UPDATE: Santa Clara Delays Putting Business Tax Before Voters

San Jose Spotlight

by Natalie Hanson

July 5, 2022 - Santa Clara leaders are holding off on putting a business tax before voters in order to allow for more input from a local business group.

The City Council voted unanimously Tuesday to wait until July 11 to vote on placing a measure on the November ballot to increase the city’s business “headcount” tax to close a $10 million budget deficit, which officials attribute to a drop in revenue due to the pandemic. Councilmembers Raj Chahal, Karen Hardy and Suds Jain will work on revising the proposal with the Silicon Valley Central Chamber of Commerce, which opposes the plan.

Chahal said he’s been asking for this tax change for years and called the existing $500 cap for larger businesses a joke. He said city data shows if the measure passes, about 95% of local businesses will not pay more than $1,365, and 64% will pay less than $100.

“We are providing a lot of benefits to our businesses, and this is a collective approach to how we can help each other,” he said.

The proposal sets up Santa Clara to bring in millions from the city’s largest employers. The current model—which charges $15 to $500 based on the industry and number of employees—brings in about $900,000 annually, or 0.4% of the general fund’s revenue. The new model would generate approximately $9 million annually, or 10 times current levels.

Under the existing tax structure, tech giants based in Santa Clara like Intel, Advanced Micro Devices and Nvidia are capped at $500 in annual taxes if they have 100 to 400 employees. The measure would ask voters to change those caps from $15 to $135 per employee, with larger businesses paying more. If the initiative passes, the only way to reverse the decision would be through another ballot measure.

“(The new tax) will harm Santa Clara businesses, large and small,” Mayor Lisa Gillmor said, noting she was not in favor of raising taxes. “We’re going to put ourselves at a competitive disadvantage with other cities surrounding us.”

If approved, the ballot measure would be among the first being considered in Santa Clara County, alongside Mountain View and Palo Alto, which already capitalize on taxing their largest employers like Google.

Opposed to the Changes
The revised license tax was first brought to the City Council last June and officials discussed different ways to modernize it in October. City polls conducted in January of this year found 64% of those polled supported a new business tax when they learned about the inequities of the current tax structure and how it favors corporations.

The deadline to qualify for the November ballot measure is mid-August.

The Silicon Valley Central Chamber of Commerce opposes a headcount tax which targets the largest locally-based companies, its leaders said in June.

President and CEO Christian Malesic told San José Spotlight the chamber would rally against the headcount proposal because such increased tax costs could chase away companies that bring much-needed jobs to the city. He said the chamber presented city officials with alternatives to address the budget deficit in April and May, such as a smaller tax increase that no more than doubles the current amount of revenue. He also said the chamber would support capping the total tax an employer would pay, or keeping annual tax rate increases capped at 5%.

Malesic spoke at the meeting and said the proposed business license tax will turn Santa Clara into “the least business friendly city in the valley.”

Finance Director Kenn Lee and Assistant City Manager Cynthia Bojorquez said they have incorporated suggestions from the chamber into their new proposal, with Lee calling it “a balanced approach.” Bojorquez said this proposal considers the needs of small and large businesses.

According to a new city report, residents surveyed said this modernized tax is “desirable for Santa Clara or is moderately or minimally acceptable” during listening sessions.

Pete Constant, a public policy professor at William Jessup University, said his department reviewed the proposed business license tax for the chamber.

“The report that you received from staff really didn’t provide information on how businesses in other cities have responded to the employee tax increases,” Constant said, noting any increase in taxes generally raises prices for residents who buy products from businesses, worsening costs in an ongoing inflation crisis. “The unintended consequence of that is less spending in your city.”