News - October 22, 2008
Marsala says town owes contractors fee refunds
by Andrea Gemmet
An e-mail sent out by Atherton Councilman Charles Marsala urging residents to see if the town overcharged for their contractors' business license fees was swiftly rebuked by his City Council colleagues.
At issue are the annual business license fees charged to general contractors and subcontractors who work in Atherton. On Tuesday, Oct. 14, Mr. Marsala sent out an e-mail warning that the town may have double-charged contractors working on multiple Atherton job sites within the same year. He also said that the town's formula for figuring out the number of subcontractors on a project could be flawed.
In 2003, the Atherton City Council unanimously approved a new method for charging the $250 and $150 annual business license fee to general contractors and subcontractors, respectively. Rather than billing each contractor, the town requires general contractors to pay all subcontractors' fees based on a percentage of the value of the construction project.
"Recently, two residents building new homes have (been charged) business license fees of $24,145 and $15,998. Translated, this would be for 159 and 105 subcontractors," Mr. Marsala's e-mail reads. "The resident paying the $15,998 has approximately 20 unique subcontractors and will be asking the town for a refund of $12,948."
The council met with the city attorney in closed session to discuss the business license fees on Wednesday, Oct. 15. The council decided to hire MuniServices, LLC to review the business license tax and its collection, on a 4-1 vote with Mr. Marsala opposed, Mr. Hynes announced. "Any information on what is owed is premature and should be disregarded," he said.
Mr. Marsala told The Almanac that he voted against the motion despite agreeing with having Muni Services do a review of the business license tax. "I believe my numbers were conservative and that's why I voted against it," Mr. Marsala said.
Carol Flaherty, an Atherton resident who has built several new homes, said she's spent a month researching the issue and believes the fee is actually an illegal tax.
"Basing the business license fees on a percentage of the total building permit is ludicrous," Ms. Flaherty said in a letter to the council. "Just because a house gets larger, the number of subcontractors doesn't necessarily go up."
Speaking to the council at its Wednesday, Oct. 15, meeting, Ms. Flaherty urged the town not to delay refunding the money.
The issue is set to return to the council at its December meeting.
Posted by Charles Marsala,
a resident of Atherton: West Atherton
on Oct 22, 2008 at 9:40 am
Here is the full email that I sent to approximately one hundred residents and the heads of facilities for Sacred Heart and Menlo School. Some of those residents forwarded the letter to their friends.
As a result five residents notified the city manager of their interest in having their Permit Fees reviewed.
If you have built a house in the last five years or know someone who has, you could be entitled to a refund for overpayment of Fees in the Building permit process. During the last month three residents have contacted me and although final determinations have yet to me made, I want to share the information with you as I know many of you have built homes during the last five years or recently started.
The Atherton Municipal Code allows us to charge a Business License Fee of $250 annually for a General Contractor's license to operate in Atherton and $150 for a sub-contractor's license. Back in 2003, former Finance Director John Johns proposed that it was hard to manage the large number of licenses.
He proposed that we charge the General Contractor a fee based on job size, and have the General Contractor pay for the sub-contractors. The proposal included .36% of the job value. This passed with a 5-0 vote.
Recently two residents building new homes have received Business License Fees of $24,145.00 and $15,998.00. Translated this would be for 159 and 105 sub contractors respectively. The issue gets more complicated as often the same sub-contractors work on different jobs, thus paying the BLF multiple times in the same year.
The resident paying the $15,998.00 has approximately 20 unique sub contractors and will be asking the town for a refund of $12,948.
The two issues of the BLF become overcharging and double charging on the number of sub-contractors per job.
Two weeks ago at a meeting with Interim Finance Director Bill Yoemans and City Manager Jerry Gruber, I was informed, state law does have a statue of limitations. So I would suggest sending a letter to the City Manager that you wish to have your Building License Fees evaluated and any surplus repaid to you. It you are submitting in the near future, submit with a letter.
Council will determine a policy and will have a closed session discussion Wednesday night. If you have any comments or suggestions, please email me.
One of the biggest challenges of being a council member is to understand the difference between a fee and a tax. My understanding is that after Prop 13 went into place in 1978, the state and cities became limited on how they could increase fees and taxes.
The state legislature needs a 50% vote to impost a fee and 2/3s vote to impose a tax at the state level. While the city council can impost a fee, the voters must approve a tax at the local level. A rule of thumb to define the difference is that a "Fee" can not be more than is necessary to provide services. It can not be used to funnel off money for other services.
Occasionally "Fee" funds get used for other purposes and function as taxes. In most cases the legal cost factors in to make it worthwhile for someone to sue and challenge the "Fee" as being a "Tax."
A recent example is another Bay Area City, Union City, which imposed a 9-1-1 Fee back in 2003 on telephone lines at a rate of $3.22 per month. Per the Union City web site the following information is available.
Many cites starting putting in the "Fee" in 1993 to improve 9-1-1 services. In 2003, Union City put in the 911 Fee to pay for costs to operate the city's "9-1-1" Emergency Response Communication System. The levy was challenged in 2004. The fee was invalidated in Superior Court in May 2006, ruled a tax by the Appeals Court in April 2008, and refused to be reviewed by the State Supreme Court in September 2008.
At which time, Union City was required to stop collecting the 911 Fee immediately and was required under state law refund all 911 fees paid for the last year. Under State Law (Government Code Section 911.2), cities are liable for damages caused by their actions for a period of not more than 12 months from the date of a claim being filed against them. Thus, the City of Union City will refund up to 12 months of the 911 Fee Payments for each phone line upon which the fee was assessed.
Currently the City of Palo Alto is considering putting a Business License Tax up for a vote.
Nine years ago in Atherton, extensive calculations were done to make sure fees adequately cover the cost of services.
In the last four years, Atherton has had a challenges on the fee versus tax test.
Back in October 2004 the council considered a "business license fee linked to the gross receipts of real estate agents and construction firms operating in town." (See Almanac Oct 27,2004). In December 2004, this planned was abandoned after many challenged that it was a tax at the Council meeting.
In March 2005, the council approved an Off-Haul "Fee." During the next year, former Building Official Mike Hood pointed out that it was a "Tax." In July 2006 many residents came to the council to challenge the fee. In September 2006, council decided to refund all monies collected with interest from the effective date of the start of the Off-Haul Fee, May 17th 2005.
In April 2003, the council approved a new method to collect the Business License Fee (BLF). In October 2007 Interim City Manager, Wende Protzman, informed me of concerns and issues she had with the BLF. Interim Finance Director, Bill Yoemans, reported in May, 2008 that his calculations showed approximately $200,000 needed to be refunded from the BLF. In September 2008, in a meeting with the City Manager, Mr. Yoemans gave me a figure of approximately $100,000 per year that the re-engineered Business License Fee was in place had resulted from double charges and overcharges. He also pointed out the statue of limitations on refunds, which meant council would decide how far to go back on refunds.
At the same time three residents approached me with concerns on the BLF. They also have concerns on the Road Impact Fees, which for one home was more than $40,000.00. They questioned if the Road Impact "Fee" is actually a "Tax" as well. Their opinion was that building their home would not result in the town incurring Road damage to match the cost of the Fee.
Recognizing it will be months before a report is available on the Business License Fee and the Road Impact Fee, I have been to encourage residents to get a letter into the town asking to have their building project fee reviewed to avoid and possible issues concerning the state statue of limitations.