San Diego, November 28, 2025
Small businesses in San Diego are facing new challenges as the city implements tax and fee increases, including higher Transient Occupancy Tax rates, a Minimum Wage Enforcement Fee, and new Business Tax Certificate fees. These changes are raising concerns about the sustainability and growth prospects of small enterprises in the region. With additional financial burdens, many businesses fear reduced profitability, potential layoffs, or closures that could adversely affect the local economy.
San Diego’s New Taxes and Fees Impacting Small Businesses
San Diego, California – Recent tax and fee increases in San Diego are placing additional financial burdens on small businesses, raising concerns about their sustainability and growth prospects.
Increased Business Tax Rates
Effective May 1, 2025, the City of San Diego has implemented higher Transient Occupancy Tax (TOT) rates, affecting hotels, RV parks, and short-term rentals. The new rates are:
- Tax Zone 1: 11.75%
- Tax Zone 2: 12.75%
- Tax Zone 3: 13.75%
These increases are expected to generate approximately $82 million in fiscal year 2026, with an estimated $1.04 billion over the first ten years. The additional revenue is earmarked for street repairs, addressing homelessness, and enhancing the San Diego Convention Center.
New Minimum Wage Enforcement Fee
Starting July 1, 2025, all businesses with employees working within San Diego’s city limits will be subject to an annual Minimum Wage Enforcement Fee of $1.47 per employee. This fee supports the investigation and enforcement of the City’s Earned Sick Leave and Minimum Wage Ordinance.
Business Tax Certificate Fees
San Diego businesses are required to obtain a Business Tax Certificate, with fees based on the number of employees:
- 12 employees or fewer: $34.00 annually
- 13 employees or more: $125.00 plus $5.00 per employee annually
Late payments incur a fee of $25.00 or 10% of the amount owed, whichever is greater. Additionally, a surcharge of $68.00 for small businesses and $250.00 for large businesses applies to those operating without a valid certificate.
Impact on Small Businesses
These new taxes and fees are particularly challenging for small businesses, which often operate with limited financial margins. The increased costs may lead to reduced profitability, potential layoffs, or even closures, affecting the local economy and employment rates.
Background Context
San Diego’s decision to raise the TOT rates follows voter approval of Measure C in 2020, which aimed to generate additional revenue for city improvements. The implementation of these measures was delayed due to legal challenges but is now moving forward.
The introduction of the Minimum Wage Enforcement Fee aligns with the City’s efforts to ensure fair compensation and working conditions for all employees. However, the additional financial burden on businesses raises questions about the balance between worker protections and economic viability for small enterprises.
As these new taxes and fees take effect, small business owners are encouraged to review their financial strategies and seek guidance to navigate the evolving regulatory landscape in San Diego.
Frequently Asked Questions (FAQ)
What are the new Transient Occupancy Tax (TOT) rates in San Diego?
The new TOT rates, effective May 1, 2025, are:
- Tax Zone 1: 11.75%
- Tax Zone 2: 12.75%
- Tax Zone 3: 13.75%
These rates apply to hotels, RV parks, and short-term rentals.
What is the Minimum Wage Enforcement Fee?
Starting July 1, 2025, all businesses with employees working within San Diego’s city limits will be subject to an annual Minimum Wage Enforcement Fee of $1.47 per employee. This fee supports the investigation and enforcement of the City’s Earned Sick Leave and Minimum Wage Ordinance.
How much does the Business Tax Certificate cost?
The annual fee for the Business Tax Certificate is based on the number of employees:
- 12 employees or fewer: $34.00 annually
- 13 employees or more: $125.00 plus $5.00 per employee annually
Late payments incur a fee of $25.00 or 10% of the amount owed, whichever is greater. Additionally, a surcharge of $68.00 for small businesses and $250.00 for large businesses applies to those operating without a valid certificate.
How will these new taxes and fees affect small businesses?
The increased taxes and fees may place additional financial burdens on small businesses, potentially leading to reduced profitability, layoffs, or closures. This could impact the local economy and employment rates.
Why were these new taxes and fees implemented?
The new taxes and fees aim to generate additional revenue for city improvements, including street repairs, addressing homelessness, and enhancing the San Diego Convention Center.
Key Features of San Diego’s New Taxes and Fees
| Feature | Description |
|---|---|
| Increased TOT Rates | Effective May 1, 2025, new rates of 11.75%, 12.75%, and 13.75% for Tax Zones 1, 2, and 3, respectively. |
| Minimum Wage Enforcement Fee | Annual fee of $1.47 per employee, effective July 1, 2025, supporting enforcement of the City’s Earned Sick Leave and Minimum Wage Ordinance. |
| Business Tax Certificate Fees | Annual fees based on employee count: $34.00 for 12 or fewer employees; $125.00 plus $5.00 per employee for 13 or more employees. Late payments incur additional fees. |
| Impact on Small Businesses | Potential financial challenges leading to reduced profitability, layoffs, or closures, affecting the local economy and employment rates. |
| Implementation Background | Measures aim to generate revenue for city improvements, including street repairs, addressing homelessness, and enhancing the San Diego Convention Center. |
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Author: STAFF HERE SAN DIEGO WRITER
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