CARLSBAD — Two of Carlsbad’s anchor businesses are locked in a battle over business taxes with the city.
Taylor Made and Callaway, two of the biggest employers in the city (and biggest names in golf), voiced their opposition to the city’s tax code changes during a May 4 Carlsbad City Council meeting.
The new tax code, signed by City Manager Scott Chadwick in January 2019, adjusts how the apportionment formula is applied and allows for a retroactive collection of taxes and penalties.
Both companies contend the new apportionment formula is invalid and should not have been applied prior to Jan. 16, 2019. In response to these concerns, the City Council waived the retroactive collection of penalties and some taxes for 2016, 2017 and 2018.
Taylor Made and Callaway had outstanding taxes, including penalties of $218,211 and $544,479 respectively, spanning from 2016-2020. Also, attorney Charles Mull, who spoke for both companies during the appeal, said Carlsbad has refused to accept the companies’ 2020 tax payment.
Taylor Made’s business license tax for 2019-20, including a penalty, is $147,135, and Callaway’s total is $417,372, according to the May 11 staff report.
According to the staff report, neither company has a valid business license, although the companies disagree. Representatives at Callaway declined to comment and Taylor Made did not respond to our request for a statement.
“We believe the way that we’ve been treated … has been entirely unfair,” said Sarah Kim, vice president general counsel and chief ethics officer at Callaway. “We have been nothing but cooperative since the beginning, but city staff has been unwilling to work with us despite multiple efforts to open up communication. Our business license is being held hostage, while the city tries to get its way with this unconstitutional taxing method.”
At the heart of the issue is the city’s Administrative Order 81, which institutes a new calculation for business taxes. The new formula calculates the percentage of a business’s sales in the city, payroll and property, which are added together and divided by three for an apportionment percentage, according to Cheryl Gerhardt, the city’s finance manager.
The order also allows the city to retroactively assess taxes and penalties to any business, although the two golf companies were the only businesses that noticed the change and appealed the city’s action years ago.
Gerhardt said both companies were made aware of the new formula in 2018. In 2019, the license collector found Taylor Made owed underpaid taxes and penalties totaling $350,332 and Callaway owed $1,029,274 from 2016-20.
Both companies challenged the city and after a Feb. 27 hearing, the license collector revised the amount to the current totals, Gerhardt said. The companies preferred an apportioned formula for sales in Carlsbad, which comes with a different formula and lower tax burden.
While state law allows for retroactive application of these municipal codes, Mull believes it is an unfair practice and bad policy. Mull said the business license tax can only be applied to activities within the city, otherwise known as apportionment.
Mull also challenged the legality of the new formula, noting the city previously accepted a point-of-sale method until 2017. Mull said the law to allow the formula, which was approved by a ballot measure 10 years ago, puts businesses at a competitive disadvantage and encourages less hiring in order to keep their tax burden lower.
“This is a complicated tax issue,” Mull said. “The more payroll you have and more property you have in Carlsbad, the more taxes. There is no one formula you can look to, to apply. You don’t count the retroactivity from when it was first mentioned.”
Attorney Ben Fay, who is working with the city, said the reason for the formula is to be fair and equitable to all businesses. Fay said the legality of the formula is “ironclad” and doesn’t favor any specific business.
“(Callaway and Tayor Made) also complained about the penalties,” Fay said. “They are clearly stated in the municipal code. Both companies were frequently warned. City staff offered to waive the penalties if they paid by a certain date. They did not.”
Councilwoman Teresa Acosta said while she agreed with waiving new taxes and penalties from 2016-19, she was wary of changing the code, especially since no other businesses have vocalized their opposition.
Councilman Keith Blackburn disagreed in part, saying that just because no other businesses have lodged complaints doesn’t mean they have not been impacted — some companies may not even be aware of the change.
The council also voted to discuss whether to change the code later this year.