Pressured by a proposed ballot measure that would hike the city’s outdated business tax, San Jose’s City Council proposed an alternative ordinance.
The compromise was reached earlier this week, when the council also agreed to ask voters to approve a separate quarter-cent general sales tax. The 15-year sales tax will go on the June ballot and require a simple majority to pass.
City officials say the business tax and sales tax would increase revenue for for city services, though the latter, as a general sales tax, wouldn't be earmarked for a specific purpose.
Scott Myers-Lipton, who teaches sociology at San Jose State University, had been pushing an initiative that would tax large businesses based on revenues. The gross receipts business tax drew opposition from Mayor Sam Liccardo and the San Jose Silicon Valley Chamber of Commerce.
San Jose collects $12.7 million a year from its existing business tax, which tops out at $25,000 for all companies and hasn’t been updated in three decades. On Monday, Liccardo unveiled his own plan, which would up the cap and add a cost-of-living adjustment.
The council approved the mayor’s plan to study a compromise in a 10-1 vote, with Councilman Pierluigi Oliverio opposed.
In a letter to the council, Myers-Lipton called the plan “a very good starting point.”
“While the scale of the change he proposes is smaller than the potential scale of the gross receipts measure our campaign is gathering signatures for, I appreciate the value of coming together around a consensus position that will allow all of us to avoid a costly and contentious fight at the ballot,” he wrote in a letter to the council.
Below is a copy of his letter.
Dear Mayor and City Council,
I have reviewed Mayor Liccardo’s memo dated March 7, 2016, which proposes a set of principles to guide the modernization of San Jose’s outdated and regressive business tax. I believe his proposal is a very good starting point. While the scale of the change he proposes is smaller than the potential scale of the gross receipts measure our campaign is gathering signatures for, I appreciate the value of coming together around a consensus position that will allow all of us to avoid a costly and contentious fight at the ballot. I thank the Mayor for his leadership and support on ensuring our local business community pays their fair share to restore services in San Jose.
I would also like to thank City staff for their report that fairly compares the current business tax and the proposed gross receipts tax measure. I believe their analysis is very balanced and most revealing: it shows the highly regressive and unfair character of San Jose's current business tax, where the smallest businesses pay an average of $120 per employee while the largest businesses pay $13.
This data is invaluable in demonstrating the urgent need to modernize the current business tax. In addition to thanking staff for the report, I also want to thank Councilmembers Rocha and Peralez, as they were the ones who initially proposed that the City study this issue and suggested that the Council may wish to explore a compromise position.
As I said, I believe the Mayor's proposal is a good starting point, but I would like to take this opportunity to make three observations about the specifics of the proposal.
First, in item 1.c. in his memo, the Mayor proposes that the City "expand the current maximum per-firm caps."
I would like to suggest that the Council considers a cap that ensures that larger corporations pay a disproportionately higher percentage versus Mom and Pop small businesses. The practical effect of a lower cap is to decrease the tax burden of the very largest corporations in San Jose, thus shifting a higher percentage of the burden to smaller businesses.
Second, I believe the (COLA) described in 1.d. must be at a rate that keeps up with inflation. If the City adopts the approach of basing the COLA on CPI, and then capping the increase in any given year to provide some certainty for businesses, my recommendation would be to set the cap at 3%.
Over the past 19 years, the San Francisco-Oakland-San Jose CPI-U has increased an average of 2.7% per year. A cap set at slightly above the average would help ensure that, over many years, the COLA would not lag significantly behind inflation over the long term.
Third, I would like to get a better idea of the Council's expected timeline for reviewing the ordinance and placing it on the ballot. As the Council may know, our campaign currently has paid signature gatherers out in the field. We are on track to collect enough signatures to place the gross receipts measure on the ballot in November 2016.
It would be useful to know when the Council planned to proceed. After the City Council considers the business tax modernization proposal, our campaign will make our decision as to whether or not to end our efforts to place a gross receipts tax on the ballot.
Again, I'd like to thank Mayor Liccardo, City staff, Councilmembers Rocha and Peralez, as well as the entire City Council for your work on ensuring that San Jose has the necessary resources to provide basic services to our residents.
Kindly, Dr. Scott Myers-Lipton