Costa Mesa studies overhaul of 41‑year‑old business license tax as council seeks options to shield small firms

City staff on June 9 presented a proposal to modernize Costa Mesa's business license tax, which the city last updated in 1985, and asked the council whether it should place a gross‑receipts measure on the November 2026 ballot.

Finance Manager Anna Aosta told the council that the staff proposal would charge $0.60 per $1,000 of gross receipts with a $25 minimum for the smallest firms and a $15,000 cap for companies with more than $25 million in annual receipts. "Costa Mesa has approximately over 111,000 residents and nearly 8,000 businesses," Aosta said, and the reform aims to "maintain service levels, align Costa Mesa with regional norms and ensure long‑term fiscal sustainability." The staff model assumes roughly 41% of businesses would pay only the $25 minimum.

Dr. Richard Bernard of FM3 Research summarized a voter survey of 426 likely November 2026 voters and said initial testing of ballot title and summary showed 53% support for the business license measure; after simulated education about how revenues could be used, support rose to about 71%. "With education, the measure moves to a very healthy 71%," Bernard said, but he cautioned the initial result was "soft" and recommended sustained outreach.

Councilmembers pressed staff on design choices. Several members and a FIPAC representative noted FIPAC recommended using a gross‑receipts model but did not specify an exact rate; a FIPAC member said the committee preferred a $0.50 per $1,000 rate with a $10,000 cap as an alternative. Councilmembers asked for scenarios that exempt or insulate small businesses (suggested thresholds included $500,000–$1,000,000 in gross receipts), and requested sensitivity analyses showing revenue outcomes under different caps and rates.

Key details presented by staff included counts of businesses in each receipts bracket and sample impacts by tier; for example, businesses with $500,000–$1M gross receipts (about 694 firms) would move from the current $200 license to a proposed $300–$600 under the $0.60 rate, while fewer than 2% of businesses would be subject to the $15,000 cap.

Council direction and next steps: the council asked staff to return on July 21 with proposed ballot materials and additional analyses. The city also asked FM3 to test variations that hold small businesses harmless ("protect small businesses") while testing higher tiers up to the staff recommendation, and to include education tied to the city's facilities and parks condition assessments. Staff said any ordinance and ballot language would include statutory-required elements and that an impartial analysis and other supporting materials would be prepared if the council moves forward.

What it means: The proposed change would shift Costa Mesa from a decades‑old flat structure toward a progressive gross‑receipts approach intended to increase diversification of general‑fund revenue. Support among likely voters increases after education in the survey, but councilmembers emphasized the need for additional polling of alternatives and more detailed fiscal modeling before finalizing a ballot measure.