palo Alto Municipal Code is amended to read as
follows:
2.30.210 City Manager contract award authority.
The City Manager may award and sign the following contracts:
(a) Public Works Contracts. Public works contracts, where the term does not exceed three
years, and the contract price and any price contingency established for change orders, but
excluding sales tax or use tax, do not exceed $250,000.00 in the first contract year, and do not
exceed the sum of $250,000.00 and any unexpended monies carried forward from a prior contract
year, in any subsequent contract year.
(b) Contracts for Goods. Contracts to purchase goods, where the term does not exceed
three years and the contract price and any contingency established for change orders, but
excluding sales tax or use tax, do not exceed $250,000.00 in the first contact year, and do not
exceed the sum of $250,000.00 and any unexpended monies carried forward from a prior contract
year, in any subsequent contract year.
(c) General Services Contracts. Contracts for services associated with the leasing or
licensing of personal property other than hardware or software, where the term does not exceed
seven years, and the contract price and any price contingency established for change orders, but
*NOT YET APPROVED*
2
excluding sales tax or use tax, do not exceed $85,000.00 in the first contract year, and do not
exceed the sum of $85,000.00 plus any unexpended monies carried forward from a prior contract
year, in any subsequent contract year.
(d) Contracts for Studies and Services Related to Private Development. Professional
services contracts for: (1) the preparation of environmental assessments or other studies deemed
necessary by the director of planning and development services for the processing of applications
for private development projects, or (2) inspection and plan review services deemed necessary by
the director of planning and development services to evaluate conformity of private development
projects with applicable building codes, regardless of the cost or term thereof, provided the
applicant for the private development project agrees, in writing, to bear responsibility for the
entire contract cost, and the contract does not require the expenditure of city funds in any
amount.
(e) Rewards. The City Manager may offer and pay rewards where the amount of the
reward does not exceed $25,000.00, in accordance with the procedures of Section 2.30.800.
(f) Emergency Contracts. The City Manager is authorized to expend city funds for
emergency contracts, as defined in Section 2.30.160, without limitation on the contract cost or
amount and without following the contract solicitation and award procedures otherwise required
by this chapter, provided that any procurement of goods and services obtained during an
emergency declared by the Federal Emergency Management Agency shall comply with applicable
FEMA Public Assistance Program's procurement orders, rules, regulations, guidelines and control
procedures for cost reimbursement purposes. Expenditures made during an emergency must be
reported to the Council at the next regular meeting if approval for such expenditures would
otherwise have been made by the Council. The City Manager may issue a verbal report to the
Council before a written report is delivered.
(g) Contracts to Rent, Lease, License, Acquire, Transfer or Purchase Interests in Real
Property from Other Parties. Contracts for the rental, leasing, licensing, or purchase by installment
interests in real property from other parties for a term of seven years or less, where the contract
price does not exceed $85,000.00 per year, or to encumber or transfer any interest in real
property from other parties for any term of years. The City Manager may enter into and sign a
contract to acquire or purchase an interest in real property, where the contract price does not
exceed $85,000.00.
(h) Contracts to Rent, Lease, or License City Real Property to Other Parties. The authority
granted under this Section is distinct from the authority of the director of community services to
grant individuals and groups permits for the exclusive temporary use of buildings and facilities
located in, and the areas of, city parks and open spaces, as described in Chapter 22.04 of this
municipal code or in the park and open space regulations. The City Manager may award and sign
contracts to rent, lease or license city real property to other parties regardless of the price for a
term not exceeding three years. Notwithstanding the preceding sentence, the City Manager may
enter into and sign contracts for the rental, lease or licensing of real property at the Cubberley
Community Center for terms of up to five years.
(i) Contracts to Provide Municipal Services to other Public Entities or Utilities. A contract
to provide municipal services and functions to any other public agency, public utility or other
public entity in any amount for a term not exceeding three years, provided the contract is in
compliance with all Council-adopted policies covering such contracts. The authority granted
herein does not include the authority of the City Manager to add permanent employee positions.
(j) Contracts Providing for Indemnity or Risk of Loss. The City Manager, with the
*NOT YET APPROVED*
3
concurrence and approval of the City Attorney and the insurance risk manager, may enter into
and sign contracts, otherwise within the limits of his or her authority under Section 2.08.140 of
this municipal code, that provide for the city or its officers or employees to defend, indemnify, or
assume the risk of damage, loss, or liability for, or subrogate to any other contracting party
respecting claims, demands, actions, losses or liabilities arising from the city's performance or
non-performance under the contract.
(k) Wholesale Utility Commodities and Services Contracts. Wholesale utility commodities
and services contracts, where the term does not exceed five years and the contract price does not
exceed $250,000.00 in any contract year.
(l) Software and Hardware Purchase, Licensing, Maintenance and Support Contracts.
Notwithstanding Subsection 2.30.210(c), the City Manager may award and sign contracts other
than general services agreements, including, without limitation, vendor-based standard form
hardware and software purchase and licensing contracts, for the purchase of hardware and
software, the licensing of software, and the maintenance and support of hardware and software,
where the term of licensing or maintenance and support services does not exceed seven years
and the contract price, excluding sales tax or use tax, does not exceed $85,000.00 per year in the
first contract or fiscal year and does not exceed the sum of $85,000.00 and any unexpended
monies carried forward from a prior fiscal year, in any subsequent contract or fiscal year. The
contracts referred to herein may include contracts for data storage services, which shall be
subject to the city's information security policies, terms, conditions and other requirements
established by the chief information officer with the concurrence and approval of the City
Attorney.
(m) Contracts with a business operator implementing business tax offsets under Section
2.37.080.
(n) Other Contracts. All other types of contracts for which the contract term does not
exceed three years and the total expenditure by the city does not exceed $85,000.00 in the first
contract or fiscal year, and does not exceed the sum of $85,000.00 and any unexpended monies
carried forward from a prior fiscal year, in any subsequent contract or fiscal year.
SECTION 3. Section 2.37.070 (Exemptions from Tax) of Chapter 2.37 (Business Tax) is
amended to read as follows:
2.37.070 Exemptions from tax.
(a) The following businesses are exempt from the tax imposed by this chapter:
(1) Any business exempt from the tax by the laws of the United States or the State of
California;
(2) Grocery stores;
(3) Businesses that occupy or use 10,000 square feet or less in the city; and
(4) Transitory businesses.
(b) If a business operator operates a single integrated business that has two or more
parts, one or more of which could be exempt from the tax imposed by this chapter if operated as
a separate business, the city may, at its discretion, exempt from the tax any part of the business
that would be exempt if operated as a separate business, provided the business’s square footage
can be reasonably allocated between the parts. If the city determines that the square footage
cannot be reasonably allocated between the different parts of the business, then the entire
*NOT YET APPROVED*
4
business shall be taxed, unless to do so would violate a law of the United States or the State of
California.
(c) A business that contends it is exempt under this section must apply to the tax
administrator for an exemption.
(1) The tax administrator may require a business claiming an exemption to submit
additional information to support the exemption. The request for additional information must be
made in writing and the information must be provided within thirty (30) days.
(2) If the tax administrator determines that the business claiming an exemption is
not exempt, the tax administrator may make an initial determination of the amount of tax due
under subdivision (a) of Section 2.37.150.
SECTION 4. Section 2.37.080 (Business Tax Offsets) of Chapter 2.37 (Business Tax) is
amended to read as follows:
2.37.080 Business tax offsets.
(a) A business operator that operates a hotel in the city may deduct from the business tax
it owes for a quarter for the business of operating the hotel an amount equal to the total transient
occupancy tax collected and remitted to the city in the same quarter of the previous fiscal year
from transients staying at the hotel.
(b) The business operator of a business that has discretion to determine the location of
the place of sale, place of use, or principal place of negotiation for sales or use tax purposes and
which exercises that discretion and designates the city as the place of sale, place of use, or
principal place of negotiation for sales or use tax purposes which results in the city receiving sales
or use tax revenues that it would not otherwise have received, but for the business’s exercise of
its discretion to designate the city as the place of sale, place of use, or principal place of
negotiation for sales or use tax purposes (“discretionary sales or use tax”) may deduct from the
business tax it owes for a quarter an amount equal to one half of the total sales tax or use tax
received by the city from the discretionary sales or use tax of that business in the same quarter of
the previous fiscal year. This offset can offset up to, but no more than, 75% of the business’s
quarterly business tax. If any of the sales or use tax that served as a basis of an offset from
business tax is subsequently reallocated to another jurisdiction, the business operator shall
reimburse the City for the amount of the offset. This reimbursement shall include all offsets
within the five years preceding the date that a determination or decision is made to reallocate
sales or use tax, including the entirety of any quarter that falls partially within this five-year
period. The city and a business operator may enter into an agreement implementing this section.
(c) A business operator of a business that has rights to property due to property
ownership, a ground lease, or a lease that permits subleasing, and that is offering that property
for sale or rent, may deduct from the business tax owed for the business an amount equal to the
business tax associated with the square footage being offered for sale or rent, provided that the
area to be sold or rented is completely vacant and available for immediate occupancy.
(d) A business claiming an offset under this section must claim the offset with its tax filing
for the quarter for which the offset is claimed.
(1) If the information necessary for a business to claim an offset is not available, the
business may defer claiming an offset for up to one year or for another period of time set by
written agreement with the city.
*NOT YET APPROVED*
5
(2) The tax administrator may require a business claiming an offset to submit
additional information to support the claim of the offset. The request for additional information
must be made in writing and the information must be provided within thirty (30) days.
(3) If the tax administrator determines that an offset claimed by a business is
incorrect, the tax administrator may make an initial determination of the amount, if any, of the
offset and the amount of tax due under subdivision (a) of Section 2.37.150.
SECTION 5. Section 2.37.150(b) (Administrative Procedure to Assess or Correct Tax) of
Chapter 2.37 (Business Tax) is amended to read as follows:
2.37.150 Administrative procedure to assess or correct tax.
(a) If the tax administrator determines that a business operator has incorrectly reported
any information to the city or has not paid all or any of the tax, penalties, or interest that are due,
the tax administrator may, using any information available to the tax administrator, issue an initial
determination stating what the tax administrator believes to be the correct information and, if
new or additional tax, penalties, or interest are due, how much tax, penalties, or interest are due.
An initial determination must be issued within five (5) years of the last day of the quarter to which
the initial determination applies, except in the case of an audit conducted under Section 2.37.200,
in which case it must be issued within ninety (90) days of the completion of the audit and can
apply to any of the quarters that were subject to the audit. The initial determination shall be
served on the business operator either personally or by U.S. mail to the most recent address for
the business operator in the tax administrator’s records. Service is effective upon deposit of the
initial determination in the U.S. mail.
(b) A business operator affected by an initial determination may within thirty (30) days of
service of an initial determination contest the initial determination and request a hearing before
the tax administrator by filing with the tax administrator a written request for a hearing. The
further accrual of penalties and interest shall be tolled upon the filing of a request for a hearing. If
a business operator does not contest an initial determination and request a hearing with the tax
administrator within fifteen (15)thirty (30) days of service of the initial determination, the initial
determination shall become final and cannot be appealed.
(c) If a business operator timely contests an initial determination and requests a hearing,
the tax administrator shall set a hearing within sixty (60) days of the filing of the request for a
hearing. Notice of the hearing shall be served on the business operator either personally or by
U.S. mail to the most recent address for the business operator in the tax administrator’s records.
(d) At the hearing the business operator may present evidence and argument regarding
the initial determination to show why the initial determination is incorrect and to show what the
determination of the tax administrator should be. Within sixty (60) day after the close of the
hearing, the tax administrator shall serve a final determination, setting forth the tax
administrator’s determination of the facts and issues that were the subject of the initial
determination. The final determination shall be served on the business operator either personally
or by U.S. mail to the most recent address for the business operator in the tax administrator’s
records. Service is effective upon deposit of the final determination in the U.S. mail. Unless an
appeal of a final determination is filed under Section 2.37.170, any penalties or interest tolled
under subdivision (b) of this section will resume accruing ten (10) days after the service of the
final determination.
*NOT YET APPROVED*
6
SECTION 6. Section 2.37.180 (Constitutional Apportionment) of Chapter 2.37 (Business
Tax) is amended to read as follows:
2.37.180 Constitutional apportionment.
(a) No tax imposed by this chapter shall be applied to a business operator so as to
constitute an undue burden on interstate commerce or intercity commerce or be violative of the
equal protection or due process clauses of the United States or California constitutions.
(b) A business operator who contends that the application of a tax imposed by this
chapter on the business operator constitutes an undue burden on interstate commerce or
intercity commerce or violates the equal protection or due process clauses of the United States or
California constitutions may apply to the tax administrator for an apportionment of the tax
imposed on the business operator that would remove the constitutional violation by filing a
written request with the tax administrator that explains the factual and legal basis for the claimed
constitutional violation and proposes a method of apportionment that would resolve the alleged
constitutional violations. The application for apportionment shall be filed in advance or within one
(1) year of the date the quarterly return was due.
(c) The tax administrator, in consultation with city attorney, shall review the application
and within sixty (60) days of the filing of the application, which deadline may be extended for an
additional sixty (60) days, issue a decision on the application. The decision on the application shall
be served on the business operator either personally or by U.S. mail to the most recent address
for the challenger in the tax administrator’s records. The decision can be challenged under Section
2.37.160.
SECTION 7. Section 2.37.190 (Refunds) of Chapter 2.37 is amended to read as follows:
2.37.190 Refunds.
(a) A business operator who believes that any tax, penalty, or interest has been illegally,
erroneously, or mistakenly paid to, collected by, or otherwise received by the city may file a claim
for a refund of the amount of tax, penalty, or interest claimed to have been improperly received
by the city.
(b) The claim must be filed with the tax administrator and signed under penalty of perjury
by the business operator. The claim must state:
(1) The legal and factual basis for the refund claim;
(2) The amount of tax, penalty, or interest allegedly improperly received by the city;
(3) The date or dates that the improper payments were made to the city; and
(4) The address of the claimant.
(c) The claim must be filed with the tax administrator within two (2) years of the date of
the allegedly improper payment to the city.
(d) The tax administrator shall provide a written decision on the claim within thirty (30)
days of the filing of the claim by serving the decision on the claimant either personally or by U.S.
mail to the address provided in the claim. Service is effective upon deposit of the response in the
U.S. mail.
(e) A claimant may challenge the tax administrator’s decision on a refund claim under
*NOT YET APPROVED*
7
Section 2.37.160.
(f) This section does not apply to:
(1) A claim for a refund arising out of a decision of the tax administrator, city
manager, or city manager’s designee under Sections 2.37.150, 2.37.160, 2.37.170, or 2.37.190; or
(2) A claim that could have been asserted by the claimant, but was not, under
Sections 2.37.150, 2.37.160, 2.37.170, or 2.37.1902.37.180.
SECTION 8. For the period beginning January 1, 2023 and ending June 30, 2023, the
maximum amount of tax any business must pay is capped at $250,000 (two hundred fifty
thousand dollars). Beginning July 1, 2023 and each fiscal year thereafter, the maximum amount of
tax any business must pay is capped at $500,000 (five hundred thousand dollars), as provided in
Section 2.37.040(c).
SECTION 9. The Council finds that the adoption of this ordinance is an administrative
activity of government that will not result in direct or indirect physical changes to the
environment and therefore does not constitute a project under the California Environmental
Quality Act. CEQA Guidelines section 15378(b)(5).
SECTION 10. This ordinance shall be effective on the thirty-first day after the date of its
adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
____________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
____________________________ ____________________________
City Attorney City Manager
____________________________
Director of Administrative
Services
*NOT YET APPROVED*
8