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Uploaded: Monday, June 1, 2009, 8:37 PM
Updated: Monday, June 1, 2009, 10:47 PM
Despite opposition, city pushes for business tax
Council committee to consider tax based on gross receipts, debate alternative models tonight
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by Gennady Sheyner
Palo Alto Online Staff
Despite an outcry from the business community, Palo Alto is proceeding with its plan to put a new business-license tax on the November ballot.
A revised proposal from the city staff, which the City Council Finance Committee plans to discuss tonight (Tuesday), continues to call for a tax based on gross receipts -- a model widely opposed in the business community.
But as a concession to business interests, staff now proposes to delay collections from the new tax six months, until January 2011, and to exempt businesses earning less than $85,000 a year.
Staff also seeks to raise the minimum and maximum amounts the city could charge local businesses from $35 and $20,000, as originally proposed, to $75 and $50,000, respectively.
Officials from the Administrative Service Department revised their business-license tax proposal after a series of meetings with a group of business leaders in May. But, as the new proposal makes clear, staff has no intention to drop the gross-receipts model, which is projected to generate about $4 million in annual revenues.
"After reviewing a number of different taxing methods staff is currently recommending a gross-receipts tax as it best balances the City's need for an expanding revenue source with the desire to create equity among the various business sectors," the new staff report states.
At previous meetings, business leaders sharply criticized the gross-receipts model, arguing that it will either drive companies out of Palo Alto or force them out of business altogether. The Palo Alto Chamber of Commerce took a stand against a tax based on gross receipts in April. The new staff report notes that the business community has consistently stated a preference for a flat tax or a tax based on employee count.
But staff has so far rejected those models, which would bring in $2.9 million and $1.9 million in revenues, respectively. A flat tax, the report says, has limited growth potential and can be regressive in nature because it forces businesses to pay the same rate regardless of size and income. A tax based on the number of employees "penalizes labor intensive businesses, is not a direct measure of ability to pay, has limited growth potential and has a limited tax base."
Under the proposed scheme, the tax rate would be determined by the type of business. Professional businesses that require licenses (including attorneys, doctors, dentists) would be charged $1 for every $1,000 of gross revenue, while retail, wholesale and manufacturing businesses would pay 50 cents for every $1,000. Service-oriented businesses and landlords would pay 75 cents for every $1,000 and commercial-property builders would pay $1.50 for every $1,000.
Staff is also presenting two alternative gross-receipts models, in which the tax rate for each business category is reduced by 25 percent and by 50 percent. The alternatives would yield the city about $2.9 million and $2.5 million in annual revenues, respectively.
Palo Alto is currently the only city in Santa Clara County, and one of a handful in the state, that doesn't have a business-license tax. Over the past year, city officials have been compiling data and evaluating various tax models to come up with a new source of revenue for the city.
Though the city is facing at least a $10 million budget shortfall in fiscal year 2010, which begins July 1, the new tax would have no effect on the 2010 budget. The city has to submit its ballot measure to Santa Clara County by Aug. 7 to meet the deadline for the November election.
At a recent public hearing on the proposed tax, members of the Finance Committee stressed the importance of getting the measure on the November ballot. Otherwise, the city would have to wait until November 2011. Councilman Larry Klein said the cost of delay could be $6 million or more.
"That's a pretty big expense for the delay," Klein said at the April 21 meeting. "It seems we want to get things right and it's really important, but I don't think we're talking about something that requires that length of discussion.
"We're not building a rocket ship."
The committee will meet at 7 p.m. tonight (Tuesday) at City Hall, 250 Hamilton Ave.
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Posted by Real Estate Broker, a resident of the Old Palo Alto neighborhood, on Jun 1, 2009 at 8:47 pm So if you're a service business located in Los Altos, do you still pay for revenues generated in Palo Alto? If you're a real estate broker located in Los Alto, do you pay based on revenues generated in Palo Alto? How would the city keep track of such?
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Posted by Kate, a resident of the Duveneck/St. Francis neighborhood, on Jun 1, 2009 at 9:09 pm How to track such? By hiring a very expensive 'revenue tracker" with a high salary plus
benefits, a secretary and other staff expenses, that's how.
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Posted by Matt Stewart, a resident of the Downtown North neighborhood, on Jun 1, 2009 at 10:51 pm I say we tax the big businesses in Palo Alto and then tax them again. Those types have been using that whole empty "We are going to up and leave you if you don't play by our rules" threat on the local, statewide, national, and international level since time began. Call their bluff and laugh at their pathetic, frazzled reactions! The truth is they aren't going anywhere because it would cost a whole hell of a lot more to leave Palo Alto and set up a new customer base than to stay and pay their fair share for once. Besides, I'm far more concerned about the everyday needs of Palo Altans than the relative chump change and petty grudges of big businesses.
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Posted by Matt Stewart, a resident of the Downtown North neighborhood, on Jun 1, 2009 at 11:00 pm By the way, does anyone know if Palo Alto has a real estate transfer tax? If not, there ought to be because it's money, money, money! In addition, we can use it to penalize the businesses who decide to leave Palo Alto (Pfffft!).
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Posted by chris, a resident of the University South neighborhood, on Jun 1, 2009 at 11:18 pm Matt,
Yes, Palo Alto has a real estate transfer tax and they are planning to increase it a lot.
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Posted by Not a smart idea, a resident of the Midtown neighborhood, on Jun 1, 2009 at 11:36 pm This is not just a threat of "we'll leave you". I am aware of a financial advising company who have put on hold their proposed move to Palo Alto and extended their lease in their present location. The City where they are presently located does not have a business tax.
This tax will not just affect businesses presently located in Palo Alto but will be a deterrent to any new businesses moving into PA particularly when there are neighboring cities which do not have a business tax or one which is must lower.
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Posted by A Noun Ea Mus, a resident of the Professorville neighborhood, on Jun 2, 2009 at 1:07 am Yes I heard that the Apple Store, Lavender's Restaurant, Amrithika,Catherine Lush,Chelsea Art Gallery,Tercera Gallery,Stellar Somerset Gallery,Restoration Hardware,Hatami Rug Collection and a host of other businesses are packing up and moving from Palo Alto to Milpitas.
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Posted by Micro-businesses, a resident of Another Palo Alto neighborhood, on Jun 2, 2009 at 2:13 am ...Aaaaand this means WHAT for people running tiny (micro) home-based businesses which are the sole support of the families running them?? (Simply being able to pay the parents wages, and if they are extremely fortunate - most are NOT - the occasional non-family business employee.) These families should move out of Palo Alto too?
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Posted by Common Sense, a resident of the Professorville neighborhood, on Jun 2, 2009 at 5:24 am This seals it we really are the people’s republic of Palo Alto. Palo Alto residents better learn to say no to tax increases as in the end you can’t support an entitlement community on entitlements...
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Posted by Hank, a resident of the Old Palo Alto neighborhood, on Jun 2, 2009 at 9:52 am Golden goose, meet your maker.
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Posted by Carroll Harrington, a resident of the Community Center neighborhood, on Jun 2, 2009 at 10:44 am I have urged the Palo Alto City Council and staff to model a task force or advisory group based on my experience with two similar groups that dealt with complex issues facing the city:
1) The Future of Single Family Neighborhoods Advisory Group in 2001, which developed the Individual Review Guidelines for two-story rebuilt and remodeled homes. We included a "sunset" clause in our recommendations and consequently, these Guidelines are reviewed periodically and have been quite successful.
2) The Reusable Bag Task Force, which met from April to September 2008 with representatives from Palo Alto grocery stores and drugstores, plus the California Grocery Store Association, American Chemical Council, Chamber of Commerce and private citizens. Phil Bobel, Manager Environmental Compliance Division, fairly and thoroughly facilitated the almost biweekly meetings of this diverse group as they dealt with this multifaceted issue.
Along these lines, the City Council appointed the Compost Task Force, and it, too, is handling a complicated topic.
I had hoped that the city and the Chamber of Commerce could reach an accord on the proposed Business License Tax by working together with this similar "citizen/staff model." However, there were only three meetings—clearly not enough time to reach any kind of consensus.
I believe the City Council Finance Committee should send this proposal back to staff with a strong recommendation to work with the business community to vet this issue.
The City Council has civic engagement as one of its top four priorities...here is another opportunity to do just that!
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Posted by Catherine Lush, a resident of Menlo Park, on Jun 2, 2009 at 11:30 am In response to the post by A Noun Ea Mus in the Professorville neighborhood:
Stellar Somerset and Chelsea Art Galleries left over a year ago.
Catherine Lush has no current plans to leave downtown Palo Alto. I (Catherine Lush) am currently collaborating with Tom Upton to develop PhotoTrainer which offers hands-on, small digital camera classes, taught by professional photographers. Later this year, we hope to start showing photography. I was initially drawn to Palo Alto because of the Palo Alto Art Walk. I thought this would be a way for me to show my bronze sculptures. There are fewer and fewer art galleries in downtown Palo Alto. The high rent expense does favor larger businesses. A business tax is certainly a concern.
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Posted by Business Owner, a resident of the Barron Park neighborhood, on Jun 2, 2009 at 3:36 pm What could the city do if local businesses banned together and refused to pay? I don't think there is much recourse. Maybe local businesses should ban together and sue the city if the bill passes?
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Posted by Super, a resident of the Community Center neighborhood, on Jun 2, 2009 at 4:35 pm Why doesn't the city just spend less so they don't have to rely on more taxation? If they get their way, the local businesses will just become a means to support big local government. What a bunch of bologna.
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Posted by Citizen, a resident of the Midtown neighborhood, on Jun 3, 2009 at 11:34 am Mountain View has a business license tax, Sunnyvale, Menlo Park, San Francisco, San Jose, Saratoga, San Carlos, Hillsborough, Los Altos Hills, and Portola Valley, and many others. How do I know this? Because I work for a subcontractor, and we get these licenses in order to do business in these communities. The fees range from $30 (Mt. View) to $150 (San Francisco). In many cases there's no system of increased costs for subcontractors based on revenues, just a flat fee. I've wondered for years why Palo Alto doesn't have the same system.
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