As city staff studies a number of proposals on how to fix San Jose’s budget crisis, one idea in particular is likely to have some local business owners up in arms. Councilmember Nancy Pyle submitted a memo at Tuesday’s council meeting that recommends modifying the business tax for establishments that offer services. These businesses are taxed by the number of employees they have rather than sales.
In her memo, Pyle asks City Manager Debra Figone to conduct polling to see if there would be public support for changing the business tax to a percentage of gross receipts rather than the number of employees. Any change would require voter approval, and Pyle wants to have a measure on the November ballot.
Pyle writes that a 1 percent business tax would be “the equivalent to the amount the City would have received if normal sales taxes were collected” from a business. She is also asking Figone’s office to conduct polling to see if there is support for making the tax rates higher at 1.5 or 2 percent. Businesses that would be affected by a change in taxation include beauty salons, educational services and daycare.
“I think it’s one more thing to look at as a component to help us to have an array of choices,” Pyle said Thursday. “We have to find a way to bridge the gap with reduced sales tax, reduced property tax.”
Figone’s office projects the city is $115 million in the red for the upcoming fiscal year.
Much of the debate in dealing with San Jose’s current budget crisis, as well as deficits expected in future years, has focused on pay cuts and pension reform. Pyle’s proposal is one of only a few ideas to create revenue.
Figone’s fiscal reforms plan includes a sales tax increase of a quarter-cent, a municipal water system tax on gross receipts, a disposal facility tax increase and a business tax increase.
Mayor Chuck Reed asked city staff to explore possible taxes in his proposal for fiscal reforms, but there were no specifics. Councilmember Rose Herrrera said including that language was pivotal in her support of Reed’s proposal.
Pyle said she would not have been part of the 8-3 majority that directed city staff to study Reed’s proposal—which wants to declare a fiscal and public safety emergency—as well as others if her memo had not also been included. In fact, the councilmember said she has no intention of supporting the mayor’s ideas to alter employee pensions in a June 21 council session.
“I certainly won’t vote for it in the end, mainly because we would be doing some illegal activity,” Pyle said. “The legal department needs to rein in big time some of the mayor’s proposals, i.e. you can’t change vested rights.”
The mayor is contending that the city charter allows for retirement benefits to be lowered to a minimum level, but some measures would need to be put on the ballot to achieve all of the changes desired.