An overhaul of Santa Clara’s business tax that could help the city plug a gaping budget hole appears to be on track for victory in the election.
According to the Santa Clara County Electoral Roll, nearly 60% of Santa Clara voters support Measure H in early election results. As of Friday night, about 62% of expected statewide ballots have been counted.
Once implemented, the measure will restructure Santa Clara’s business tax so that large companies pay significantly more than smaller ones. While the current tax charges businesses between $15 and $500 annually, depending on the number of employees, the new “headcount” tax will charge businesses $45 per employee, up to an annual cap of $350,000. The cap can increase by a maximum of 5% per year based on the inflation rate.
Any Santa Clara business that makes less than $5,000 per year is exempt. The city plans to set aside $330,000 annually to give a reduced tax to small business owners who can show they’re causing hardship.
Santa Clara officials said the updated tax will increase the city’s equity and revenue over the long term and help the city fix its $27 million budget deficit in the short term.
“I’m so happy this is over and proud to have been a champion of it since 2019,” Councilor Raj Chahal told San Jose Spotlight.
The measure will oblige large companies headquartered in the city, such as Nvidia, Intel and Applied Materials, to pay more of their fair share and could bring about $6 million in annual revenue to the city coffers.
In comparison, the existing corporate tax model, last updated in 1992, brings in about $900,000 annually. Large companies with 5,000 or more employees only have to pay $500 per year, while a company with 50 employees has to pay between $100 and $380 per year depending on the type of business.
Silicon Valley Central Chamber of Commerce President Christian Malesic said business representatives are disappointed that the measure is likely to be approved.
“In one fell swoop, the City Council, and unfortunately now voters, moved Santa Clara from being the clearest, best city for business in the Valley and truly the Bay Area to one of the worst cities, at least from a corporate tax perspective,” Malesic told San Jose Spotlight.
From the outset, the Chamber spoke out against the change in the personnel taxation model. Malesic said the chamber would have been willing to support a modest increase in the current business tax to modernize it, but the city had gone too far too quickly, trying to make up lost ground.
“There’s a risk in trying to make a little bit of extra money, or in this case a lot of extra money from our larger companies,” Malesic said. “And only time will tell if this turns out to be an outlier and companies just absorb it, or if we start to see an impact from that.”
In the summer, the Santa Clara City Council voted 5-2 to put the measure on the ballot for voters to decide. Mayor Lisa Gillmor and Councilor Kathy Watanabe opposed it, while Chahal and Councilors Anthony Becker, Kevin Park, Suds Jain and Karen Hardy supported it.
Gillmor did not respond to requests for comment. She previously said she thinks the measure would take business tax from “zero to very aggressive” in too short a time and hurt businesses.
Chahal said he’s met with representatives from Intel, Nvidia and Applied Materials and is confident they’re not worried about the business tax, particularly because it has an annual cap. He said it would be impractical for a large company with thousands upon thousands of employees to uproot its businesses because of the tax.
“Take Nvidia or Intel, for example. You have a multi-billion dollar establishment over here. What does $350,000 mean to you? It’s just a managerial salary,” Chahal said. “They honestly told me straight out that they’re not moving anywhere.”
As of Friday, Applied Materials, Nvidia and Intel had a combined market cap of about $600 billion.
Chahal said the companies are also willing to take the tax bill because they save millions of dollars a year on electricity in Santa Clara. Silicon Valley Power, the city’s home electric utility, is much cheaper than other utilities, Chahal said.
Malesic said the city is openly targeting its largest companies, and the additional tax bill could prompt business leaders to reconsider staying in Santa Clara.
“The real problem here is that the various city councils have not done anything for 30 years. So the new city council is trying to catch up the increases from 30 years (at once),” he said.
Contact Joseph Geha at [email protected] or @josephgeha16 on twitter.