The city of Santa Clara is bleeding red, and big business may be at the center of its new strategy for economic recovery.
Santa Clara is facing a nearly $20 million budget deficit in the upcoming fiscal year and needs to find new revenue streams. Under a newly proposed business license tax structure, the city would require companies to start paying a fixed “headcount” fee per employee. This could rake in millions of dollars in revenue from its largest employers, but it’s unclear if residents and businesses will approve.
The city is home to numerous tech giants including Applied Materials, Intel, Advanced Micro Devices and Nvidia. All have hundreds of employees. Under the existing system, the total tax revenue from these behemoths is capped at $500 annually.
Santa Clara spokesperson Lon Peterson said the current business license tax model—which charges $15 to $500 based on the industry sector and number of company employees—brings in about $900,000 in revenue annually, or 0.4% of the general fund. It hasn’t been updated since 1992.
There are about 8,500 businesses with active licenses in the city, of which 6,100 businesses would be subject to the proposed “headcount” tax—about 137,000 employees. About 50 companies have 500 or more employees in Santa Clara and pay $500 to the city annually, according to a 2021 city presentation.
Peterson said the city’s goal is to update an antiquated 30-year-old system that reflects changes in the workplace while ensuring all businesses pay their fair share.
“The current structure creates a disproportionate impact on small businesses,” he told San José Spotlight.
Santa Clara has scheduled community input sessions to determine how residents might vote. If the City Council approves the proposal this summer, the measure would be on the November ballot.
Updated plan needed
The revised license tax was first brought to the City Council last June, with discussion on ways to modernize the business license tax taking place last October.
City polls conducted in January of this year produced pros and cons on changing the tax structure. However, Peterson said after voters were told the inequities of the 30-year-old model, 64% supported considering a new business license tax model.
Councilmember Suds Jain said he cannot commit to any position on the tax structure before a vote is taken. He said the idea reflects a demand for swift action on the budget deficit, since the city is dipping into its reserves.
Jain said the main sources of revenue are property tax, sales tax and the transient occupancy tax (TOT). The city increased its TOT by 2%, from 9.5% to 11.5 %. The transient occupancy tax level could be raised again, he said, but the timing would be poor since people are not traveling much.
“We don’t really know what’s going to happen with COVID,” he told San José Spotlight. “We feel we have to diversify our tax base and so we’re looking at all the different options for whatever we can do.”
Threat of departure
There is a concern businesses might move their headquarters out of Santa Clara if the new tax model succeeds at the polls. But Jain is not that concerned about businesses leaving, he said. He pointed out healthy resources like affordable electricity and fiber internet connectivity are why Santa Clara is more attractive than other cities.
Applied Materials is Santa Clara’s largest employer, according to the city’s records. Major employers in addition to Intel, AMD and Nvidia are Marvell Technology, ServiceNow, Silicon Valley Bank and Dell Technologies.
“Santa Clara is and has been our headquarters for many years,” a Nvidia spokesperson told San José Spotlight. “We’ve just in recent weeks opened our second major headquarters building in the past five years.”
Other businesses were unavailable for comment.
Silicon Valley Central Chamber of Commerce CEO Christian Malesic declined to comment on the tax measure proposal and board chair Christian Pellecchia did not respond to requests for comment.
Peterson said listening sessions are ongoing, and he wants the local business community to be part of the city’s recovery efforts.
“The city recognizes the importance of a balanced approach—one that recognizes the contributions made by the business community,” he said.
Finance Director Kenn Lee told San José Spotlight there is no formal proposal until the tax goes to the City Council.
“A lot of the feedback we’re getting will help shape and determine how that potential measure is structured, and how much revenue we will get,” Lee said.
Assistant City Manager Cynthia Bojorquez added this is just one of several ideas to relieve the $19.6 million structural deficit. She said the draft measure will come to the City Council in late June or early July since the deadline to push a measure to the ballot is in August.
“We have to think about our fiscal sustainability in the long term because we do have unmet needs in the city,” Bojorquez said. “This is going to be an ongoing dialogue with our community. Whether or not we’re successful at the ballot will determine it.”
Contact Natalie Hanson at [email protected] or @nhanson_reports on Twitter.