Santa Clara leaders have found a way to increase city revenue tenfold, but it’s unclear if can they pull it off.
The City Council tonight is likely to approve placing a measure on the November ballot to increase the city’s business “headcount” tax to close a $20 million budget deficit, which officials attribute to a drop in revenue due to the pandemic. City officials have said they have the support needed to update the 30-year-old tax at tonight’s meeting.
The approval sets up Santa Clara to bring in millions from the city’s largest employers. The current model—which charges $15 to $500 based on the industry and number of employees—brings in about $900,000 annually, or 0.4% of the general fund’s revenue. The new model would generate approximately $9 million annually, or 10 times current levels.
Under the existing tax structure, tech giants based in Santa Clara like Intel, Advanced Micro Devices and Nvidia are capped at $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 reverse the decision would be through another ballot measure.
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The deadline to qualify for the November ballot measure is mid-August. Councilmember Suds Jain previously told San José Spotlight he is in favor of the tax. He said while some have expressed concern an increased tax will make large businesses leave town, he thinks resources like affordable electricity and fiber internet connectivity should help businesses stay in Santa Clara.
Councilmember Kevin Park declined to comment Tuesday. Mayor Lisa Gillmor and other councilmembers did not respond to requests for comment.
If approved, the ballot measure would be among the first being considered in Santa Clara County, alongside Mountain View and Palo Alto, which already capitalize on taxing their largest employers like Google.
The revised license tax was first brought to the City Council last June and officials discussed different ways to modernize it in October. City polls conducted in January of this year found 64% of those polled supported a new business tax when they learned about the inequities of the current tax structure and how it favors corporations.
The Silicon Valley Chamber of Commerce opposes a headcount tax which targets the largest locally-based companies, its leaders said in June.
President and CEO Christian Malesic previously told San José Spotlight the chamber would rally against the headcount proposal because such increased tax costs could chase away companies that bring 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 capped at 5%.
Finance Director Kenn Lee and Assistant City Manager Cynthia Bojorquez previously told San José Spotlight they have incorporated suggestions from the chamber into their new proposal, with Lee calling it “a balanced approach.” Bojorquez said this proposal will consider the needs of small and large businesses.
According to a new city report, residents said this modernized tax is “desirable for Santa Clara or is moderately or minimally acceptable” during listening sessions.
Feedback showed residents want a tax that is fair and equitable without being a disincentive for attracting new business. Residents preferred a tiered employee headcount tax.
“The current $500 cap on employees is not seen as fair, with large businesses being given an advantage over small businesses,” Bojorquez wrote.
The Santa Clara City Council meets Tuesday at 6:30 p.m.. Learn how to watch and participate.
Contact Natalie Hanson at email@example.com or @nhanson_reports on Twitter.
This story will be updated.
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