An overhaul of Santa Clara’s business tax that could help the city patch a gaping budget hole appears headed for a victory at the ballot box.
Nearly 60% of Santa Clara voters support Measure H in early election returns, according to the Santa Clara County Registrar of Voters. About 62% of the expected nationwide ballots had been counted as of Friday evening.
When implemented, the measure would restructure Santa Clara’s business taxes so that large companies pay significantly more than smaller ones. While the current tax charges businesses anywhere from $15 to $500 annually, based on the number of employees, the new “headcount” tax will charge businesses $45 per employee up to a $350,000 cap annually. The limit can increase by a maximum of 5% per year, based on the rate of inflation.
Any Santa Clara business that makes less than $5,000 a year is exempt. The city plans to set aside $330,000 annually to provide a reduced tax to small business owners who can prove it will cause hardship.
Santa Clara officials said the updated tax will increase equity and city revenue in the long term, and help the city address its $27 million budget shortfall in the short term.
“I’m so happy that it’s passing and I’m proud to be a champion of this since 2019,” councilor Raj Chahal told San José Kollig.
The measure would require major companies headquartered in the city, such as Nvidia, Intel and Applied Materials, to pay more of their fair share, and could bring about $6 million in annual revenue to city coffers.
By comparison, the existing business tax model—last updated in 1992—raises about $900,000 annually. It requires large companies with 5,000 or more employees to pay just $500 a year, while a company with 50 employees is required to pay $100- $380 per year depending on the type of business.
Silicon Valley Central Chamber of Commerce President Christian Malesic said the business advocacy organization is disappointed that the measure is likely to pass.
“With one fell swoop, the City Council and unfortunately now the voters have moved Santa Clara from the clearest, best city for business in the Valley and indeed the Bay Area, to one of the worst cities, at least from a business tax standpoint, ” Malesic told San José Kollig.
The chamber opposed the change in the tax model for the number of people from the beginning. Malesic said the chamber would have been open to supporting a modest increase in the current business tax to help modernize it, but the city has gone too far too fast trying to make up lost ground.
“If we’re trying to make a little extra money, or in this case a lot of extra money from our larger companies, there’s a risk,” Malesic said. “And only time will tell if this turns out to be a blip and the businesses just absorb it, or if we start to see an effect from this.”
In the summer, the Santa Clara City Council voted 5-2 to put the measure on the ballot for voters to decide. Mayor Lisa Gillmor and Councilwoman Kathy Watanabe opposed it, while Chahal and Councilmen Anthony Becker, Kevin Park, Suds Jain and Karen Hardy supported it.
Gillmor did not respond to requests for comment. She previously said she thought the measure would take business taxes from “zero to very aggressive” in too short a time, and would hurt businesses.
Chahal said he has met with Intel, Nvidia and Applied Materials representatives and is confident they are not concerned about the business tax, especially since it has an annual cap. He said it would be impractical for a large company with thousands upon thousands of employees to uproot its operations over the tax.
“Take Nvidia or Intel for example. They have a multibillion dollar establishment here. What does $350,000 count to them? This is just one executive salary,” Chahal said. “They told me honestly, they’re not moving anywhere.”
As of Friday, Applied Materials, Nvidia and Intel had a combined market capitalization of about $600 billion.
Chahal said the companies are also willing to take the tax burden because they save millions of dollars annually on electricity in Santa Clara. Silicon Valley Power, the city’s internal electricity supplier, is much cheaper than other utilities, Chahal said.
Malesic said the city is openly targeting its biggest businesses, and the extra tax burden could make business leaders reconsider whether they should stay in Santa Clara.
“The real problem here is that the various city councils have done nothing for 30 years. The new city council is therefore trying to catch up with 30 years of increases (all at once),” he said.
Contact Joseph Geha at [email protected] or @josephgeha16 on Twitter.