Higher business taxes in San Jose: Five years later
An aerial view of Cityview Plaza in downtown San Jose. File photo.

Five years ago, San Jose created Measure G, a tax to make businesses pay for the increasingly expensive costs of living and inflation. Businesses have seen a tax hike this year because of the measure, but city officials say they’re also seeing positive effects.

Measure G updated the city’s 30-year-old tax code to better address inflation and the rising cost of living. The result was a revenue source for the city’s general fund that increases with inflation. At its onset, businesses received a tax hike from $150 per year to $195, and an increase on those taxes based on number of employees. Voters overwhelmingly passed Measure G by an approximate two-to-one margin and it went into effect on July 1, 2017.

The results were dramatic: Just a year after voters approved the tax, business revenue increased from $13 million to approximately $26.5 million during the 2017-18 fiscal year and peaked at $28.8 million during the 2019-20 fiscal year.

Revenue from Measure G partially helped resolve a $10 million shortfall in the general fund that year, which the city said would have caused a reduction in essential services.

“Without the revenues from Measure G, the general fund shortfall in 2017-2018 would have approximately doubled,” a spokesperson for the city’s finance department told San José Spotlight in a statement.

The pandemic has thrown a wrench into some of the budget plans. Revenue for 2020-21 is expected to be 11% lower than last year because of the pandemic’s impact on local businesses. In 2021-22, revenue is anticipated to remain flat as a result of reduced activity levels and an inflation rate change of 1.6%.

A progressive proposal pushed by San Jose State University professor of sociology Scott Myers-Lipton would have collected even more money, but it didn’t receive support from civic leaders.

In 2016, Myers-Lipton proposed collecting taxes from businesses based on annual revenue instead of employee count. He said this gross receipts tax would have made medium and large businesses pay their fair share of taxes and generated $29 million annually. Business and city leaders balked at the idea, and San Jose reached a compromise in Measure G, which raised the business tax based on number of employees.

“It was a modest business tax in comparison to the much higher rates in San Francisco and it would have raised $60 million-plus,” Myers-Lipton told San José Spotlight. “Big business opposed it and implied they would spend millions to defeat it.”

A look at general business tax receipts since 2016. Photo courtesy of San Jose.

The compromise of Measure G garnered wider support from the business community and advocates, such as SPUR, a nonprofit urban policy agency.

Measure G ensured that larger businesses pay a bigger share of taxes while exempting some small businesses. Before the measure’s approval, San Jose businesses paid $150 annually, plus $18 per employee per year for those with more than eight employees. But that amount was capped at $25,000 a year, regardless of how much money the business made.

Measure G increased that base from $150 to $195 annually, with an additional payment of $25 to $55 per employee for businesses with three or more workers. It also increased the tax cap that businesses could pay from $25,000 to $150,000.

The general tax revenue goes to the city’s general fund, which pays a variety of services such as emergency response, libraries and parks.

Taxes on businesses based on number of employees as of July 2021. Photo courtesy of San Jose.

The city periodically increases the base tax for businesses. In July, the city increased the base tax to $206.90 for businesses with one to two employees. Businesses with more employees pay a smaller rate per employee. The tax caps at $166,365.

Though Myers-Lipton said he’s satisfied with allowing the compromise measure to go through, he still says taxing large businesses such as Cisco and Adobe at higher rates could have generated significantly more revenue for the city to spend on things such as affordable housing and the homeless crisis.

“(Measure G) is doing what it’s supposed to do,” Myers-Lipton said. “But I would’ve preferred a gross receipts tax.”

Contact Lloyd Alaban at [email protected] or follow @lloydalaban on Twitter.

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