Voters in four Bay Area cities this week approved new taxes for top employers, in a sign of support for their corporate citizens — including Netflix, Tesla and Clorox — to contribute more to the costs caused by tackling housing affordability and homelessness arise in the midst of a faltering economy.
Recent election results show that business tax measures in Oakland, Santa Clara, Palo Alto and Los Gatos are in double digits in some cities. For those facing looming budget deficits, the millions in new business dollars will mean fewer spending cuts, new revenue to fund programs and housing, and less reliance on debt and borrowed funds.
Some attribute the success to carefully crafted votes screened by big business to stave off costly anti-tax campaigns. In Palo Alto, the city’s strategy, which included working with the Chamber of Commerce and the Silicon Valley Leadership Group, prevented a negative campaign from jeopardizing the effort.
“The compromise approach was essential,” Mayor Pat Burt said. “They indicated that they would spend unlimited funds to oppose not only the business tax measure but also the gas transmission fee measure that is also on the vote.”
Palo Alto’s business tax, the first of its kind in the city’s history, won a resounding victory as voters doubled the vote — 10,372 in favor versus 5,080 on Thursday. The tax, a 7.5-cent levy on office space, would begin in 2026 and is expected to raise about $8 million a year to fund affordable housing, public safety and other existing programs. It would tap into larger companies including Palo Alto Networks, VMware and Tesla.
Burt said he always thought the measure would catch on, but credited the lack of a negative campaign for achieving an “even stronger than expected” performance. Historically, Palo Alto has not been very keen on approving new taxes. As early as 2008, voters rejected a similarly moderate trade tax measure.
Other cities, including Los Gatos and Oakland, also made compromises with their business communities.
In Oakland, voters approved a business tax measure by a 2-to-1 majority: 25,399 in favor and 12,685 against in the most recently released census. The progressive tax supersedes the city’s existing policy of requiring small businesses like corner shops to pay the same flat tax rate as giant corporations that generate hundreds of millions of dollars in annual revenue.
The city’s top employers are Kaiser Permanente, Clorox, and Sutter Health.
New tax rates mean large companies pay a significantly higher tax rate than smaller ones, and for some of the city’s smallest companies, that means a lower tax burden. All told, the city expects to earn $20.9 million annually. Oakland City Councilman Dan Kalb said he was not surprised by the result.
“For one thing, Oakland residents have historically been very generous to ensure that the city has adequate funds in our budget to do the things that people want us to do,” Kalb said. “The other reason I’m not surprised is that months ago negotiations were going on to find a measure that proponents would agree with and potential opponents could live with. We were able to forestall almost all resistance.”
Kalb said he hopes the money will go toward tackling homelessness and reducing violent crime, including funding operational costs for facilities that house formerly homeless people, as well as violence prevention and intervention programs, services and policies.
Los Gatos council members also worked with business leaders, including streaming giant Netflix, which is headquartered there, to develop a tax that avoids corporate wrath. Voters approved the tax by a relatively narrow margin compared to other cities: 4,373 in favor and 3,699 against.
The measure will overhaul the city’s three-decade-old business tax, meaning the city will rake in more dollars from e-commerce and shipping, the latest consumer trends.
The tax will increase the overall contributions of the city’s top employers, and the five companies that fall into that category — including Netflix — would pay $165 for every $550,000 made over $12 million. The current tax requires companies like Netflix to pay $75 per $550,000.
Without being at the table with Netflix to negotiate a tax, Mayor Rob Rennie said Tuesday’s outcome could have been far bleaker for the city’s economic prospects given that there is a $3.5 million budget hole. The new revenue of about $1.2 million will mean the city can now “trim around the edges” rather than make bigger cuts, Rennie said.
“We hadn’t increased the business tax since 1991, so I think most people understood that we needed to update that. It will really help us a lot,” he said. “With the pandemic, sales tax has not recovered and we’ve lost much of the growth that we would have seen over the past two years and our spending continues to rise.”
Meanwhile, Santa Clara voters approved a measure to overhaul the business tax, bringing in much-needed revenue to help close a $20 million budget deficit. The tax includes a new “headcount counting system” that will charge about $45 per employee starting in July 2023, with a cap of $250,000.
Santa Clara hadn’t updated its tax system in 30 years. Top employers include Nvidia, Applied Materials and the San Francisco 49ers.