An overhaul of Santa Clara’s business tax that could help the city patch a gaping budget hole appears on its way to victory at the polls.
Nearly 60% of voters in Santa Clara are supporting Measure H in early election returns, according to the Santa Clara County Registrar of Voters. About 62% of the expected countywide ballots have been counted as of Friday evening.
When implemented, the measure will restructure Santa Clara’s business tax so large companies pay substantially more than smaller ones. While the current tax charges businesses anywhere from $15 to $500 annually based on the number of employees, the new “headcount” tax will charge businesses $45 per employee up to a $350,000 cap annually. The cap can increase a maximum of 5% per year, based on the rate of inflation.
Any Santa Clara business that earns less than $5,000 per year is exempt. The city plans to set aside $330,000 annually to provide a reduced tax to small business owners that can prove it will cause hardship.
Santa Clara officials said the updated tax will increase equity and city revenues in the long run, and help the city address its $27 million budget deficit in the short term.
“I’m so happy that this is passing and I am proud to be a champion of this since 2019,” Councilmember Raj Chahal told San José Spotlight.
The measure will require large companies headquartered in the city, such as Nvidia, Intel and Applied Materials, to pay more of their fair share, and could bring roughly $6 million in annual revenue to city coffers.
By comparison, the existing business tax model—last updated in 1992—nets about $900,000 annually. It requires major companies with 5,000 or more employees to only pay $500 per year, while a company with 50 employees is required to pay $100-$380 per year, depending on the type of business.
Silicon Valley Central Chamber of Commerce President Christian Malesic said the business advocacy organization is disappointed the measure is likely to be approved.
“With one fell swoop the city council and unfortunately now the voters have moved Santa Clara from the clearest, best city for business in the valley and really the Bay Area, to one of the worst cities, at least from a business taxing point of view,” Malesic told San José Spotlight.
From the start, the chamber opposed the change in the headcount tax model. Malesic said the chamber would have been open to supporting a modest increase in the current business tax to help modernize it, but the city went too far too fast, trying to make up lost ground.
“In trying to make a little bit extra money, or in this case a lot of extra money from our bigger companies, there is a risk,” Malesic said. “And only time will tell if this turns out to be a blip and the businesses just absorb it, or if we start seeing an effect from this.”
In the summer, the Santa Clara City Council voted 5-2 to put the measure on the ballot for voters to decide. Mayor Lisa Gillmor and Councilmember Kathy Watanabe opposed it, while Chahal and Councilmembers Anthony Becker, Kevin Park, Suds Jain and Karen Hardy supported it.
Gillmor did not respond to requests for comment. She said previously she thought the measure would take the business tax from “zero to very aggressive” in too short a time, and would harm businesses.
Chahal said he met with Intel, Nvidia, and Applied Materials representatives, and is confident they’re not worried about the business tax, especially because it has an annual cap. He said it would be impractical for a major company with thousands upon thousands of employees to uproot its operations over the tax.
“Take for example, Nvidia or Intel. They have a multibillion dollar establishment over here. What does $350,000 count for them? It’s just one executive salary,” Chahal said. “They honestly directly told me, they are not moving anywhere.”
As of Friday, Applied Materials, Nvidia and Intel had a combined market capitalization of about $600 billion.
Chahal said the companies are also willing to take the tax hit because they save millions of dollars annually on electricity in Santa Clara. Silicon Valley Power, the city’s in-house electricity supplier, is much cheaper than other utility companies, Chahal said.
Malesic said the city is openly targeting its biggest businesses, and the extra tax burden could cause business leaders to rethink whether they should stay in Santa Clara.
“The real problem here is that for 30 years, the various city councils did nothing. So the new city council is trying to catch up 30 years’ worth of increases (all at once),” he said.