Modernize San Jose's Outdated Business Tax: Vote Yes on Measure G
By Laura Tolkoff, San Jose Policy Director
October 5, 2016

Modernizing the business tax would help San Jose recover from fiscal strain and reinvest in amenities to attract residents, businesses, employees and visitors. Photo by Sergio Ruiz for SPUR

Earlier this year, SPUR published Back in the Black: A Fiscal Strategy for San Jose. One of the major takeaways from our research was that San Jose needs more money to pay for necessary services and infrastructure, both now and in the future. For many years, the city had to prioritize urgent matters, which meant cutting services and staff, deferring maintenance on infrastructure and postponing action on proactive policies that would support San Jose’s transition to a more urban city. Our report argued that now is the time for the city to shift toward reinvestment and offered recommendations for growing revenue, including updating and restructuring the business tax.

Measure G, the San Jose Business Tax Modernization Measure, would do just that. The City of San Jose anticipates that it would double business tax revenue from $12.7 million to $25.4 million in its first year.

SPUR strongly supports Measure G. We think this proposal is a practical way to add revenue to the city’s general fund and would help San Jose do more of the things big cities do to attract residents, businesses, employees and visitors.   

What would the measure do?

Measure G would update and restructure the San Jose business tax, which has not been updated since 1986. Key modifications are listed below. (See a recent presentation at SPUR for a more detailed description of what the tax measure would do.) The proposed tax would:

  • Apply to the same categories that the business tax applies to now (employee-based businesses, landlords of residential properties, mobile home park owners, commercial landlords and private water companies).
  • Increase the base rate for all businesses, from a current rate of $150 annually to $195 annually.
  • Increase the rate of the business tax per residential unit and implement a graduated structure based on the number of units that a residential landlord owns.
  • Include a cost-of-living adjustment, which would allow the business tax to keep up with inflation and provide the city with greater predictability for budgeting purposes.  
  • Raise the maximum cap that businesses could pay from $25,000 to $150,000 annually. (Very few businesses would be large enough to be affected by this cap.)
  • Exempt businesses with revenues of $23,760 or less. Business owners with household adjusted gross incomes of $47,520 or less would also be exempt.

The measure requires a simple majority to pass.

How does this compare to the business taxes in other big cities?

The tax rate that San Jose businesses are anticipated to pay would be much lower than what businesses in San Francisco and Oakland pay. San Francisco’s average per-business tax is $6,000; Oakland’s average is $1,077. The table below that shows the current and proposed average annual payment per business in San Jose.
 

Current Business Tax
Structure and Rates

Prop. G Business Tax
Structure and Rates

Type of Business

Number of Registered Businesses

Annual Tax Revenue

Average Annual Tax

 

Number of Registered Businesses

Annual Tax Revenue

Average Annual Tax

Most Businesses

67,000

$10.5 million

$157

 

67,000

$18.4 million

$275

Commercial Landlords

3,600

$1.3 million

$361

 

3,600

$3.55 million

$986

Residential Landlords

3,800

$800,000

$211

 

8,8002

$2.9 million

$330

Mobile Home Parks

50

$50,000

$1,000

 

50

$100,000

$2,000

Totals

74,4501

$12.7 million

$171

 

79,450

$25 million

$315

Source: City of San Jose Office of Economic Development

1 Total count includes approximately 13,000 exempt businesses but does not include approximately 11,000 branch locations.
2 Count forecasted to increase by approximately 5,000 additional businesses by commencing the base tax at the first rental unit rather than the third unit.

SPUR's Recommendation

SPUR thinks that Measure G is a good step towards fiscal stability for San Jose. The business tax has not been updated since 1986, and this measure strikes a pragmatic balance of increasing revenue for the city while ensuring that it can continue to grow its jobs base. Vote yes on Measure G. 

 

 

SPUR also supports:

Santa Clara County Measure A >>

Santa Clara County Measure B >>

 

 

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