Will Santa Clara voters approve a headcount tax for businesses?
The Santa Clara City Council chambers located at City Hall. File photo.

A business tax will reap millions for Santa Clara if residents approve a ballot measure in November.

Voters will be asked whether the city should update the “headcount” tax  business license fee, which has not been revised in 30 years and charges $15 to $500 annually based on the industry and number of employees.

On Tuesday, the City Council approved placing an updated headcount tax on the November ballot with a 5-2 vote. Mayor Lisa Gillmor and Councilmember Kathy Watanabe voted against it.

“I feel positive about it, it’s been about 20 years since we last updated it,” Councilmember Anthony Becker told San José Spotlight. “I think it was just time for it to happen. It seems like we’re on par with a lot of cities, based on what the presentation was last night.”

The proposed measure, if approved, would create a tiered system based on number of employees, which city officials say is more equitable to the existing structure. It would update the headcount tax to charge $45 per employee with a cap of $350,000 starting July 2023.

Businesses which earn less than $5,000 per year would be exempt from the tax. The city manager’s budget would include $330,000 to help small businesses that request financial assistance or bring a hardship case to the finance department. A one-time subsidy ranging from $30 to $200 based on number of employees would be available to businesses with up to 49 employees.

The ballot measure follows the neighboring cities of Mountain View and Palo Alto, which have similar headcount fee structures with their largest employers such as Mountain View-based Google.

How Santa Clara’s existing business license tax structure compares to other neighboring cities. Courtesy of Santa Clara.

Becker said he agreed with Councilmember Raj Chahal’s calls to update the headcount tax in 2019, because this change could have been netting funds for the city during the pandemic.

“We’re in a really hard time in the city,” Becker said. “We shouldn’t be putting this deficit on businesses to solve this issue. This comes down to failed leadership of the past and failed policies, and not really taking a look at these things years ago when they should have been.”

The revised license tax was first brought to the City Council last June. City polls conducted in January found 64% of those surveyed supported a new business tax, once they were told the inequities of the current tax structure that favors corporations.

Plugging the deficit

City officials say the goal is to bring in millions from the city’s largest employers, tackling a nearly $20 million budget deficit. The current tax model brings in about $900,000 annually, or 0.4% of the general fund’s revenue. The proposed model would generate approximately $6 million annually.

The measure was redrafted after last week’s council meeting where it faced opposition from the Silicon Valley Central Chamber of Commerce and trepidation from several councilmembers.

Gillmor said last week she thought the tax measure as written would harm all businesses no matter what size, and said she did not want to place Santa Clara at a disadvantage to other nearby cities. On Tuesday, she still opposed the revised measure.

“Especially when we are going from zero to very aggressive, had we taken more measured steps to introduce this tax to our community, I think it would have less of an impact than it’s going to have,” Gillmor said at the meeting.

Gillmor did not respond to a request for comment.

Councilmembers Chahal, Karen Hardy and Kevin Park worked on the revision with the chamber’s President and CEO Christian Malesic. Malesic has said the business group opposes a headcount tax targeting the largest local companies, because increased tax costs could chase away companies that bring much-needed jobs. The chamber presented officials with alternatives to address the budget deficit this spring, such as a smaller tax increase that no more than doubles the current amount of revenue.

Malesic said Tuesday the task group created five versions of the proposed measure, and he asked the city to delay it until the next election.

“Although we appreciate Santa Clara city staff and councilmembers for involving us in the process, the model that passed council was developed and presented just 24 hours prior to the vote; thus, was not properly vetted,” Malesic told San José Spotlight on Wednesday. “In the rush to ‘do something’, the final, green-lit huge tax increase on business that will be on the November ballot was not thoroughly reviewed, analyzed or debated.”

Councilmember Suds Jain, who has supported the tax update, said he was frustrated with the chamber for opposing the compromise the city proposed.

“The city had to back down on its original proposal (reducing revenue to $6 million) to try to get people to buy in, but nobody bought in,” Jain told San José Spotlight. “We have to fill our deficit, otherwise we’re going to have to lay off employees. We tried hard to make sure we weren’t an outlier, that we weren’t (charging) higher than the cities around us.”

Contact Natalie Hanson at [email protected] or @nhanson_reports on Twitter.

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