Council Plans to Ask Voters to Change How Businesses Are Taxed in Manhattan Beach
Jul 22, 2026 12:08PM ● By MB News Staff
Photo credit: Eric Demarcq. Used by permission.
A unanimous 5-0 city council vote late Tuesday night laid the groundwork for a Manhattan Beach city ballot measure to change how local businesses are taxed.
The Business License Tax (BLT) is imposed on people and businesses that conduct business in Manhattan Beach, generating about $6 million per year, or about 5% of General Fund revenues, according to a city staff memo.
Reform of the BLT in Manhattan Beach has been discussed and debated off-and-on for years, but has taken shape this year as city staff and the council have collaborated to develop new models. At every juncture this year, city council members and staff have expressed a preference for keeping BLT revenues mostly neutral after any changes, rather than viewing reforms as a way to add major revenue for the city.
Much of the current BLT framework was adopted in 1971, and includes multiple exemptions, caps and business-specific rates and taxation rules that can be complex for businesses and staff alike. The concept behind changing the system is to make it more fair and uniform, and easier to enforce.
Substantive changes to the BLT would require support from at least 4 out of 5 city council members, followed by voter approval by a simple majority.
Tuesday, the council made a final selection from among four possible taxation frameworks, so that the final legal text can be crafted. At its next meeting, August 4, council must certify the legislative text and various ballot-related materials in order to place the measure before voters at the November 3, 2026, general election.
However, council members quickly shifted to the similar "Model 4," which offers a reduced tax rate for retail and restaurants. That model had received the greatest support at a public forum on BLT options, and it is what council ultimately adopted.
Model 4 is substantially similar, providing for the same $100 fee and exemption from gross receipts tax for income up to $100,000. It also has the $100,000 cap on total annual payments. However, the rate on additional income would be $2.80 per $1,000 on most businesses (same as the current rate), and $2.00 per $1,000 on retail, restaurants and hotels.
"We definitively have not been happy at all with Model 3," said Kelly Stroman, representing the Downtown Manhattan Beach Business and Professionals Association. "Model 4 is a little ray of sunshine... this would make many people very happy." Stroman did say that the $2.80 per $1,000 rate for most businesses might be an ongoing concern.
Michael Zislis, who operates a hotel and restaurants in town, said that under Model 3, "my taxes would double in some of my businesses." He warned that if Model 3 went to the ballot, "the downtown businesses and all the businesses are going to fight you." Zislis argued for a version of Model 4 with much lower rates.
With the initial fee reduced to $100, licensing would become substantially cheaper to start out. Staff estimated that a clear majority of businesses in Manhattan Beach would pay less overall under the new models, largely because of the lowering of the initial license fee.
Not every business now reports gross receipts or pays tax on them, but that would change. Everyone from contractors to gardeners to real estate agents would pay a gross receipts tax. With the first $100,000 in income exempted, many such businesses would owe nothing more than the initial $100.
Hotels currently pay a tax based on the number of rooms, but they, too, would switch to a gross receipts tax, albeit at the lower $2.00/$1,000 rate.
The council focused in particular on individual real estate agents, who are generally treated as exempt from licensing requirements and gross receipts tax. Back in 2010, city staff aimed to require agents to be treated like other businesses, but after an outcry, city council voted to halt any such requirement or enforcement. As a result, today, brokerage offices are generally subject to licensing and tax requirements, but not individual agents.
The new tax models contemplate individual real estate agents being subject to the code, if they operate as independent contractors rather than as employees of a brokerage. (Only a tiny number of real estate agents function as employees; most are independent contractors.)
Manhattan Beach Finance Director Libby Bretthauer said, "continued non-enforcement of real estate agents could be perceived as preferential treatment, as it would provide an exemption to the uniform tax to that business type, while other business types are required to pay."
A substantial amount of new revenue would come from businesses that now hit a "cap" of $12,156 in total gross receipts tax. That maximum would rise to $100,000. However, commercial property owners, who pay under a different schedule, currently face a cap of $251,000, which would be reduced to $100,000 per year.
Staff revenue models estimated that the plan adopted Tuesday night would generate about $550,000 in BLT revenue above current levels. Council members inquired about adjusting the $2.80 per $1,000 rate to tighten up the projections to be closer to revenue-neutral, but staff warned that lower rates could quickly lead to total revenue coming in below current levels.
As part of her successful motion directing staff to finalize text for Model 4, Council Member Amy Howorth added "the caveat that this all comes back to us within two years for us to reconsider lowering the [$100,000] cap," if revenues turn out to be too high.
The August 4 council meeting will include detailed discussion and potential amendments of a "redlined" version of the proposed new BLT policy. The final text will then be presented to voters for approval or disapproval in November.
The Business License Tax (BLT) is imposed on people and businesses that conduct business in Manhattan Beach, generating about $6 million per year, or about 5% of General Fund revenues, according to a city staff memo.
Reform of the BLT in Manhattan Beach has been discussed and debated off-and-on for years, but has taken shape this year as city staff and the council have collaborated to develop new models. At every juncture this year, city council members and staff have expressed a preference for keeping BLT revenues mostly neutral after any changes, rather than viewing reforms as a way to add major revenue for the city.
Much of the current BLT framework was adopted in 1971, and includes multiple exemptions, caps and business-specific rates and taxation rules that can be complex for businesses and staff alike. The concept behind changing the system is to make it more fair and uniform, and easier to enforce.
Substantive changes to the BLT would require support from at least 4 out of 5 city council members, followed by voter approval by a simple majority.
Tuesday, the council made a final selection from among four possible taxation frameworks, so that the final legal text can be crafted. At its next meeting, August 4, council must certify the legislative text and various ballot-related materials in order to place the measure before voters at the November 3, 2026, general election.
Council Shifts Model After Debate
The meeting began with a focus on the so-called "Model 3," a fully "flat" tax that would apply a single rate to the gross receipts of all businesses. That model was the one described in staff's main presentation for the evening (see it here) as well as in polling conducted among Manhattan Beach voters, with the poll results presented at the meeting.However, council members quickly shifted to the similar "Model 4," which offers a reduced tax rate for retail and restaurants. That model had received the greatest support at a public forum on BLT options, and it is what council ultimately adopted.
Model 3 called for a $100 flat fee for every registered business, with no additional tax due on gross receipts up to $100,000. After $100,000 in revenue, the model would have charged $2.60 per $1,000 on additional income, up to a maximum annual payment of $100,000. (A threshold reached only with over $35 million in income.)
Model 4 is substantially similar, providing for the same $100 fee and exemption from gross receipts tax for income up to $100,000. It also has the $100,000 cap on total annual payments. However, the rate on additional income would be $2.80 per $1,000 on most businesses (same as the current rate), and $2.00 per $1,000 on retail, restaurants and hotels.
"We definitively have not been happy at all with Model 3," said Kelly Stroman, representing the Downtown Manhattan Beach Business and Professionals Association. "Model 4 is a little ray of sunshine... this would make many people very happy." Stroman did say that the $2.80 per $1,000 rate for most businesses might be an ongoing concern.
Michael Zislis, who operates a hotel and restaurants in town, said that under Model 3, "my taxes would double in some of my businesses." He warned that if Model 3 went to the ballot, "the downtown businesses and all the businesses are going to fight you." Zislis argued for a version of Model 4 with much lower rates.
Lower Fees, But More Businesses to Pay Gross Receipts Tax
Many businesses now pay more than $200 to register with the city. The typical fee is just over $300, while contractors pay a little over $500 and subcontractors about $250.With the initial fee reduced to $100, licensing would become substantially cheaper to start out. Staff estimated that a clear majority of businesses in Manhattan Beach would pay less overall under the new models, largely because of the lowering of the initial license fee.
Not every business now reports gross receipts or pays tax on them, but that would change. Everyone from contractors to gardeners to real estate agents would pay a gross receipts tax. With the first $100,000 in income exempted, many such businesses would owe nothing more than the initial $100.
Hotels currently pay a tax based on the number of rooms, but they, too, would switch to a gross receipts tax, albeit at the lower $2.00/$1,000 rate.
The council focused in particular on individual real estate agents, who are generally treated as exempt from licensing requirements and gross receipts tax. Back in 2010, city staff aimed to require agents to be treated like other businesses, but after an outcry, city council voted to halt any such requirement or enforcement. As a result, today, brokerage offices are generally subject to licensing and tax requirements, but not individual agents.
The new tax models contemplate individual real estate agents being subject to the code, if they operate as independent contractors rather than as employees of a brokerage. (Only a tiny number of real estate agents function as employees; most are independent contractors.)
Manhattan Beach Finance Director Libby Bretthauer said, "continued non-enforcement of real estate agents could be perceived as preferential treatment, as it would provide an exemption to the uniform tax to that business type, while other business types are required to pay."
A substantial amount of new revenue would come from businesses that now hit a "cap" of $12,156 in total gross receipts tax. That maximum would rise to $100,000. However, commercial property owners, who pay under a different schedule, currently face a cap of $251,000, which would be reduced to $100,000 per year.
Staff revenue models estimated that the plan adopted Tuesday night would generate about $550,000 in BLT revenue above current levels. Council members inquired about adjusting the $2.80 per $1,000 rate to tighten up the projections to be closer to revenue-neutral, but staff warned that lower rates could quickly lead to total revenue coming in below current levels.
As part of her successful motion directing staff to finalize text for Model 4, Council Member Amy Howorth added "the caveat that this all comes back to us within two years for us to reconsider lowering the [$100,000] cap," if revenues turn out to be too high.
The August 4 council meeting will include detailed discussion and potential amendments of a "redlined" version of the proposed new BLT policy. The final text will then be presented to voters for approval or disapproval in November.
Polling Suggests Voters Would Support Changes
A professional poll of Manhattan Beach voters found 59% support for the concepts behind the proposed BLT changes, growing to 64% support after people heard a range of arguments in favor and opposed to the measure. (See the full polling presentation here.)
The substance of the question presented to voters described a measure "to simplify City of Manhattan Beach’s business license tax, lower taxes for 75% of local businesses, and ensure large businesses pay their fair share for general city services."
The strongest argument in favor of the measure was: "Under current rules, small business are taxed at a higher % of revenues, while larger businesses pay less; [this] measure updates the business license tax so it applies equally to businesses."
Other strong statements in favor included a reminder that BLT revenues stay entirely local, along with an assurance that individual residents' taxes are not affected, only businesses' taxes.
Negative messages that were tested were quite a bit weaker, and never drove support below the initial 59%.
Some of the strongest reactions came in response to arguments that were generally disdainful of city government and employees, arguing that they make too much money and can't be trusted with local tax dollars.
None of the negative arguments appeared to weigh the substance of the proposed changes to the BLT, or to address "winners and losers" under a new tax system.
