A proposed business license tax reform could your brokerage would pay thousands of dollars more per year than if you were operating one mile away in either San Diego or Chula Vista.
Here's the math: a broker with $1,000,000 in gross commissions pays $34 in San Diego. Under National City's proposal, that same broker pays $3,000. At $3,000,000 in commissions, San Diego's tax tops out at around $125. Your National City tax liability would reach $9,000.
Same work. Same clients. What a difference a zip code would make!
They Put Real Estate in the Highest Tax Tier
National City's draft tax structure stipulates a charge for General and Retail businesses of 0.10%. Real estate brokers, agents, and property managers, categorized in the "Professional and Property Rental" tier, would pay 0.30%, or, for example, three times the rate of the auto dealers that the National City publicly celebrates as its commercial backbone.
PSAR has formally requested an explanation of the tax policy rationale from the City Council. At the time of publishing this blog, there has been no response.
The Numbers They Showed the Council Were Wrong
City staff stated to the Council that "other cities have gone higher," but only compared National City's lowest retail rate to other jurisdictions. They did not benchmark the 0.30% professional rate that your broker business would pay.
The staff presentation also labeled the City's total gross receipts from tax revenue as "$4,842" instead of the correct $4.842 billion amount. The other fantasy assumption of the financial model is that no businesses will relocate in response to these increases.
Real estate is one of the most portable businesses that exists. A 25-to-250 times rate differential is a crystal-clear financial incentive to every impacted National City-based broker to relocate their office address outside the City line.
They're Taxing Money You Never Kept
A gross receipts tax hits your top-line revenue, not your profit. In a typical brokerage, 70% to 90% of every commission goes directly to the agent who earned it. The balance received by the broker is consumed by E&O insurance, MLS fees, association dues, franchise fees, and office overhead.
National City already lets general contractors exclude subcontractor payments from gross receipts. Agent splits are structured in the same way. National City, by not applying the same option to real estate practitioners, means brokers are taxed on income they never receive.
This Will End Up in Court
California law prohibits cities from taxing business activity that happens outside their borders without proper apportionment. At a $20 flat fee, it was never worth it for any broker filing a lawsuit. At a 0.30% of gross receipts, the stakes have been raised.
What PSAR Is Doing
On June 16th, PSAR Government Affairs Director George Ching and GA South Vice Chair Randi Castle appeared at the National City Council meeting and clearly stated the association's position. We've formally asked the City to pause, align its real estate-impated tax structure with neighboring San Diego and Chula Vista, and avoid potential, costly litigation.
What You Can Do
This measure is not yet finalized. If you work in or near National City, your voice matters. Watch for PSAR's advocacy alerts for specific action steps, including opportunities to submit public comment and/or attend upcoming council meetings.
Your Government Affairs team is working hard on your behalf and will update you as events unfold.