14. Theater tax
Ci ty Hall
10300 Torre Avenue
Cupertino, CA 95014-3255
Telephone: (408) 777-3220
Fax: (408) 777-3366
DEPARTMENT OF ADMINISTRATIVE SERVICES
SUMMARY
Agenda Item No. J 4
Meeting Date: July 3, 2007
SUBJECT AND ISSUE
Receive report on proposed theater tax.
BACKGROUND
In 2006 the City Council approved a Fiscal Strategic Plan whereby ongoing revenues would be
identified to pay for new, ongoing expenditures. This year, the AMC Theaters opened at
Cupertino Square, projected to serve an estimated 1 ~5 million patrons per year~ This high
volume of movie-goers will result in traffic mitigation, parking and public safety needs directly
. related to this business. The theater, however, does not pay a sales tax to the city to cover the
costs of these services. In order to cover these additional costs, and to put AMC on par with
other business establishments in the city that do pay a sales tax, the city is investigating placing
on the November ballot a $.25 ticket tax on patrons attending these showings. Events held by a
nonprofit organization, school or government entity would be exempt~
Revenue generated from this tax can be used for any municipal purpose, including mitigation of
the above traffic and public safety costs, extension of library hours, park maintenance or other
community needs. The tax is minimal and would be assessed on users of this establishment, who
ate primarily non-residents. The measure would take effect only if it is approved by a 4/Stn vote
of the City Council (first and second readings) and a majority of the Cupertino voters.
Staff performed the following in analyzing the advantages and disadvantages of such a tax:
~ Surveyed pricing structures of all theaters within 10 miles of Cupertino Square
(Attachment 1);
);> Met with/solicited comments from the Chamber of Commerce Legislative Action
Committee (LAC), AMC Theaters, Cupertino Square and Flint Center;
~ Performed a survey to statistically measure voter opinion of this tax (Attachment 2); and
>- Obtained other municipal entertainment/theater tax ordinances.
Interesting to note was the fact that theater prices already vary greatly, depending on the theater
chain, the age of the movie goer and the time of day that one attends a movie. Obviously this
price differentiation has not deterred customers from going to a particular theater. Proximity to
your home (convenience and gas prices), movie selection and times, theater amenities and other
things to do in the area appear to be the dominant factors in deciding where to go to see the
movie. Representatives from AMC state that they can charge a higher ticket price because they
offer more to the consumer.
14 - 1
Printed on Recycled Paper
Feedback from our special interest groups was generally positive. . The LAC believed that there -
sho~d be a connection between the tax revenue. generated and the costs associated to serve the
increased. traffic and public safety needs~ $~25/ticket was considered reasonable by most. . The
city and county of San Francisco has a ticket tax ranging from $~50 to $1~50, depending on the
price of the ticket. Flint Center management stated that industry standards have tickets priced in
$,25 increments, which is why this report is addressing that end of the original proposed range in
pricing. AMC confirmed this practice~ Percentage taxes are apparently harder for the suppliers
to deal with, although the city of Santa Cruz has a 50/0 ticket tax in place. Most interest groups
lik.ed the fact that the tax would be paid primarily by non-residents for costs associated with their
use of our streets and other amenities.
Concerns about the tax were primarily around the fact that the theater had just opened and that
the city should not do anything to put them at a disadvantage to their competition, AMC
. management stressed that a ticket tax would negatively affect sales, even though they had no
statistics of how this affected sales at other cities with a tax~ Some felt that even a $~25/ticket
charge would deter one from going to Cupertino Square, though. traveling to the next closest
AMC theater would cost them around $4 in gas/maintenance on their car. In addition, no one.
likes new taxes and Cupertino would be the first city .in Santa Clara County to enact such a tax~ .
The owners of Cupertino Square asked that if the tax was adopted, that it not go into effect for a
year so that the theater could secure itself in the market AMC is currently ranked 11 th out of the
90 AMC theaters in the Bay .Area in terms of ticket sales per mall managem~nt.
Please note that in addition to the above, the City Council will be presented with results of our
., voter survey at tonight's meeting~ This survey will present data that has a sampling error of +/-
4.9% for your consideration, but was not as yet available at the time of this writing. .
Finally, The. DeAnza/Foothill College District opposes the tax on the basis that it feels. that the
city has no jurisdiction over the Flint Center. Since litigation would be the only way to resolve
this issue, the District and .city staff are discussing alternatives to assessing this tax~ The most
promising .of these is an annual fundraiser to be ea~arked for the library excess hour costs~
Staffwill continue to meet with DeAnza College to pursue this very generous offer.
To aid the Council in its' decision tonight, we have summarized the advantages and
disadvantages of such a tax:
Advantages: .
>- Provides a mechanism to fund mitigation of parking, traffic and public safety needs
associated with this business;
>- Puts AMC Theaters on par with other businesses that pay a sales tax to offset these costs;
~ Identifies a revenue base for new expenditures paid primarily by non-residents;
}> Continues implementation of the Fiscal Strategic Plan by diversifying the General Fund
revenue base, thus planning for.good and bad fiscal situations;
Disadvantages:
~ Increases AMC ticket prices by $.25/ticket which may be detrimental to the theater;
~ Makes Cupertino the first city in Santa Clara County to have this tax;
~ Requires a ballot -measure with an associated cost;
>- Solicits a new tax during good economic times~
1"4 - 2
FISCAL IMPACT
Estjmated revenue of $407,500 given the assumptions of 1~5 million tickets sold per year.
Iricreased costs for the November 2007 Municipal Election is yet to be determined by. the County
Register of Voters.
RECOMMENDATION:
City Council receive the report on the proposed theater tax and recommend one of the following.
options to staff:
1 ~ Prepare an ordinance and first reading for .the July 17th City Council meeting with the
intent of placing this proposal on the November 2007 ballot, or
2. Discontinue work on a proposed theater tax.
Submitted by:
Approved for submission:
~oq
Director of Administrative Services
~
David w~ Knapp
City Manager
14 - 3
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IBI
CEUNDA C. LAKE
President
ALYSIA R. SNELL
Partner
MICHAEL J. PERRY
Partner
DAVID MERMIN
Partner
DR. ROBERT G.
MEADOW
Partner
DANIEL R. GOTOFF
Partner
JOSHUA UUBARRI
Vice President
RICK A. JOHNSON
Vice President
Lake
Research
Partners
cc 7/~/(j7
il=- J:3 st 1:f: I 'f
Lake Snell P=y Mcrmin Meadow Gotoff
MEMORANDUM
Internal and Confidential
To:
Interested Parties
From:
David Mermin, John Norris; Lake Research Partners
. Subject:
Summary Findings of Survey on UUT and Movie Ticket Tax in the City
of Cupertino
Date: July 3, 2007
Below are the key highlights from a Lake Research Partners survey! conducted among
likely voters in the city of Cupertino on the proposed movie theater ticket tax and an
extension of the current Users' Utility tax (UUT) to cover all types of telephone service
(both at the current rate and at a reduced rate).
This survey tested two revenue proposals: a proposed twenty-five cent per ticket tax on
all movie theater tickets sold in the city of Cupertino and a clarification of the UUT to
cover all types of telephone service. For the latter, we tested two different approaches
to the UUT with one keeping it at 2.4% and one lowering it to 2.0%. In addition, both
proposals were rotated so half the sample heard the ticket tax first, and the other half
heard either version of the UUT.
~ Voters support the 25 cent ticket tax, but it is on the edge of defeat. Only
53% of voters support a twenty-five cent per ticket tax on all movie theaters in
Cupertino, with 34% opposed and 14% undecided. Support remains virtually the
same if voters hear this before or after the UUT proposal (margin 51 % to 33%
hearing first, 54% to 34% hearing second).
~ The majority for the ticket tax is vulnerable to organized opposition. After
a battery of messages both for an against, support is reduced to slightly below
the 50% threshold on the ticket proposal. Only 48% are in favor and 41 %
opposed with 11 % undecided.
~ Voters are strongly opposed to extending the UUT at the current rate. A
majority (51%) are opposed to clarifying that the current UUT tax of 2.4%
applies to cellular and internet-based phones, with only 21 % in favor and 28%
1 Survey conducted among 400 likely November 2007 voters in the City of Cupertino. Survey was conducted June 28-July I,
2007. The margin of error is +/- 4.9%.
1726 M Street, NW, Suite 500. Washington, DC 20036. tel. 2021776-9066. fax 202/776-9074
1936 University Ave., Suite 300. Berkeley, CA 94704. tel. 510/286-2097. fax 510/704-1920
info@lakeresearch.com
Findin!!s from Cuoertino SUIVev
Page 2
undecided. This opposition is stronger when voters hear the UUT proposal after the ticket tax
proposal (60% oppose and only 19% support), but it is still potent opposition when heard before
the ticket tax proposal (41 % oppose, 23% support, 36% undecided).
~ Only a plurality of voters favor extending the UUT at a reduced rate. Just 43% support
clarifying that a reduced UUT tax of 2.0% that also applies to cellular and internet-based phones,
with only 27% opposed and 30% undecided. This level of support holds regardless of whether
they hear this proposal before or after the ticket tax (44% support if heard first, 42% support if
heard second). However, opposition grows if voters hear this UUT proposal after the ticket tax
(21 % oppose ifheard first, 33% opposed ifheard second).
~ Both UUT proposals are vulnerable to organized opposition. After hearing messages for and
against, 61 % of voters oppose extending the UUT at the current rate with only 26% in favor and
13% undecided. The proposal that reduces the UUT fairs better, but becomes a tighter race with
46% in favor-but now 37% are opposed and only 17% are undecided.
******
For more iriformatiolt on this Lake Research Partners survey, contact David Mermin at 510-286-2097
Lake Research Partners
el!;C"'
Foothill-De Anza
Community College District
. Foothill College
. De Anza College
12345 El Monte Road
Los Altos Hills, CA 94022
Phone: 650.949.6100 Fax: 650.941.6289
Martha J. Kanter, Ed.D., Chancellor
Foonilt - ANZA
Community College District
July 3, 2007
The Honorable Kris Wang, Mayor
The Honorable Richard Lowenthal, Council Member
The Honorable Patrick Kwok, Council Member
The Honorable Dolly Sandoval, Council Member
The Honorable Orrin Mahoney, Council Member
City of Cupertino
10300 Torre Avenue
Cupertino, CA 95014
RE: Proposed Theater Tax and Flint Center of the Foothill-De Anza
Community College District
Dear Mayor Wang and Council Members:
Thank you for the opportunity to provide input regarding the proposed theater tax you are considering for the November
ballot. Although I've been a Cupertino resident for 17 years, tonight I am speaking on behalf of the board of trustees,
students, faculty and staff of the Foothill-De Anza Community College District in my capacity as chancellor of the district.
First, let me thank Dave Knapp and Carol Atwood for meeting with Paula Davis and me to discuss the proposal and
consider alternatives to assessing this tax on our Flint Center which is a Foothill-De Anza program and part of our fiscal,
social and educational responsibility as an entity of local government.
Like you, we cannot keep our libraries open long enough hours for our students nor on the weekends because state
funding only provides us with $5,000 per full-time equivalent student while K-12, the California State University and the
University of California respectively receive from $8,000 to $18,000 per full-time equivalent student. Foothill-De Anza
originally established Flint Center as a world-class performing arts venue for our students and community members, but for
the past ten years, it has barely covered its operational costs, as is the case with all of the other major performing arts
organizations in Silicon Valley. During this period, we have used a combination of our college district and local bond funds
to make improvements to the infrastructure so that students and our residents can enjoy Flint Center without waiting in long
lines now to enter or exit the campus. As a result, they also now enjoy newly renovated, accessible seating, bathrooms and an
interior environment that is comfortable and up-to-date. We are grateful that our community approved Measure E that
allowed us to work closely with the city to modernize the roads leading to and from Flint Center.
We have discussed ways in which the Flint Center might be able to support your goal by hosting an annual fundraiser in
partnership with the city to bring a new revenue source to fund the priorities that you have identified. As your neighbor and
another local entity of government, we are told that Cupertino may not have jurisdiction over our college district to impose a
tax of the type you are considering. We would like to work on helping the city find alternatives to a tax on Flint Center and
hope you'll agree.
Paula Davis and I are here to provide further information to you and to pledge our support to collaborate with the city in
order to find alternatives to the proposed tax. Thank you for allowing me time to share these comments with you tonight.
Sincerely,
~Q.~
Chancellor
cc: Foothill-De Anza Board of Trustees
Dave Knapp
Carol Atwood
Paula Davis
Board of Trustees:
Betsy Bechtel
Paul Fong
Laura Casas Frier
Hal Plotkin
Bruce Swenson