Proposed Business Tax Measure Not ‘Business Friendly,’ Council Says

Silicon Valley Voice

by David Alexander

July 6, 2022 - “Fair share” was the phrase of the night at the Santa Clara City Council meeting when the Council considered two ballot measures to funnel money into its general fund.

At its Tuesday night meeting, the Council opted to delay a new business license tax and approved another tax that would transfer utility revenue to the general fund. With a looming $27 million deficit that City employees attribute to the pandemic, the ballot measures would add millions to the City’s general fund.

Many stressed that Santa Clara-based tech giants like Nvidia and Intel need to pay more in business license tax. The proposed business tax measure would increase how much the City collects for such a tax ten-fold, increasing it to roughly $9 million annually.

However, the Council found the measure draconian after hearing from opposition, saying it wants to maintain Santa Clara’s business-friendly environment.

As it is, the tax structure caps at $500 a year, something Council Member Raj Chahal called “a joke.” The proposed “headcount” measure would increase business tax on businesses across the board with the largest companies seeing a hike from $15 per employee to $135 per employee.

“Any increased taxes on employer[s] generally means increased taxes and prices to your residents who participate, get services and buy products from your businesses,” said Pete Constant, professor of public policy at [William] Jessup University. “That means higher prices — even higher prices — than our inflation-impacted prices for local businesses and residents.”

Constant said the tax would have the “unintended consequence” of less spending in the City.

Similarly, Christian Malesic, President and CEO of Silicon Valley Central Chamber of Commerce, called the hike a “super hyper progressive” tax, one that will make Santa Clara the least business-friendly environment in the valley. 

The Santa Clara City Council discussed two tax measures for the November ballot, agreed to fund an assessment of its Loyalton Ranch property and approved objective design standards for City developments at the July 5, 2022 meeting.
The City’s business tax and license structure has not been updated since 1992. Additional taxes collected from the business tax measure would go to fund City services such as police and fire and storm sewer and park maintenance.

The Council is short on time to ensure it can get any measure on the ballot in November. But in the interest of balancing the wishes of the Chamber with the need to update the tax structure, the Council took the advice of Council Member Kathy Watanabe, who suggested deferring the item until its July 12 meeting because it is not “fully baked.”

Council Member Kevin Park said he would like to see Santa Clara’s structure be as friendly as Mountain View’s on the low end and as friendly as San Jose’s on the upper end.

“We want you to contribute to our City, but we are not going to squeeze you for everything we can get. I think that is the essence of being a business-friendly city,” he said.

While the business tax increase would be more stable than more volatile types of taxes like the City’s transient occupancy tax — paid by hotel guests — or sales tax, the Council worried it could de-incentivize businesses from operating in Santa Clara, a risk it wasn’t willing to take.
Mayor Lisa Gillmor said, as proposed, the tax would put the City at a competitive disadvantage, saying she would rather work with businesses than hurt them.

“If you start to bite the hand that feeds you, you are going to be in trouble in the long-term,” she said.
The Council unanimously voted to defer the business tax measure until July 12 and work with the Chamber in the meantime to establish a structure more amenable to local businesses.

The second proposed measure — to transfer 5% of utility revenue to the general fund — passed unanimously. That measure, if passed, would generate roughly $30 million for the City’s general fund annually but would not increase taxes for residents.