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The definitions in this section apply to the words and phrases used in this chapter unless the context clearly indicates otherwise.
(a) “Business” means any commercial enterprise, trade, calling, art, vocation, profession, occupation, or means of livelihood, whether or not carried on for gain or profit.
(b) “Business operator” means a person who transacts, maintains, manages, operates, controls, engages in, conducts, carries on, or owns a business in the city. It does not include the employee of a business who is not an owner or proprietor of the business.
(c) “Calendar year” means the year beginning January 1 and ending December 31.
(d) “City” means the City of Palo Alto.
(e) “CPI Index” means the Consumer Price Index—All Urban Consumers for All Items for the San Francisco-Oakland-Hayward Area or any successor to that index designated by the Federal Bureau of Labor Statistics or the city council.
(f) Fiscal year” means the year beginning July 1 and ending June 30.
(g) “Fixed place of business” means a place of business located in the city boundaries and occupied for the particular purpose of operating a business.
(h) “Grocery store” means a business that exists for the primary purpose of selling a range of food items to consumers for consumption off site, such as canned foods; dry goods; fresh produce; fresh meats, fish, and poultry; and any area that is not separately owned within the store where food is prepared and served, including a bakery, deli, and meat and seafood departments, or as otherwise defined in 14 CCR section 18982(a)(3), provided that any store that combines grocery items with other retail products or services is a grocery store for the purpose of this chapter only if two-thirds or more of the occupied space is designated to the sale of grocery items as listed in this section.
(j) “Operate” means to conduct a business and includes all stages of conducting a business from initial planning to the wind-down of a business, whether or not a profit is being made.
(k) “Person” means any individual, firm, partnership, joint venture, association, corporation, limited liability company, estate, trust, receiver, syndicate or other group or combination acting as a unit and includes the plural as well as the singular number.
(l) “Quarter” means the three-month quarter of the fiscal year. The “first quarter” is the months of July, August, and September; the “second quarter” is the months of October, November, and December; the “third quarter” is the months of January, February, and March; and the “fourth quarter” is the months of April, May, and June. The term “same quarter of the previous fiscal year” means the quarter of the same number in the previous fiscal year.
(m) “Square footage” means the rentable square footage used by a business as specified in a business’s lease or, if the business floor space is owned by the business, as calculated in the same manner as if the area was rented using commonly accepted standards of measurement for leasing purposes such as the Standard Methods of Measurement published by the Building Owners and Managers Association (BOMA). Any method of measurement used must meet the following minimum standards:
(1) It shall be computed by measuring to the inside finish of permanent outer building walls and shall include space used by columns and projections necessary to the building.
(2) It shall include both the area used by the business and a proportionate share of the building service areas such as lobbies, corridors and other common areas in a building unless assigned to another business for tax calculation purposes.
(3) It shall not include vertical penetrations through the building such as stairs, elevators, or heating, ventilation, air conditioning, utility, or telephone systems, except on the lowest floor of stairs and elevators.
(4) For the business of renting or leasing property, it shall include area used primarily for the business operator’s offices and operational facilities.
(5) It shall not include residential uses, including multiple-family use as defined in Section 18.04.030(102), two-family use as defined in Section 18.04.030(141), single-family residential use as defined in Section 18.04.030(86)(A)), mobile home park as defined in Section 18.04.030(97), residential care homes as defined in Section 18.04.030(124), supportive housing as defined in Section 18.04.030(135.5), transitional housing as defined in Section 18.04.030(138), emergency shelter as defined in Section 18.04.030(50), and any equivalent residential use defined by the city.
(7) Square footage for businesses with multiple locations will be measured and tax assessed will be calculated based on the aggregate square footage for the business for all locations in the city.
(n) “Tax administrator” means the director of administrative services, or successor position, or their designee.
(p) “Transitory business” means a business that operates in the city for less than 90 days in the course of one calendar year (such as seasonal sale lots, special events, concerts/performances/circuses, filming, and party rentals).
(q) “Vacant” means a severable portion of the physical location that a business is occupying, such as an entire floor, a building, or a portion of a floor with independent entrance and exit, that is free from any use, fixtures, furniture, and equipment, and is immediately available for use by a new tenant or owner.
(Ord. 5581 § 1 (part), 2022)
(a) It is unlawful for any business operator, either for themselves or for any other person, to operate in the city any business taxed under this chapter without paying all business tax required by this chapter.
(b) If a business has more than one business operator, then the payment of the business tax by one business operator excuses any other business operators from the obligation to pay the business tax for that period for which the tax has been paid.
(c) The requirement to pay business tax is in addition to and separate from the requirement to obtain a business registration certificate under Section 4.60.030.
(d) The payment of business tax does not authorize the doing of any act which the person or business paying the business tax is not otherwise entitled to do and does not excuse the business from complying with other applicable code requirements.
(Ord. 5581 § 1 (part), 2022)
Any business operator operating a business at a fixed place of business in the city must pay a business tax at the following rates:
(a) Beginning January 1, 2023, the tax shall be imposed at the following rates:
(1) For the first 10,000 square feet occupied by a business in the city, no tax shall be imposed.
(2) For each square foot occupied by a business in the city over 10,000 square feet, a monthly tax of three and three-quarter (3.75) cents per square foot shall be imposed.
(b) Beginning January 1, 2025, the tax shall be imposed at the following rates:
(1) For the first 10,000 square feet occupied by a business in the city, no tax shall be imposed.
(2) For each square foot occupied by a business in the city over 10,000 square feet, a monthly tax of seven and one-half (7.5) cents per square foot shall be imposed.
(c) The maximum amount of tax a business must pay is capped at $500,000 (five hundred thousand dollars) per fiscal year.
(Ord. 5581 § 1 (part), 2022)
Tax owed shall be determined by applying the terms of this ordinance in the following order: first, application of the tax rate in subdivisions (a) or (b) of Section 2.37.040 to the square footage of the business; second, application of business tax offsets as set forth in Section 2.37.080, if any; and third, application of the tax cap in subdivision (c) of Section 2.37.040, if applicable.
(Ord. 5581 § 1 (part), 2022)
(Ord. 5581 § 1 (part), 2022)
(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 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.
(Ord. 5581 § 1 (part), 2022: Ord. 5607 § 3, 2024)
(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 (5) 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.
(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.
(Ord. 5581 § 1 (part), 2022: Ord. 5607 § 4, 2024)
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