News

City looks to exempt grocery stores from new business tax

City Council approves polls to gauge residents' spending priorities

As Palo Alto moves toward adopting a business tax, the City Council is considering an exemption for grocery stores. Embarcadero Media file photo by Magali Gauthier.

With Palo Alto preparing to place a business tax on the 2022 ballot, city officials on Monday agreed to consider exemptions for grocery stores and small retailers.

The City Council largely reaffirmed on Monday the recommendations from its Finance Committee, which concluded after numerous meetings that the city's new revenue source should be a business tax based on square footage. By a 6-1 vote, with council member Greg Tanaka dissenting, the council agreed on the basic contours of the new tax, including exemptions for retailers below a certain sized threshold.

The council's recommendation builds on and slightly strays from the Finance Committee's recommendation, which had suggested a general exemption for retail. On Monday, Mayor Tom DuBois suggested that he would prefer to limit it to "small retail," even though the city has yet to determine what the size threshold will be.

Another modification that was proposed by DuBois and accepted by his colleagues is exempting grocery stores, which DuBois noted "tend to be very low margin, hard to keep in our city and (have) large square footage." The council also agreed that the tax should be as simple as possible, with few or no other exemptions.

The exact parameters of the tax measure will be informed by polls that the council also authorized during Monday's discussion. Performed by FM3 Research, the company that has worked with the city on prior ballot measures, the poll will be based on interviews with between 400 and 800 likely voters. In addition to asking voters about the new business tax, the survey will also gauge their interests about a utility tax that would replenish revenues that the city stands to lose as a result of recent litigation, which challenged Palo Alto's historic practice of transferring revenues from its gas utility to the general fund.

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In supporting the Finance Committee's direction on the proposed business tax, the council effectively pulled the plug on another option that the committee had previously considered: a parcel tax. Unlike the business tax, which requires a simple majority to pass, a parcel tax would need to get support from more than two-thirds of voters before it is adopted.

One critical question that the council has yet to answer is: How will the tax money be spent? The answer to the question has evolved over the years, with the council initially viewing the measure as a way to raise money for grade separation — the realignment of rail crossings so that local streets would not intersect with the railroad tracks. More recently, council members have talked about dedicating some of tax revenues to affordable housing or even using it to pay for basic city services — a prospect that has gained some prominence during the COVID-19 pandemic as sales- and hotel-tax revenues plummeted.

The poll that the council approved will explore voters' spending priorities, with the menu of options including infrastructure, street maintenance, traffic and parking management, public safety, libraries, climate action and services to assist unhoused residents.

Vice Mayor Pat Burt, who served on the council during its failed attempt to enact a business license tax in 2009, acknowledged that whatever tax measure the city proposes will likely encounter opposition from the business community. There is no such a thing as a "perfect tax," he said.

"We'll hear from opponents that whatever tax we form … it has imperfections and should therefore not go forward," Burt said. "What we need to do is try to figure out the best we can, the correct balance and what would be supported and be able to address the needs and uses that we have tremendous need for."

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The council has also yet to decide whether the utilities tax should accompany the business tax on the 2022 ballot or deferred to a later year. Council member Alison Cormack, who chairs the Finance Committee, suggested that it's possible that voters will support both efforts, particularly if they aim to address different needs. The utility tax, for example, has been highlighted by the Finance Committee as a possible vehicle for launching new sustainability initiatives such as converting residents from natural gas to electrification — a key component of the city's plan to cut greenhouse-gas emissions by 80% by 2030, with 1990 as the baseline.

"I have a lot of faith in the people of Palo Alto," Cormack said. "They're pretty smart and I think if we have two different situations, we might be able to accomplish two things at the same time."

Tanaka, who has consistently opposed the council's prior attempts to enact a business tax, once again made his case against moving ahead with the effort. A tax on business, he argued, would bring down commercial property values and encourage businesses to leave Palo Alto. He urged the pollster to ask residents about how they feel about being "uprooted from their homes" if their companies leave town and whether they believe a public entity is better at allocating resources than a private one.

"I think we've been fortunate to have innovation in Palo Alto and having a somewhat business-friendly environment has been key to that … And we've seen companies like Tesla move out and we've seen startups no longer starting in the city," Tanaka said.

Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

Follow Palo Alto Online and the Palo Alto Weekly on Twitter @paloaltoweekly, Facebook and on Instagram @paloaltoonline for breaking news, local events, photos, videos and more.

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City looks to exempt grocery stores from new business tax

City Council approves polls to gauge residents' spending priorities

by / Palo Alto Weekly

Uploaded: Tue, Nov 9, 2021, 9:51 am

With Palo Alto preparing to place a business tax on the 2022 ballot, city officials on Monday agreed to consider exemptions for grocery stores and small retailers.

The City Council largely reaffirmed on Monday the recommendations from its Finance Committee, which concluded after numerous meetings that the city's new revenue source should be a business tax based on square footage. By a 6-1 vote, with council member Greg Tanaka dissenting, the council agreed on the basic contours of the new tax, including exemptions for retailers below a certain sized threshold.

The council's recommendation builds on and slightly strays from the Finance Committee's recommendation, which had suggested a general exemption for retail. On Monday, Mayor Tom DuBois suggested that he would prefer to limit it to "small retail," even though the city has yet to determine what the size threshold will be.

Another modification that was proposed by DuBois and accepted by his colleagues is exempting grocery stores, which DuBois noted "tend to be very low margin, hard to keep in our city and (have) large square footage." The council also agreed that the tax should be as simple as possible, with few or no other exemptions.

The exact parameters of the tax measure will be informed by polls that the council also authorized during Monday's discussion. Performed by FM3 Research, the company that has worked with the city on prior ballot measures, the poll will be based on interviews with between 400 and 800 likely voters. In addition to asking voters about the new business tax, the survey will also gauge their interests about a utility tax that would replenish revenues that the city stands to lose as a result of recent litigation, which challenged Palo Alto's historic practice of transferring revenues from its gas utility to the general fund.

In supporting the Finance Committee's direction on the proposed business tax, the council effectively pulled the plug on another option that the committee had previously considered: a parcel tax. Unlike the business tax, which requires a simple majority to pass, a parcel tax would need to get support from more than two-thirds of voters before it is adopted.

One critical question that the council has yet to answer is: How will the tax money be spent? The answer to the question has evolved over the years, with the council initially viewing the measure as a way to raise money for grade separation — the realignment of rail crossings so that local streets would not intersect with the railroad tracks. More recently, council members have talked about dedicating some of tax revenues to affordable housing or even using it to pay for basic city services — a prospect that has gained some prominence during the COVID-19 pandemic as sales- and hotel-tax revenues plummeted.

The poll that the council approved will explore voters' spending priorities, with the menu of options including infrastructure, street maintenance, traffic and parking management, public safety, libraries, climate action and services to assist unhoused residents.

Vice Mayor Pat Burt, who served on the council during its failed attempt to enact a business license tax in 2009, acknowledged that whatever tax measure the city proposes will likely encounter opposition from the business community. There is no such a thing as a "perfect tax," he said.

"We'll hear from opponents that whatever tax we form … it has imperfections and should therefore not go forward," Burt said. "What we need to do is try to figure out the best we can, the correct balance and what would be supported and be able to address the needs and uses that we have tremendous need for."

The council has also yet to decide whether the utilities tax should accompany the business tax on the 2022 ballot or deferred to a later year. Council member Alison Cormack, who chairs the Finance Committee, suggested that it's possible that voters will support both efforts, particularly if they aim to address different needs. The utility tax, for example, has been highlighted by the Finance Committee as a possible vehicle for launching new sustainability initiatives such as converting residents from natural gas to electrification — a key component of the city's plan to cut greenhouse-gas emissions by 80% by 2030, with 1990 as the baseline.

"I have a lot of faith in the people of Palo Alto," Cormack said. "They're pretty smart and I think if we have two different situations, we might be able to accomplish two things at the same time."

Tanaka, who has consistently opposed the council's prior attempts to enact a business tax, once again made his case against moving ahead with the effort. A tax on business, he argued, would bring down commercial property values and encourage businesses to leave Palo Alto. He urged the pollster to ask residents about how they feel about being "uprooted from their homes" if their companies leave town and whether they believe a public entity is better at allocating resources than a private one.

"I think we've been fortunate to have innovation in Palo Alto and having a somewhat business-friendly environment has been key to that … And we've seen companies like Tesla move out and we've seen startups no longer starting in the city," Tanaka said.

Comments

Citizen
Registered user
College Terrace
on Nov 9, 2021 at 10:57 am
Citizen , College Terrace
Registered user
on Nov 9, 2021 at 10:57 am

A business tax is a bad idea - either employees of the businesses being taxed will be paid less, or the customers of the business will pay more. And for what? To hand tax dollars to a Palo Alto city government that refuses to live within its means, though it benefits from generous sales taxes from Stanford shopping center, town and country, and more, not to mention generous property taxes. Does the City use these tax dollars wisely?
No. Numerous high priced consultants supplement the work of already well compensated (check their pensions) city employees who should actually be doing the work of the consultants, for example. And so on and so on and so on. No on the business tax.


dena
Registered user
Midtown
on Nov 9, 2021 at 2:53 pm
dena, Midtown
Registered user
on Nov 9, 2021 at 2:53 pm

Please no more business taxes!! It's already so expensive and cumbersome to do business in Palo Alto, and when businesses move out, those of us left behind have to pay more! Let's incentive business to come here so our revenue is from growth and a healthy economy!


Gale Johnson
Registered user
Adobe-Meadow
on Nov 9, 2021 at 3:40 pm
Gale Johnson, Adobe-Meadow
Registered user
on Nov 9, 2021 at 3:40 pm

I expect there will be many more CC meetings on the subject, but here are my thoughts on it so far: First, we need to turn to Pat Burt for his experience and knowledge of previous attempts at getting a business tax approved. His voice is key to the discussions because he knows what every other city in the Bay Area, or at least the Peninsula and Silicon Valley, is charging for business taxes. We should have one, I think. but the question is how much? The other new and harder question that came up is about exemptions... "retailers below a certain sized threshold"? The cut line will be difficult to draw and I am curious who will have the responsibility for that. A utility tax? If every home owner would look at their utility bill closely, they would discover that other taxes/fees are already included in it. Would this be a tax on a tax? The poll? Ah, yes, the perfect way to obtain data to resolve issues! Who will sign off on the questions being asked in the poll? A little research might answer Greg Tanaka's concern about businesses fleeing Palo Alto or reluctant to start a business here. Go back ten years, and ask companies that left Palo Alto, why they left. I suspect that most of them that left went to other cities that did have business taxes. Our city manager, his staff, and CC have tough jobs. Trying to find revenue sources to sustain the services that we expect, plus adding new capital expense projects, is tough to do under the best of times, and the pandemic has made that even more difficult. Taxing this thing/entity or that thing/entity can only go so far...and the truth is, in the end, it's us consumers and property owners who pick up the tab, in one form or another.


tmp
Registered user
Downtown North
on Nov 9, 2021 at 4:58 pm
tmp, Downtown North
Registered user
on Nov 9, 2021 at 4:58 pm

Absolutely tax businesses. They need to pay their share of running a city. They have had a pass for way to long. Just about every other city has a business tax and it is time that we do also.

Try not to exempt much. Size really has little to do with how much money they make. There is an argument for grocery stores, but even some of those in Palo Alto are high end stores that could pay a tax. If they can afford to be in business here in Palo Alto, they can probably afford to pay the business tax. So time to tax them.

Plus it will finally get the city to put together a list of what businesses are actually in the city. It is ridiculous that in this day and age they still don't seem to know who does business here and where they are located. This will be a good excuse to go out and find them and see what they do and how many employees they have in what size building. All useful information.

I take exception to Gale Johnson's comments regarding Pat Burt. I think that he is not thoughtful about city finances. He tends to jump onto whatever is the flavor of the day project, doesn't seem to have much follow through and spends city money without thought to future funding needs. We need more thoughtful long term thinking managers for the city, especially since there is likely to be long term fall out from the pandemic and issues going forward that are complex and need to be managed carefully. Pat Burt has not shown himself to be a long term thinker when it comes to finances. But then those people are hard to find at many areas of government.


Online Name
Registered user
Embarcadero Oaks/Leland
on Nov 9, 2021 at 5:47 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Nov 9, 2021 at 5:47 pm

Absolutely tax big business AND cut the growth of the city manager's office. Why does he think he needs another 2 highly paid assistant managers when there's real need for librarians, firemen, etc.

And why is he wasting the time of the PAPD to recycle his weekly Uplift newsletter filled with such urgent tidbits as RECIPES and general covid news that's non-specific to Palo Alto?


Bystander
Registered user
Another Palo Alto neighborhood
on Nov 9, 2021 at 5:56 pm
Bystander, Another Palo Alto neighborhood
Registered user
on Nov 9, 2021 at 5:56 pm

Retail is disappearing and we are no longer being served by many of the big box stores that were on our borders.

Grocery stores and small stores should be exempt, but so should those serving residents, namely hair salons, fabric stores, pet stores, drug stores, in fact anything that we want to have on our doorstep that we can go out and get rather than having to shop online. I do not want to drive to Sunnyvale for REI or BB&B. I do not want my tax dollars going to Sunnyvale or Redwood City.

So what is necessary is some common sense reality that we are a community and need community amenities.

Whether it is a business tax, or rules about the size of grocery stores, please CC think about the residents who are already living here and put us as a priority for once.


Me 2
Registered user
Old Palo Alto
on Nov 9, 2021 at 7:04 pm
Me 2, Old Palo Alto
Registered user
on Nov 9, 2021 at 7:04 pm

Hilarious.

Businesses don't pay taxes. They pass along the additional cost to their customers.

In the end, consumers ultimately pay all the taxes.

Same with impact fees. Developers don't pay them. They pass them along to renters or buyers of their properties.

But sure. Live in that fantasy world where you believe in rainbows and unicorns, where businesses actually pay their taxes out of their own pockets.


Local
Registered user
Stanford
on Nov 10, 2021 at 5:05 pm
Local, Stanford
Registered user
on Nov 10, 2021 at 5:05 pm

Yes tax business - the real incidence of these tax falls on the property owners (if businesses are taxed more the underlying property has to charge lower rents) and property owners in Palo Alto are wealthy. Also if it stops more businesses entering that is great - the only way to bring down housing prices is to reduce the supply of high paying tech jobs, and that needs more business tax. The reason houses are so eye-wateringly expensive is that techies buy up everything in sight - I love a few techies, but having more than 50% of our city working for Google, Facebook, Apple etc is driving property prices into the stratosphere.


Me 2
Registered user
Old Palo Alto
on Nov 10, 2021 at 7:21 pm
Me 2, Old Palo Alto
Registered user
on Nov 10, 2021 at 7:21 pm

"the only way to bring down housing prices is to reduce the supply of high paying tech jobs, and that needs more business tax. "

How were you able to read and respond to a post on this website?

Oh right. You're using a computer or smartphone with software that accesses a website over the internet.

All produced, enabled, and/or serviced by "techies."

How ironic.


Native to the BAY
Registered user
Old Palo Alto
on Nov 14, 2021 at 2:11 am
Native to the BAY, Old Palo Alto
Registered user
on Nov 14, 2021 at 2:11 am

I'll say this once again. Piazza's does not accept the EBT, SNAP better known as Food Stamp payment option. they are a very upscale yet struggling locally owned grocery store. Gladly accepting EBT (electronic benefit program) would really be a benefit to the community and to low income seniors and others to actually survive here with outrageous rents and other cost. Please Piazza's accept this method of payment. It will help your bottom line too.


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