The exterior of Cupertino City Hall
The Cupertino City Council unanimously voted on Feb. 21, 2024 to stop exploring tax measure options on the November ballot. Photo by Annalise Freimarck.

Cupertino may be facing a budget deficit next fiscal year, but the city won’t ask residents to dig deeper into their wallets to help.

The Cupertino City Council unanimously voted to stop exploring ways to create new taxes or increase taxes at last Wednesday’s meeting, after the majority of small business owners surveyed said they wouldn’t support it on the November ballot.

Roughly 70.9% of respondents said they opposed a business operations tax, roughly 54.5% opposed an additional 0.25% sales tax and roughly 53.6% opposed a parcel tax. The community did support a 2% to 3% increase in its transient occupancy tax, a hotel tax, which is 12% in Cupertino.

The city surveyed business owners, testing the tolerance level as it looked for ways to save costs and gauge opposition before bringing it to residents. The survey, conducted from Dec. 20, 2023 to Jan. 15, received approximately 112 responses out of 2,843 total business license holders.

Rhoda Fry, a Cupertino resident for more than 40 years, said the city made the right move.

“I feel like there’s been a disproportionate focus on raising money on the backs of residents and small businesses and we need to be focusing on the city’s rampant expenses,” she told San José Spotlight.

Urban Futures, Inc., a consultancy firm hired by Cupertino to assess each tax option, ranked the sales tax as the top choice, followed by the hotel tax. Cupertino and Santa Clara County have a 9.125% sales tax. Campbell, San Jose and Milpitas have a 9.375% sales tax and Los Gatos’ rate is 9.25%.

The vote is part of Cupertino’s exploration into revenue-generating measures in anticipation of a roughly $15 million budget deficit for the upcoming 2024-25 fiscal year, largely created by an audit of Apple’s sales taxes.

Last year, California’s Department of Tax and Fee Administration required Apple to reimburse the state by roughly $20 million after it conducted an audit, affecting Cupertino’s agreement with the tech giant. Under a longstanding tax sharing agreement between the city and Apple dating back to 1998, the company designated all online product sales to California residents as taking place in Cupertino, and allocated the local 1% portion of the state’s 7.25% sales tax from those transactions to the city.

Last month, the city identified several service level reductions that could save more than $10 million, including reducing the budget for information technology, shifting sidewalk maintenance to property owners and reducing public works’ contract services.

Without a tax measure on the ballot, the city will use unassigned funds to fill in the deficit gaps, according to Vice Mayor J.R. Fruen. The city also examined fee increases in city services this month, such as the cost of a permit to remove a water boiler.

Fruen also said the city was concerned about voter fatigue if an additional tax measure was put on the ballot.

“It’s hard to sort of put the begging bowl out too many times in front of people,” he told San José Spotlight. “My sense is that we’re sort of at that edge.”

Other cities have also considered adding a tax measure to the ballot. Last month, the Milpitas City Council unanimously approved a resident survey to extend Measure F, a citywide quarter-cent sales tax which sunsets in April 2029.

Fruen said the city will likely only get one shot at a tax measure, and he wants to make sure it has the potential to pass.

“We should take that shot when we feel like we have good aim, not at a time when there’s a great deal of uncertainty,” he said.

Contact Annalise Freimarck at [email protected] or follow @annalise_ellen on X, formerly known as Twitter.

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