What the Measure Would Do

This measure would increase San José’s Transient Occupancy Tax (TOT), commonly known as the hotel tax, from 10% to 12%, on October 1, 2026. The tax is paid by guests of short-term rentals (30 or fewer days), covering hotels, motels, and platforms such as Airbnb. The additional revenue, estimated at $10 million annually, would go to the city’s General Fund to support essential services, including police and fire emergency response, homeless encampment management, park maintenance, and infrastructure upkeep. Of the current 10% tax, 6% is allocated to the convention center, visitors bureau, and cultural grants and arts programs. The other 4% goes to the General Fund. This measure would increase the general-purpose portion of the tax from 4% to 6%. Even with the increase, San José would still have a lower base hotel tax rate than many other comparative cities, including San Francisco and Oakland.

Revenue from the proposed tax increase would be designated for the General Fund and would not be dedicated to specific programs. Therefore, the City Council would have flexibility to allocate the new revenue in response to changing community needs.

The tax increase was placed on the ballot unanimously by the San José City Council. As a general-purpose tax, it requires a majority of voters (50% plus one vote) to approve. If approved, the tax increase would take effect on October 1, 2026.

The Backstory

San José faces a projected deficit between $55 million and $65 million for fiscal year 2026–27. Without adding new revenue, the city will need to reduce expenditures, which could result in significant service cuts and employee layoffs. Over the past two years, the City Council has directed staff to explore various revenue options, including potential changes to the sales tax, business tax, and local fees, to help increase the General Fund.¹

A poll commissioned by the city in November 2025 found that 55% of likely voters support increasing the hotel tax, with 32% opposed and 13% undecided. Based on this data and the urgent budget timeline, the City Council voted unanimously to place the measure on the June 2 primary ballot.

San José’s hotel tax was originally created in 1982 to fund the arts and promote tourism, with all revenue from the initial 6% rate directed to arts programs. That allocation to the arts has remained fixed at its 1982 level ever since. Since 1982, the tax has been raised twice, the last time in 1989 to 10%, with all additional increases (4%) going to the General Fund. The business and arts community has raised concerns that there should have been more analysis of how funds generated from this tax could be strategically invested in tourism, convention activity, the experience economy, and San Jose’s arts and cultural ecosystem — levers that would generate economic activity for the city. In February 2024, the City Council held a study session on arts and destination marketing funding that identified increasing or reallocating TOT revenues as one of several potential tools.

Like many cities, San José has faced persistent structural budget challenges for more than two decades. Since FY 2002–03, the city has resolved more than $800 million in General Fund shortfalls primarily through service reductions rather than revenue increases. The number of budgeted positions across all city funds has decreased from 7,481 in FY 2001–02 to 7,009 in FY 2025–26, a net loss of 472 positions even as the city’s population has grown.

Equity Impacts

Hotel taxes are generally considered more progressive than other revenue sources because the burden falls on visitors rather than residents, and business travelers and tourists tend to have higher incomes than the general population. San José residents would not pay this tax unless they stay in local hotels.

However, the measure raises some equity considerations. Budget hotels serving lower-income travelers, including families visiting relatives, price-conscious business travelers, and people seeking transitory housing for 30 or fewer days, would see the same percentage increase as luxury properties. Additionally, small, independent hotels operating on thin profit margins could face greater competitive pressures than large hotel chains with economies of scale.

From a service-delivery perspective, maintaining city services through visitor-funded revenue helps protect programs that serve vulnerable communities. Budget shortfalls disproportionately harm historically underinvested communities by reducing park maintenance, homeless services, and other essential programs.

Pros

• The measure would provide urgently needed revenue to maintain essential services without raising taxes on residents.
• San José’s hotel tax would remain lower than many peer cities even after the increase.
• The measure’s General Fund allocation would provide flexibility to address the city’s most pressing needs.

Cons

• The measure would not by itself address San José’s structural budget challenges. The city would still need to explore other revenue sources and reduce expenses.
• The city has traditionally used most of the hotel tax proceeds for purposes that generate economic activity. This measure would commit proceeds to the General Fund and would not clearly focus them on uses that would generate additional economic activity.