By Kurt English | NB Indy
Readers who have businesses located in Newport Beach may be aware of Newport Beach’s high business license tax.
According to the city’s website, the first part of the current business license fee is $159 for businesses located in Newport Beach.
But that’s not all.
The city also claims it is entitled to be paid an additional tax on each of the company’s employees. The city demands an additional $8 per employee per year up to $797 for businesses that collect sales tax.
But if your business sells to wholesale customers and doesn’t collect sales tax, then the city demands a doubling of the per-employee tax and wants an additional $16 per employee up to $1,595.
Violation of California Usury Laws?
The Newport Beach municipal code says that the city’s business license tax is a debt. The city demands a 25 percent interest penalty each month for the first four months the license is due and unpaid.
However the California Constitution limits interest charged in California to ten percent. So the Newport Beach city interest penalties could be argued to violate California’s usury laws.
Even if the city finds a loophole in the state usury laws, the city’s philosophy is to charge higher interest penalties than most of the readers would be allowed to charge in California.
If you have a business and you’re not aware of this, Newport Beach has a well-deserved reputation in recent years of trying to bully businesses like yours to pay their business license tax. I have represented clients with businesses in many cities. But other than Orange, Newport Beach is the most aggressive city in harassing companies claiming business licenses are due even when there is no justification.
Comparison to Other Cities
How does the Newport Beach city business license fee compare to other cities?
Ultra-liberal Los Angeles exempts most new businesses started through 2015 from business taxes during the first three years of operation. Irvine charges a business license fee of $50 per year. That is a much better deal for businesses than Newport Beach, and most of Irvine is closer to the freeways. Costa Mesa charges home businesses a one-time fee of $50.
Laguna Woods, Dana Point and Laguna Niguel don’t have city business license fees. I asked Robert Ming, Laguna Niguel City Council Member and candidate for Orange County Supervisor, why Laguna Niguel doesn’t have a city business license fee. He answered that “we want businesses to come to Laguna Niguel.”
The Damage Done by High Taxes
The more something is taxed, the less of it there is. The city of Newport Beach acts as if it wants private businesses to hire fewer employees. Employees located in Newport Beach would spend money at Newport Beach businesses, and the city would get its portion of those sales tax revenues.
In a future article, I’ll discuss changes Newport Beach should make to its business license tax.
Kurt English is a lawyer and lives with his family in Newport Beach.