Silicon Valley Business Group Opposes Proposed Headcount Tax

San Jose Spotlight

by Natalie Hanson

June 21, 2022 - Santa Clara could ask residents to approve a business tax overhaul in November, despite opposition from regional commerce leaders. If passed, it could bring in millions. 

The Silicon Valley Central Chamber of Commerce sent a letter Monday to Santa Clara’s mayor and City Council opposing any “dramatic increase” in the business license tax companies pay. The city is mulling over a “head tax” as a way to curb a nearly $20 million budget deficit in the upcoming fiscal year. 

An ariel image of part of the City of Santa Clara
City officials have said updating the business license tax structure could bring in millions from the largest employers. The current model—which charges $15 to $500 based on industry and number of employees—pulls about $900,000 in revenue annually, or 0.4% of the general fund. Tech giants like Intel, Advanced Micro Devices and Nvidia have hundreds of employees and currently pay only up to $500 annually under the existing tax structure.

The city is considering recommending these companies pay higher fees based on how many people they employ, to start to narrow the gap in the general fund. But not everyone supports the proposal.

In a letter to the City Council, Silicon Valley Central Chamber President and CEO Christian Malesic said such a proposal would cause a “nearly 700% increase” in taxes for the largest locally-based companies. He said the business community opposes any tax increase based on this formula for any company in Santa Clara.

“We would hope we could work with the city at this point before there is a vote,” Malesic told San José Spotlight, adding the chamber would rally against the proposal if the City Council passes a version to go on the November ballot.

Malesic said the chamber met with city officials in April and May, with alternatives for addressing the budget deficit rather than changing the business license tax. He suggested a smaller overall tax increase, no more than double the current amount of revenue collected from the current tax, rather than basing taxes off the number of employees. He said the chamber also would support capping the total tax an employer would pay, keeping it substantially lower than the county average, or capping the rate the tax rises based on inflation each year below 5%.

The revised license tax was first brought to the City Council last June, with discussion on ways to modernize it taking place last October. City polls conducted in January of this year produced pros and cons on changing the tax structure. However, Santa Clara spokesperson Lon Peterson said after voters were told the inequities of the 30-year-old model, 64% of those polled supported considering a new business license tax model.

Concerns were also raised that businesses would leave the city over a change in the headcount formula, but Councilmember Suds Jain previously told San José Spotlight he didn’t think that would happen. He pointed out healthy resources like affordable electricity and fiber internet connectivity are why Santa Clara is more attractive to businesses than other cities.

Applied Materials is Santa Clara’s largest employer, according to city records. Other major employers in the city include Intel, AMD, Nvidia, Marvell Technology, Silicon Valley Bank and Dell Technologies. These legacy companies put down roots in the city decades ago. A spokesperson for Nvidia previously told San José Spotlight the company had recently opened its second major headquarters building in the city.

Mayor Lisa Gillmor did not respond to a request for comment on the chamber’s opposition. Peterson told San José Spotlight the city is already adding elements which the chamber mentioned in a proposal coming to the City Council.

Finance Director Kenn Lee told San José Spotlight the chamber’s suggestion to double the current tax “would be less than a CPI inflation index from 30 years ago” and said the coming proposal is a balanced approach.

The deadline for a tax measure to go to the November ballot is in August. Assistant City Manager Cynthia Bojorquez said Santa Clara will bring the final proposal for a headcount tax model to the City Council on July 5.

Bojorquez said city officials have heard positive feedback on the modernized tax solution despite the chamber’s opposition.

“We do think it’s reasonable and keeps us business friendly,” Bojorquez told San José Spotlight. “It does take into account the needs of both small businesses and large businesses.”