News

Palo Alto renews push toward business tax

City Council Finance Committee backs exploration of various options for 2020 measure

As one of few cities in the area without a business tax, Palo Alto is preparing to shed that label in November 2020.

First, however, the City Council has to figure out exactly what kind of tax it wants to adopt, who should be exempt from the tax and what projects it should fund. That process began Tuesday, when the council's Finance Committee began winnowing down options and hashing out details.

In determining what type of tax to adopt, Palo Alto has plenty of nearby cities it can look at for examples. Mountain View, for example, adopted in 2018 a business tax based on employee count. The tax, which will take effect next year, requires a payment of $150 per employee.

East Palo Alto, which also passed its business-tax measure in 2018, bases its tax on square footage. Large office developments are required to pay an annual tax of $2.50 per square foot.

San Francisco, meanwhile, supplemented its existing employee-based tax ($1,500 per employee) with one based on gross receipts. The new tax, adopted last November with the passage of Measure C, limits itself specifically to companies that generate more than $50 million in revenue, with proceeds going to homelessness services and housing.

In Palo Alto, the main objective is to get funding for grade separation, the redesign of the local rail corridor so that train tracks no longer intersect with local streets. City officials have also talked about using some of the funding to support affordable-housing projects and new community projects such as the redevelopment of Cubberley Community Center and the implementation of parks master plan.

During the Tuesday discussion, the Finance Committee considered the full spectrum of options for a 2020 tax measure, including potential increases to the sales tax, the hotel tax and the documentary transfer tax. Ultimately, the committee agreed to strike from consideration all of these options, though members agreed that a parcel tax should remain in the mix for further exploration.

But the elephant in the room is a business tax — a revenue source that the council has been considering on and off for more than a decade. The city last tried to adopt a business tax in 2009, a time when the city's revenues were plummeting because of the economic downtown. That measure was shot down by the voters.

In recent years, with grade separation emerging as a pressing community need, council members have renewed their push toward a business tax. Finance Committee Chair Tom DuBois said Tuesday that a business tax, rather than the other alternatives, should be the focus of the committee's deliberation.

"We are one of few cities that doesn't have one. That's what the council has been interested in," DuBois said.

The new tax will likely look substantially different from the one in 2009. The Finance Committee agreed Tuesday not to consider a tax based gross receipts this time but to consider measures based on square footage (like East Palo Alto), employee count (like Mountain View) and payroll (like San Francisco). The committee also agreed to survey local business and analyze the potential impacts that the new tax.

Preliminary estimates from staff show a Mountain View-style tax of $150 per employee could generate about $14.6 million in annual revenues in Palo Alto. A tax on square footage, akin to East Palo Alto's, could bring in about $31 million annually, according to staff. In both cases, the estimate assumes that the city will not create any exemptions or create tiers with varying tax rates.

Some business leaders are already raising concerns about the proposed tax measure. Judy Kleinberg, president of the Palo Alto Chamber of Commerce, urged the committee Monday to tread cautiously and get a full analysis on the impacts of the new taxes on businesses before moving ahead.

"When all you talk about is gross receipts and gross revenues, you're talking about potentially a very draconian impact on certain industries, especially the hospitality industry, hotels and restaurants," Kleinberg said.

Each tax that the city is exploring can have a very different — and very harmful — impact on the business community, Kleinberg said.

"There are two Palo Altos, the Palo Alto that you see and the Palo Alto that is. ... There are businesses that look like they're thriving and they're being held up by a landlord or a property manager or a property owner so that there's no empty storefronts," Kleinberg said.

Tiffany Griego, managing director at Stanford Research Park, said the companies at the research park already generate about $17 million in general fund revenues for the city. Many of the companies arrive at the park as startups, she said. She urged the council not to adopt a tax that would send a message that startups are not welcome.

The real estate market at the business park is cyclical, she said, with the vacancy rate at times going as high as 18%.

"I'd like to make sure we have a good, strong discussion on fiscal resilience," Griego said.

Vice Chair Adrian Fine said the council should also consider how the new business tax will support the businesses that pay it, whether through improved transportation services or economic-development support. He also suggested that the city will have an easier time getting the business community's support if it pursues a "special tax," which requires 66.67% voter approval and which is dedicated to specific projects, over a "general tax" that only requires a simple majority. Pursuing a tax with the higher threshold will "force us to be more judicious on decision-making," Fine said.

Councilwoman Alison Cormack concurred and said that pursuing a special tax, which clearly lays out what the money will be used for, is the more transparent route. She also noted, however, that the council's decision will be ultimately be influenced by polling, which will shed some light on what the electorate is interested in. In the meantime, she said, the council should consider both the Mountain View and the East Palo Alto models.

"Last year everyone was talking about head tax. This year, everyone is talking about square footage. I think more research of those would be appropriate," Cormack said.

---

Follow the Palo Alto Weekly/Palo Alto Online on Twitter @PaloAltoWeekly and Facebook for breaking news, local events, photos, videos and m

What is community worth to you?
Support local journalism.

Comments

2 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Jun 19, 2019 at 8:17 am

I think a business tax is a good idea, but I am very reluctant to do it by the number of employees and would much prefer to see it done on square footage.

Companies are squeezing more employees into less space, promoting contractors over paid employees, taking on employees for seasonal work, and various other things that will make the total number of people working for a company skewed. All these practices, will put undue pressure on smaller companies and the larger ones will be able to pay less than their fare share. It makes no sense to me that a company who employs many part time workers to cover all their evening/weekend shifts, should be paying per employee whereas a large company who uses contractors who are deemed to be non-employees, should get away with reducing their business tax bill by unfair counts.


44 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Jun 19, 2019 at 10:34 am

"Vice Chair Adrian Fine said the council should also consider how the new business tax will support the businesses that pay it, whether through improved transportation services or economic-development support."

Mr. Fine and the council should also consider how RESIDENTS have been effected by the insane pace of business growth where commuters over-run us by 4:1.


12 people like this
Posted by Marc
a resident of Midtown
on Jun 19, 2019 at 10:51 am

Why isn't their a rubic that takes into account headcount, space occupied and revenue?

I don't think it should be just "employees" but total headcount, which includes employees, contractors, vendors, etc.

So someone that subs out food service, custodial, security, etc has to count those bodies as well as full time employees.

Understand that whatever you do companies are going to game the system. Don't make it onerous for small businesses with un-realistic reporting requirements.

Don't spend $500K to make a reporting website that doesn't work.

/marc


17 people like this
Posted by No-New-Taxes
a resident of Another Palo Alto neighborhood
on Jun 19, 2019 at 11:31 am

The City is awash in money. Any new revenues would be used to increase salaries and benefits. The hundreds of millions of dollars of infrastructure that will need to be refurbished in the future will not likely see one penny of any business tax revenue. It's only a matter of time before the City will be looking for new property taxes to pay for every insane idea that comes along.

The Council rightly decided that digging a tunnel to shield Palo Alto from the train that runs through the town was too expensive -- it's a good bet that the people promoting this idea will be back claiming that the city has more money if this tax passes and therefore the tunnel can now be built.

And don't think that the Council will not be raising this tax every year or so.

If this tax passes--small businesses would be well advised to leave Palo Alto for a more sane business environment (if that's possible in California).


23 people like this
Posted by Anne
a resident of Midtown
on Jun 19, 2019 at 12:22 pm

It's about time. Looking forward to voting Adrian Fine OUT next time.


8 people like this
Posted by musical
a resident of Palo Verde
on Jun 19, 2019 at 12:37 pm

If you have any money left after paying taxes, then you are not paying your fair share.


16 people like this
Posted by Stuck in Traffic
a resident of Leland Manor/Garland Drive
on Jun 19, 2019 at 12:47 pm

Enough already. No new taxes. No new taxes. No new taxes.

No new taxes.


21 people like this
Posted by Novelera
a resident of Midtown
on Jun 19, 2019 at 1:17 pm

Novelera is a registered user.

The usual suspects: Fine and apparently now Cormack don't want to offend the business interests that funded their campaigns. Every other town on the Peninsula has a business tax, but God forbid we'd get any Palo Alto businesses to pay their fair share.


1 person likes this
Posted by ChrisC
a resident of College Terrace
on Jun 19, 2019 at 2:46 pm

ChrisC is a registered user.

I’m sure City Council will select whichever method brings in the most money with the least effort and ingenuity on their part. By all means, raise the occupancy tax, which is already the highest in California (does that seem right?). Only hurts people visiting Palo Alto. The already sky-high and regressive sales tax? Yeah. That’s easy, except on small business if which
there are few left.


2 people like this
Posted by ChrisC
a resident of College Terrace
on Jun 19, 2019 at 2:49 pm

ChrisC is a registered user.

I’m sure City Council will select whichever method brings in the most money with the least effort and ingenuity on their part. By all means, raise the occupancy tax, which is already the highest in California (does that seem right?). Only hurts people visiting Palo Alto. The already sky-high and regressive sales tax? Yeah. That’s easy, except on small business of which there are few left.


4 people like this
Posted by Walters
a resident of College Terrace
on Jun 19, 2019 at 4:20 pm

I like the idea of a tax and prefer business pay a greater share.
I would also like to see a child tax to better allocate educational costs to the families that are the beneficiaries of the schools and their staff/services.
Lastly I would like to see a city employee tax to help defray the building and parking costs for their benefit.


8 people like this
Posted by Grumpy Old Taxpayer
a resident of Palo Alto Orchards
on Jun 19, 2019 at 4:35 pm

Why don't we just create a payroll tax based upon the annual salaries (including options, bonuses and perks) paid for the employees and independent contractors paid in Palo Alto or contribute substantial services to offices here in Palo Alto.

2% of their gross salaries is a fair price. Gross Payroll under $2,000,000 would be exempted. That'll likely clear all the mom and pop stores and small restaurants.

The more people you put into Palo Alto, the more the company pays in payroll tax.That'll cover the parking, traffic congestion that they generate. It's easy to enforce (based upon payroll records). Easy to calculate and easy to pay. Startups with small teams are exempted until they have greater payroll.

If the local 'progressive' techies are going to jam 'affordable housing' into Palo Alto, then they should understand that the costs will have to be borne by those who live and work here. It's not going to be borne by those who live here.


20 people like this
Posted by Annette
a resident of College Terrace
on Jun 19, 2019 at 4:41 pm

Annette is a registered user.

Once again we find ourselves dealing with the predictable but conveniently ignored consequences of insufficiently mitigated commercial growth. While voting next year, voters should be sure to NOT vote for any incumbent candidate who helped usher us into this messy corner or who is endorsed by those who did.

Should a business tax be on the 2020 ballot the intended purpose of the revenue should be explicit so that voters know exactly how the money will be spent. And so City Hall is accountable. It would be folly to promote this as necessary for grade separation only to find that the money flows to the general fund and is available for other expenses, such as, say, pensions.


5 people like this
Posted by Just say, No!
a resident of Crescent Park
on Jun 19, 2019 at 5:05 pm

Just say, No! is a registered user.

At some point, this town will stop pandering to the 60+ crowd who moved here in the ‘70’s and early 80’s and have profited immensely from the hard work and ingenuity of others. Their $100k homes are worth $2m + now. Isn’t that enough? They won’t allow denser housing, senior housing or anything that will encroach upon their 20’ setbacks. And now, because they all pay under $5k/year in property tax, the city can’t afford a grade separation. TAX US ALL in a parcel tax or TAX NO ONE. I live in PA but don’t have a business here but don’t want to see the few remaining local stores downtown disappear. DON’T TAX THEM OUT OF PALO ALTO.


3 people like this
Posted by Quinn
a resident of Charleston Gardens
on Jun 19, 2019 at 5:57 pm

I must agree with “Just say no’s” posting about implementing a wealth tax that is aimed more squarely at the 60+ crowd. If the city could tap into the accumulated wealth of the elderly, it would surely reduce the burden on those of us still climbing up the wealth ladder. I’m not sure however, that it would create more housing though. Perhaps implementing an age based means test could be implimented that could help us drive the median age of residents in PA downward. It could graduate the tax on those 60 and over as a percentage of their real estates value (realized or not) and correspondingly decrease the taxes of those in the 20 to 30 age group. That should bring just the kind of people we want to Palo Alto. The young who have earned everything they have and never benefitted from to work of others.


23 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Jun 19, 2019 at 6:05 pm

The ageism in the last couple of posts is atrocious.

What makes the posters think that the older generation didn't work really hard to get here? What makes the posters think that the older generation didn't contribute to the technology and the good vibe of the city? What makes the posters think that the 60+ are wealthy enough to supplement housing for the younger people who want to move here? What makes the posters think that the 60+ are sitting idle at home rather than out and about working in local businesses and volunteering at local non-profits. What makes the posters think that the 60+ are not the kind of people we want to have living in Palo Alto? What makes the posters think that the 60+ are superfluous to requirements.

One day they will be 60+ (if they are lucky) and I am sure they will want to remain in the homes they have worked hard to afford. Or are these posters part of the "everybody gets a trophy just for participation" generation and this is the result?


4 people like this
Posted by Just say, No!
a resident of Crescent Park
on Jun 19, 2019 at 6:21 pm

Just say, No! is a registered user.

@quinn. Sarcasm isn’t helpful. I am in the demographic of having benefited by prop 13 and pre-1990 housing prices. My husband and I continue to work hard. And, I think we both would agree that our much, much younger colleagues work very hard, too. But the point here is about everyone being realistic about our resources and our choices. We want it all but we want someone else to pay for it. If we can’t afford it, okay. Fine. Move on. But let’s not pretend that those small and midsized businesses that were here when I got here all those years ago deserve or can afford another tax anymore than I can.


6 people like this
Posted by Just say, No!
a resident of Crescent Park
on Jun 19, 2019 at 6:34 pm

Just say, No! is a registered user.

@resident. Not ageism. Go to a City Council meeting. Look up our town’s demographics. We continue to lose the under 50 crowd and all continue to get older. I’m asking for self-reflection that’s all. I can’t ask others to pay - as if they weren’t also my neighbor- and not pay myself, that’s all. Let’s give an exemption for over 60 and making under $50k (which is a lot of people.) Or let’s do a graduated payment scale. But let’s all contribute.


3 people like this
Posted by Quinn
a resident of Charleston Gardens
on Jun 19, 2019 at 6:42 pm

“At some point, this town will stop pandering to the 60+ crowd who moved here in the ‘70’s and early 80’s and have profited immensely from the hard work and ingenuity of others. Their $100k homes are worth $2m + now. Isn’t that enough? They won’t allow denser housing, senior housing or anything that will encroach upon their 20’ setbacks. And now, because they all pay under $5k/year in property tax, the city can’t afford a grade separation”

Not ageism.
Just asking for a little self reflection... JSN


8 people like this
Posted by Neighbor
a resident of Embarcadero Oaks/Leland
on Jun 19, 2019 at 11:34 pm

Why are we even talking about this when the city cannot even figure out how to even survey local businesses? I was tasked a couple times for a Palo Alto business with trying to comply with he city's demands. The first one we filled out and sent in, with the filing fee check, and it was returned certified mail because the city had contracted the services out to a 3rd party. Ok fine. So we tried to file with the 3rd party. The 3rd party forms were so confusing we couldn't answer all the questions, so we didn't file. We were sent a very poorly worded threatening postcard demanding we fill in the now online form or get some sort of fine, which was a confusing in that it made no sense. I read it to a friend who used to work for the city of Palo Alto and she burst out laughing, it was that ridiculous, "Didn't anyone proofread this before it went out?" So here we are. A: Not every landlord is the business owner. B: Not every business owner has employees: C: Not all square footage is used continuously yearly by the same exact business. D: Restaurants will be encouraged to do more with even less employees. D: Medical and Dental offices will have to surcharge all the patients extra to cover the already high local expenses, especially if it is a revenue based tax. E: If they don't exclude medical, Stanford and PAMF will surely go after it and block it. So here we are. The city has no clue about the local businesses, nor will it ever if they don't get their act together FIRST, build some trust, and figure out what sort of businesses the city actually has. The large companies are all moving out, is what they are going to find, look at HP. What they have left are a lot of restaurants, which already have very tight balance sheets unless they got their leases 15 years ago, and a lot of tech companies which are going to be hard to track, and very large medical and small medical which will be very problematic to tax.


2 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Jun 20, 2019 at 3:28 pm

Unfortunately, to do this correctly will have to be a little labor intensive. It makes no sense to me to tax someone with a small business who walks to work (or even lives upstairs and walks downstairs). Likewise, it makes no sense to tax businesses that provide services to PA residents who would have to drive elsewhere to get those services -- doctors, dentists, local markets. We need to tax businesses that are unnecessarily locating people here who are commuting in.

Unfortunately, determining all this information will be pretty labor intensive, adding staff when the city wants to reduce staff.

If such a tax is seriously being considered, please be very careful about the unintended consequences.


8 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jun 22, 2019 at 1:43 pm

"Vice Chair Adrian Fine said the council should also consider how the new business tax will support the businesses that pay it, whether through improved transportation services or economic-development support."

They will begin to repay everybody else for the free ride they've had courtesy of everybody else.


2 people like this
Posted by merry
a resident of Palo Alto Hills
on Jun 22, 2019 at 3:21 pm

merry is a registered user.

Forget about a business tax. If we don’t have enough money,
Why not cut spending????


Don't miss out on the discussion!
Sign up to be notified of new comments on this topic.

Email:


Post a comment

Posting an item on Town Square is simple and requires no registration. Just complete this form and hit "submit" and your topic will appear online. Please be respectful and truthful in your postings so Town Square will continue to be a thoughtful gathering place for sharing community information and opinion. All postings are subject to our TERMS OF USE, and may be deleted if deemed inappropriate by our staff.

We prefer that you use your real name, but you may use any "member" name you wish.

Name: *

Select your neighborhood or school community: * Not sure?

Comment: *

Verification code: *
Enter the verification code exactly as shown, using capital and lowercase letters, in the multi-colored box.

*Required Fields


Stay informed

Get daily headlines sent straight to your inbox.

Couple brings Chinese zongzi to Mountain View
By Elena Kadvany | 0 comments | 5,783 views

Don't Miss Your Exit (and other lessons from an EV drive)
By Sherry Listgarten | 6 comments | 1,377 views

Goodbye Food Waste!
By Laura Stec | 2 comments | 1,253 views

Can cities handle our traffic mess? I doubt it!
By Diana Diamond | 16 comments | 1,122 views

"Better" Dads and "Re-invigorated" Moms: Happier Couples
By Chandrama Anderson | 0 comments | 1,080 views

 

Register today!

​On Friday, October 11, join us at the Palo Alto Baylands for a 5K walk, 5K run, 10K run or half marathon! All proceeds benefit local nonprofits serving children and families.

Learn More