UPDATE: More San Jose small businesses to get break on license tax
San Jose leaders say eliminating a license tax may help struggling small businesses. Photo by Ramona Giwargis.

In an effort to relieve small businesses suffering during the pandemic, the San Jose City Council unanimously agreed to expand a tax break even though it will cost the city $1 million.

The tax, which business owners pay annually to receive a license, ranges from $203 to as high as $163,745 depending on the number of workers the business employs.

For example, a sole proprietorship with only one employee would pay the base tax of $203 while a business with 20 employees pays $792. A business with 100 employees would pay more than $4,000 annually.

San Jose already has had a business tax exemption for sole proprietors earning less than twice the federal poverty level, or $25,520, in revenues. Now, the city will no longer consider the number of workers a business employs and will only look at revenue and income to determine eligibility. The exemption takes effect Oct. 1 to Sept. 30, 2021.

About 6,000 businesses in San Jose would become eligible for the exemption, according to San Jose’s Director of Finance Julia Cooper.

“I hate to see all of our nail salons and hair stylists and estheticians who have been forced to stay closed to be punched yet again and I’d hate for our city to be the cause of them going out of business,” said Councilmember Johnny Khamis in support of the expanded exemption. “I am very supportive of this.”

Khamis said many businesses still closed due to the pandemic shutdown order are barely keeping afloat.

Dennis King, executive director of Silicon Valley’s Hispanic Chamber of Commerce, said San Jose’s license fee is significantly higher than other cities in the county. He said the current business tax exemption is clearly targeted toward “micro-micro enterprises” and should be broadened to include businesses with sales of up to $50,000.

“People don’t start these micro-businesses to get wealthy,” King said. “They use these businesses to support their families.”

To qualify for the exemption, the business must meet at least one of two income requirements. A business may be eligible if the owner makes no more than $51,040 in annual income or if the business earns no more than $25,520 in anticipated revenues for 2020.

The city also will extend the payment schedule for business taxes from the current 3-month term to 12 months. The City Council voted in June to extend the city’s business tax amnesty program, allowing for the repayment of taxes without late fees, through the end of this month.

The change results in about $1 million less in taxes being collected, according to Cooper, roughly 4% of the city’s adopted budget for fiscal year 2020-2021. It is unclear how the city would make up for this reduction in revenue.

According to Cooper, the city’s finance department also considered two alternatives to the new rules, including one that would have raised the business revenues limit to $50,000.

However, Cooper projected these would cost the city millions more in lost taxes. In addition, Cooper said increasing the revenues limit “could benefit businesses and residential landlords that otherwise have not seen a business activity reduction due to COVID-19.”

San Jose is among many local, state and federal governments that have enacted new rules and relief programs targeted to struggling businesses.

Contact Sonya Herrera at [email protected] or follow @SMHsoftware on Twitter.

Carly Wipf contributed to this report.

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