Tom Butt
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  City Council Places Business Tax on Ballot
August 7, 2020

On Tuesday, August 5, the Richmond City Council placed a measure on the November ballot to revamp the way business license taxes are computed. Although I have been the prime advocate for business license tax reform for years, I was not happy with the way this evolved (see Proposed Business License Tax Reform, August 4, 2020), and I am disappointed in the way it turned out.

Neither was I happy with the deceptive way staff presented the options as having a benign effect on business, cherry picking illustrative examples that showed either minimal impacts or, in some cases, reductions.

Currently, the Richmond Business Tax yields $3,008,496 in annual revenue. The model recommended by City Staff, shown below, is projected to yield an additional $2,293,656 in new revenue, or a little over twice the current revenue.


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Figure 1 - Slide from staff presentation


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Figure 2 - Slide from staff presentation

Based on the illustration above, the restaurant gets a modest $2,344 (350%) increase and the Beauty Salon gets a nice 29% reduction!

But these were cherry picked. As a more revealing example, a Professional Services Business with 15 employees and Gross Annual Receipts of $3 million would be affected as follows:

  • Current Richmond Tax = $904.00 per year
  • Propose Gross Receipts Tax = $13,500

That’s a 1,500% increase!

Although I can’t verify it, at least one business claimed its taxes would go from $6,000 a year to $600,000 a year, a 10,000% increase!

Note that the adopted version has a major change from the staff recommended version, the impact of which is unknown. Instead of a 1.00% rate on residential rentals with a 50% discount for units covered by rent control, the Berkeley schedule was adopted with 1.08% for five units or less and 2.88% for more than five units, with a credit for Rent Program fees for less than four units.

The amended residential rate will have a significant impact on residential rental owners. For example, Bella Vista at Hilltop is probably Richmond’s largest single rental project with 1,000 units. Currently, the project pays a modest tax based on $234 fixed fee plus $40 per employee – I’m guessing probably less than 25. Their tax might be $1,000 or $2,000. Under the proposed new ordinance, their estimated annual revenue of $24 million a year would be taxed at 2.88%, yielding $691,200, and they would get no credit for the $219,000 in Rent Program fees they pay ($219 per unit). That is a whopping 34,400% increase!

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Figure 3 - Slide from staff presentation
In the runup to Tuesday’s vote, representatives from the business community told me, “We know the City needs money, and we are willing to pay our fair share. In fact, we are willing to pay double what we pay now, but it is unfair to raise rates from 1,000% to tens of thousands of percent.”

The City Council could have simply doubled the existing rates, raised the same amount of money and had the backing of the business community. Instead, they were laser focused, as a policy principal, on setting an aggressive progressive schedule that severely impacts larger businesses but raises no more total revenue than a simple doubling.

Unfortunately, this is a continuation of City Council policy that is driven by a hatred of police, business and especially landlords.

The coverage below is from the Bay Area News Group:

Richmond asks voters to change business tax so it can reap more revenue

Voters will choose whether to approve a new way to tax businesses

By ANNIE SCIACCA | | Bay Area News Group
PUBLISHED: August 5, 2020 at 8:57 p.m. | UPDATED: August 6, 2020 at 5:06 p.m.

Richmond will ask voters to approve changes to the way businesses are taxed in an effort to almost double the city’s take from them.

The City Council on Wednesday voted to put a measure on the November ballot asking voters to authorize taxing businesses based on their gross receipts instead of the number of employees.

Currently, businesses pay a flat annual license tax of  $234.10 plus $46.80 per employee up to 25 employees and $40.10 for each additional employee.

That would change if voters in November approve the proposed tax structure, under which businesses would have to pay a percentage of their gross receipts earned in Richmond, with the amount depending on the nature of their business and at a rate assigned per industry.

In the proposed model, most businesses would pay between .06% and and .68%. Grocers, for example, would pay .06% if they make up to $1 million in sales for the year, 1% if they make between $1 million and $2.5 million, and tiered up to 2% if they make $50 million or more annually in the city. A few industries would exceed the typical rate structure, including firearms and ammunition, which would be taxed at a rate of 2.4%, and cannabis, which would continue to be taxed at a rate of 5%.

The rate structure would bring in an estimated $6.2 million in total revenue — $3.2 more than through the current structure.

Though city staff had recommended taxing residential rental gross receipts at a flat rate of 1% with a 50% discount for rent control properties, Councilmember Melvin Willis proposed using Berkeley’s model of taxing rentals at rates of 1.081% for the first four units and 2.88% for additional units. He also proposed giving property owners with four or fewer units a chance to credit the fees to the rent board so they don’t have to pay twice.

A majority of the council approved his motion, with Mayor Tom Butt and Vice Mayor Nat Bates voting no and Demnlus Johnson abstaining.

Bates said he believes changing the tax structure will unfairly burden businesses, especially at a time when many are barely hanging on amid the coronavirus pandemic fallout.

“You’re sticking it to the people who are already hurting and they’re going to hurt even more,” he said, noting that businesses like Amazon, which city staff and leaders worked hard to bring into town, could be driven out by the tax.

The measure has drawn support from workers and union members, who say the change would stimulate job creation because additional employees wouldn’t become a tax burden.

They say large businesses that make more money would be taxed more under the  progressive tax structure.

Money generated by the tax rate change could go toward the city’s funding of “Richmond youth, libraries, parks, community centers, emergency response, and other city services that may see cuts due to a structural budget deficit compounded by COVID-19 related revenue shortfalls,” a city memo says. Because the money is considered a general tax, however, it could be spent other ways too.

The ballot measure would need a simple majority of votes to pass.

Despite a Friday deadline for submitting the measure to qualify it for the November ballot, the city can make small changes to it later such as lowering the tax rates (but not raising them) in the future. Council members agreed to form a working group to bring in voices from the business community and others to discuss what the rates for specific industries should be.