Santa Clara is poised to introduce a headcount tax on the November ballot

Santa Clara leaders are withholding a business tax from voters to allow 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 “full-time” tax to close a $10 million budget deficit that officials are paying of a drop in revenue due to the pandemic. Council members Raj Chahal, Karen Hardy and Suds Jain will work to revise the proposal with the Silicon Valley Central Chamber of Commerce, which opposes the plan.

Chahal said he has wanted this tax change for years and called the existing $500 limit for larger businesses a joke. He said city data shows that if the measure passes, about 95 percent of local businesses would pay no more than $1,365 and 64 percent would pay less than $100.

“We provide a lot of benefits to our business and it’s a collective approach to how we can help each other,” he said.

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

Under the existing tax structure, Santa Clara-based tech giants such as Intel, Advanced Micro Devices and Nvidia are limited to $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 overturn the decision will be through another ballot measure.

“(The new tax) will hurt Santa Clara businesses, big and small,” said Mayor Lisa Gilmore, noting she does not support the tax increase. “We’re going to put ourselves at a competitive disadvantage to other cities around us.”

If approved, the ballot measure would be among the first to be considered in Santa Clara County, along with Mountain View and Palo Alto, which already benefit from taxing its largest employers like Google.

Opponent of change

The revised license tax was first brought before the City Council last June, and officials discussed various ways to modernize it in October. City polls conducted in January of this year found that 64 percent of respondents supported a new business tax when they learned about the unfairness of the current tax structure and how it benefits corporations.

The deadline to rank for the November election is mid-August.

The Silicon Valley Central Chamber of Commerce opposes a payroll tax that targets the largest local companies, its leaders said in June.

President and CEO Cristian Malesic told the San José Spotlight that the chamber will rally against the headcount proposal because such increased tax costs could drive away companies that provide 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 at a 5 percent cap.

Malesic spoke at the meeting and said the proposed business license tax would make Santa Clara the “least business-friendly city in the valley.”

Finance Director Ken Lee and Assistant City Manager Cynthia Boyorquez said they incorporated suggestions from the chamber into their new proposal, which Lee called a “balanced approach.” Bojorquez said this proposal takes into account the needs of small and large businesses.

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

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

“The report you got from staff really doesn’t provide information about how businesses in other cities have responded to employee tax increases,” Constant said, noting that any tax increase typically raises prices for residents who buy products from business, worsening costs in a continuing inflationary crisis. “The unintended consequence of that is less spending in your city.”

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

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