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Uploaded: Wednesday, March 11, 2009, 2:21 AM
Palo Alto business leaders blast proposed tax
Chamber of Commerce opposes new business-license-tax proposal but supports creating a 'blue ribbon task force' on city finances
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by Gennady Sheyner
Palo Alto Online Staff
Where is the "Palo Alto Process" when you need it?
That's the question business owners are asking these days when discussing the proposed "business license tax," a new fee city officials hope to implement next year to bolster the city's sagging revenues.
As initially proposed, the tax would apply to businesses' gross receipts and generate about $4 million annually for the city. It would cost companies between $35 and $20,000 a year, depending on business volume. It would need voter approval, which could occur in November.
The City Council's Finance Committee didn't make any recommendations on the staff proposal Tuesday but directed staff to analyze cumulative impacts of various local taxes on businesses and to present other models for consideration. Staff will come back to the committee with a revised report on April 21.
On Tuesday afternoon, members of the Palo Alto Chamber of Commerce Government Action Committee (GAC) voted to recommend opposing the proposed tax. The chamber Board of Directors unanimously supported the recommendation after being polled following the GAC meeting. The chamber also voted to support creation of a new blue-ribbon task force that would study other ways to generate revenue for the city.
Less than six hours after the chamber meeting, dozens of concerned business owners and representatives showed up at the Finance Committee meeting to complain about the proposal and ask city officials to slow down and think hard before instituting the new tax, especially in the face of the global economic crisis.
But protests from the business community are unlikely to deter the council. Palo Alto is the only city in Santa Clara County that doesn't have a business license tax and, with property- and sales-tax revenues plummeting, city officials are scrambling to find ways to minimize cutting services. The city faces an estimated $8 million budget gap next year.
"This isn't the answer to our budgetary problems, but we have to take a whole series of steps and this is one of them," Councilman Larry Klein told an audience of roughly 60 people.
Now, the same business leaders who frequently excoriate the city for its notoriously slow development-review processes are arguing that the city is moving far too fast on the business-tax proposal. The city staff plans to have the ordinance prepared by this summer, in time to send it to voters in November.
At an noontime open session of the Chamber's Government Action Committee, developer Charles "Chop" Keenan predicted that the tax would easily pass if it lands on the ballot, largely because many of the city's "night-time residents" would reap the benefits from the tax, while the "day-time residents" or business owners would foot the bill. The proposal would be a "done deal" if left up to the voters, he said.
"This is clearly taxation without representation in this room," Keenan said. "What this begs for is the 'Palo Alto Process,'" he added, eliciting some teasing due to his years of criticizing city delays in approvals of proposed development.
Developer Jim Baer, of Premier Properties, shared Keenan's sentiment and said he feels like the decision has already been made.
"It feels like we're editing an ordinance that's been drafted," he saud. "Start over. Put it off for a few months."
But City Manager James Keene maintained that the discussion process is just getting started. The plan was unveiled less than two weeks ago, and Tuesday night's meeting was the first in which the council publicly discussed the proposal.
Keene also refuted allegations from the business community that the city is relying on a new tax to avoid curbing spending and noted that even if the tax is implemented it wouldn't start generating revenues until July 2010, far too late to close this year's projected $5.8 million budget shortfall or next year's projected gap of $8 million.
The city will listen and pay attention to concerns and advice from the business community, he said.
"This is just the beginning of the conversation," Keene told the business leaders at the GAC meeting. "You have as much time as you're willing to make in this process."
Under the current proposal, local businesses would be split into categories, each of which would have a different tax rate. Retail businesses would be charged 50 cents for every $1,000 of gross receipts, while service businesses would be asked to pay 75 cents for every $1,000 of gross receipts.
Professional businesses, such as law firms and dentists offices, would be charged $1 for every $1,000 of gross receipts while businesses that rent out commercial properties would be asked to pay $1.50 for every $1,000.
No businesses would be asked to pay more than $20,000, the staff said.
The Finance Committee generally endorsed the proposed gross-receipts model, though Klein asked staff to exempt businesses owners who run their businesses from their personal residences. He urged a tax that would generate $2.5 million to $3 million and asked staff to compare the cumulative tax burdens faced by Palo Alto businesses compared to businesses in other cities.
Finance Committee Chair Pat Burt called for more alternatives and proposed a structure that would provide credit for businesses that generate significant revenue for the city.
Burt also asked staff to consider rate structures for businesses that don't fit neatly into the proposed classifications. These businesses include venture capitalists, pharmaceutical companies and software companies that distribute their products over the Internet or deal primarily with businesses (a distinction that would disqualify them from the "retail" category). Burt called them, "typical Palo Alto mom-and-pops."
"We have to really try to understand when we take an example of other cities, who it applies to here," Burt said. "Right now, I'm left with a lot more questions than answers."
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Posted by Night Resident, a resident of the Community Center neighborhood, on Mar 11, 2009 at 4:07 am In these tough times the city should cut costs and not punish the business residents.
Lets not cut the head of the golden goose.
Lets see if the city council can make a proper decision - I doubt it.
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Posted by resident, a resident of the Adobe-Meadows neighborhood, on Mar 11, 2009 at 5:39 am The business tax will make things more costly for everyone as the businesses will have no choice but to pass on the cost to consumers or layoff people in order to reduce their operating costs.
I have a hunch Palo Alto has a high concentration of people making over $200,000 to $250,000 a year. So with all these new taxes at local, state and federal level where do we stand?
federal:
4.6% income tax increase
7% charitable giving write-off decrease
state:
.25% state income tax surcharge for 2009-2010
1% sales tax increase: on homes, cars, eating out, fuel, basic necessities
100% vehicle license fee increase, a doubling from last year where the state will charge 1.15% of the car's value
local:
10% water rate increase
10% electricity rate increase
.05%-.1% business tax increase
I haven't quite done the math yet, but even for someone who is supposedly rich, all these taxes will have severe consequences.
Will all these new taxes stimulate people to continue buying homes, cars, go out the restaurants, continue to fund charities, and buy things? Maybe this is a good thing as the politicians we have elected will simply speed the deflationary spiral and further assist the unraveling of this nation's second great depression.
I suppose these businesses will have no choice but to continue to lay off people as folks have less money to spend as it goes to government coffers who know no way of cutting costs.
To date, I have not heard anything out of Palo Alto about cost cutting. Instead they will force all businesses and residents to cut costs first before they have to wake up to that reality.
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Posted by resident, a resident of the Adobe-Meadows neighborhood, on Mar 11, 2009 at 5:44 am One additional thought, all the new taxes at the state, local and federal level will certainly amount to at least thousands of dollars in increased taxes per year for a household making $250,000 or $200,000/year. I'm guesstimating at least $3,000-$10,000 less in cash every year due to increased taxes, electricity and water rates.
Hmmm, where else can I cut my costs? Fire my gardener and mow my own lawn, eat out less, buy fewer clothes, use less electricity and water, fire employees...
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Posted by resident, a resident of the Adobe-Meadows neighborhood, on Mar 11, 2009 at 8:10 am California sees double digit jobless rates. Web Link
I think this business tax will force companies to lay off more people to keep costs down.
Plus the new CA sales tax will force people, me included, to shop online to avoid paying taxes, rather than buy locally, which will further hurt local businesses.
I say hurrah to all the politicians for helping to further depress the economy.
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Posted by fireman, a resident of another community, on Mar 11, 2009 at 8:58 am There are 2 parts to the failed government of Palo Alto.
First, The funding was used up in a WASTEFUL manner for many,many years. City leaders paid huge amounts of money for programs and services that looked good and worked only on paper. (water rescue for 1)
Second, Goes hand in hand with the first. There was no control over cost, No one making sure the citizens where getting what thy paid for. With no one caring about the cost, let alone cutting costs. It is/was a free for all for any council memeber or city leaders to do as they please? with no accountability for the mismanagement of the publics funding.
So the money is gone and the services never really there, Just on paper and in distorted city leaders minds.
[Portion removed by Palo Alto Online staff.]
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Posted by Concerned Retiree, a resident of the Midtown neighborhood, on Mar 11, 2009 at 10:47 am Again, Palo Alto is looking at raising revenue by increasing taxes, not by cutting back on costs. Except for the panache of saying that you are a PA located business, what does the city actually do for its businesses?
Why aren't city officials and managers doing more to reduce the work force of 1000 city workers, in which 34 percent make over $100k per year? What about cutting back on public art expenditures and other frilly services? What about cutting back on the slew of new housing developments whose taxes do not pay for the services and school costs their new residents need?
It's time we practiced a little pragmatism.
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Posted by Sylvia, a resident of the Midtown neighborhood, on Mar 11, 2009 at 11:24 am I work for a construction company that does projects all over the bay area. Every single town in which we work has a business tax, as well as the town we're located in: Mountain View. We have licenses for Woodside, Los Altos, Los Altos Hills, Sunnyvale, San Francisco, San Jose, just to name some of them. We consider these fees part of doing business. I have wondered for years why we could work in Palo Alto without paying these license fees. If the city is short on funds, I don't see why businesses shouldn't kick in.
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Posted by common sense, a resident of the Midtown neighborhood, on Mar 11, 2009 at 12:34 pm Sylvia,
The Palo Alto Business License Tax is based on gross receipts. Mt View is a flat tax. Since it's based on gross receipts, you would be paying the tax on all the construction material that you buy, all the sub-contractors that you pay, etc. The sub-contractors would then need to pay their own tax on the same job!
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Posted by resident, a resident of the Adobe-Meadows neighborhood, on Mar 11, 2009 at 1:21 pm Hope Sylvia still has a job in a year.
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Posted by Rick, a resident of the Charleston Gardens neighborhood, on Mar 11, 2009 at 6:48 pm I have given a lot of thought to this issue of taxes and fees charged by the city:
Storm drain fees paid by residents who don't have any storm drains in their area of the city.
A very large area of the city dosen't have fire stations ,but pay taxes like those who do have nearby firestations.
People who have underground power in their neighborhood are charged the same rate as those who do not have underground power.
I would guess that the police spend 80% of their time in business and shopping districts. South Palo Alto has almost no policing except in emergencies. Gasoline tank trucks and every other conceviable truck use Charleston Rd as a crosstown route even though there are "No Commercial trucks ---, all along the way.
I suspect that at least 80% of the cost of operating the fire department is for giant fire trucks used for high rise ,over two stories, buildings. How much time did the fire dept. spend dealing with the Walgreens bldg downtown? a week or two ?24/7. Also the police dept was there many,many hours or weeks even dealing with traffic.
I understand that there are "loop-holes" in Prop 13 that even though businesses change ownership their taxes stay low, unlike home taxes.
Many of the businesses pay extremely low taxes as a result. It is the landlords that make out on this and maybe not the renters or many businesses.
A parcel tax of $2 per sq ft per year, with exceptions, should be applied to all non residental properties. This is smalll amount compared to the $50 to $60/ sq ft they receive in rent each yr.
This could primarly replace a tax on sales of businesses.
Repeal of prop 13 as it applies to businesses or commercial property would also be a good idea.
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Posted by pecuniac, a resident of the Midtown neighborhood, on Mar 11, 2009 at 10:30 pm My experience of government employees is they only know: slow, No, its not my responsibility, try another department, etc.
Silicon Valley is driven by people with courage, an adventurous
entrepreneurial spirit, the opposite of people attracted to the security and low risk of public employment. Public employees want a sure thing supported and paid for by hard working taxpayers. Most public employees enjoy job security based on seniority not merit; better benefits than private industry employees; and, a systematic avoidance of accountability and responsibility.
Yet another tax form to fill in for incompetents who wouldn't know the difference between gross revenue and profit? If CPA's and attorneys haven't make modern life a complex hell as it is, we now need Palo Alto to add yet more of its Byzantine processes to tax those of us who provide employment and dynamism in our economy?
Get a real job !!
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Posted by Tax the rich, a resident of Another Palo Alto neighborhood, on Mar 12, 2009 at 12:33 pm It's fun watching the Billionaires complain -Chop Keenan, Jim Baer and Tony Carrasco. Like they'll go somewhere else? who else will build those oversized ugly things? And the Chamber of Commerce, it's a heartbreaker.
It won't be based on what you buy, it might be based on Receipts. But they have to figure out how to get to the other fat cats, the major corporations and so on.
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Posted by resident, a resident of the Adobe-Meadows neighborhood, on Mar 12, 2009 at 1:13 pm Funny how everyone hates the rich now. Too bad none of you were industrious, smart, or hard working enough to make it.
Might as well be poor! Poor, poverty stricken, downtrodden, this is where Americans want us all to go.
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Posted by resident, a resident of the Adobe-Meadows neighborhood, on Mar 12, 2009 at 1:15 pm [Post removed by Palo Alto Online staff.]
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Posted by Mike, a resident of the Crescent Park neighborhood, on Mar 13, 2009 at 10:10 am Rick,
Your post is full of bad guesses, inaccuracies and downright wrong statements. And you use them to end up with some pretty disturbing conclusions like your Prop 13 bash.
I can only hope that most Palo Altans are more informed when they weigh in on the issues, and more important, when they vote.
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Posted by pat, a resident of the Midtown neighborhood, on Mar 14, 2009 at 10:35 am Re comment from "resident" on federal tax increases.
Web Link
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Posted by Mad, a resident of the Old Palo Alto neighborhood, on Apr 22, 2009 at 11:03 am After just becoming aware of the proposal, as a business owner, the most outstanding comment and question:
How can the city of Palo Alto, or any entity charge a tax on a business on the revenues that they essentially do not have, such as the overhead, payroll, and costs of running a business? Why not a tax on NET RECEIPTS, if any tax at all. Even the Fed and State allow for tax on the real amount of revenue, not GROSS RECEIPTS!!!!
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