Sacramento voters in the March 2024 primary election will decide whether to pass increases to the city’s business operations tax.
If Measure C passes with a simple majority vote, the city will update the tax and adjust it for inflation — for the first time since 1991.
Among other changes, the measure would gradually increase the maximum annual payment businesses owe for the tax. The measure proposes different requirements for businesses depending on their type, size and annual gross receipts, which is how much money they make without subtracting expenses.
Here are answers to questions about the measure, including what businesses would be affected, why the legal controversy led Mayor Darrell Steinberg to say the city made a mistake in the notification process and what supporters say about it.
How would Measure C change the business operations tax if it passes?
The measure would change business operations tax requirements over a five-year period. After five years, the city would make additional adjustments based on inflation. A major difference would be the maximum annual cap that sales and service businesses pay based on their annual gross receipts.
Sales and service businesses — like restaurants, grocery stores and repair shops — with annual gross receipts of less than $100,000 would pay a minimum of $50 a year if the measure passes. Businesses making more would pay a tax rate of 0.04% on their gross receipts.
About 10 businesses in the city would owe the maximum payment of $125,000 in the fifth year after the measure is implemented, according to an October staff report. Those businesses, which make at least $400 million annually, currently pay a maximum payment of $5,000 a year for the tax.
Blue Diamond Growers is one of those businesses that could owe the proposed new cap, company spokesperson Mallorie Hayes told the City Council in November.
If it passes, the measure will also increase specific tax fees for different types of businesses to adjust for inflation.
What businesses would be affected by the tax update?
All businesses that work within city limits or do business with the City of Sacramento will be affected if Measure C passes.
Breakdowns of the current business operations tax different types of businesses pay and how the fees would be increased can be found on the city’s website. The fee changes affect general professional business owners (such as accountants, attorneys, dentists, physicians, psychologists and veterinarians); insurance brokers and stockbrokers; real estate brokers, landlords, and hotels, motels and short-term rental businesses.
Sales and service businesses, such as grocery stores, currently pay a minimum rate of $30 a year plus a 0.04% on gross receipts above $10,000. If passed, Measure C will increase the minimum rate to $50 a year and keep the gross receipts tax rate, but increase the minimum threshold to $100,000. Businesses that make more money would pay a higher business operations tax.
Cannabis businesses wouldn’t be affected if Measure C passes. The city has a separate cannabis business operations tax set at 4% of gross receipts.
How much will the measure increase tax revenue by and what will it be used for?
The city estimates the measure would boost business operations tax revenue by about $3.7 million in the first year. If the measure passes, rate increases would be fully phased in by July 2029. From there on, the update could increase the city’s tax revenue by $6 million a year, Finance Director Pete Coletto said in November.
Over the past decade, the tax has generated about $8.8 million annually, according to a city staff presentation. The tax goes toward the general fund, so the city can spend it on a variety of government services. It isn’t a special tax designated for specific purposes.
Why is the measure legally controversial?
The City Council voted to put the “Sacramento Business Operations Tax Update of 2024” on the primary ballot on Nov. 14, but legal controversy didn’t arise until February. The Sacramento Bee Editorial Board reportedly contacted the city on Feb. 2, asking if officials published the ordinance in the newspaper it gives legal notices in, the Sacramento Bulletin. City code required the city to publish the ordinance in the paper within 10 days of the council approving it.
However, the city didn’t publish the notice until early February, after the Bee Editorial Board asked about it. Steinberg has said that the city made a mistake in the notification process.
“But it was not a mistake … that in any way was attempting to mislead,” Steinberg said. “And I think the best evidence of that, again, is the fact that the ordinance and the deadlines for filing the arguments were published online the very same night.”
Steinberg added that the city did its job of informing the public of the right to file arguments opposing the measure by posting the notice on its website Nov. 14. City Clerk Mindy Cuppy and City Attorney Susana Alcala Wood also sent a letter to the Bee Editorial Board outlining steps the city took to inform voters of discussions about a potential business operations tax measure.
The letter, which includes a timeline citing reporting by CapRadio and other outlets, was published on the city’s blog, Sacramento City Express. The council and the law and legislation committee held several public hearings on a potential business operations tax increase in October and November.
If Measure C passes, Steinberg said a court could answer the question of whether it is still legally valid. Sacramento County won’t investigate whether the measure is legally on the ballot, spokesperson Ken Casparis told CapRadio. Casparis said the city met all of the Voter Registration and Election Department’s deadlines.
What do supporters say about Measure C?
The council unanimously approved putting the measure on the ballot. In public hearings, some council members and city staff said they needed to let voters decide whether to adjust the tax for inflation for the first time since 1991.
Council members explored a variety of possible changes to the tax in public hearings, but said the measure strikes a balance between raising more money for the city and being considerate of concerns from businesses.
In their voter guide argument in favor of Measure C, city officials wrote that the tax update would help fund essential city services and protect small and medium-sized businesses.
“Today, the maximum Business Operations Tax paid by any business in Sacramento is $5,000 – regardless of whether it’s a corner store or a giant corporation,” the argument in the guide says. “This measure will gradually increase the maximum amount so that large businesses pay their fair share, but also have certainty about the amount they will owe.”
The measure also comes at a time when the city is projecting a $66 million budget deficit for the upcoming fiscal year.
What do opponents say about Measure C?
Organizations and individuals opposing Measure C include the Sacramento Bee Editorial Board, the Sacramento Taxpayers Association, the Howard Jarvis Taxpayers Association, attorney Tiffany Clark and a coalition of health care providers that includes the Sierra Sacramento Valley Medical Society, Sacramento District Dental Society, Sacramento Valley Psychological Association and the Sacramento Valley Optometric Society.
Opponents question the legality of the measure. Many say the city did a poor job of both reaching out to businesses and professional organizations and informing the public about the measure. Critics also say insufficient outreach resulted in not enough time for people to file a formal argument against the measure for the county’s voter guide.
Dr. Aaron Lech represents the Sacramento Valley Optometric Society in the health care provider campaign against the measure.
“The City’s process for placing Measure C on the ballot appears to have lacked transparency and failed to follow the spirit of the protocols for public notice,” Lech said in a press release. “That’s why we need to let voters know about [the] measure and the detrimental impact it would have on professionals and business owners serving their community who are working to recover from the pandemic and deal with ongoing inflation.”
The Sacramento Bee Editorial Board has also urged voters to reject the measure because of the city’s failure to follow its own rules for publishing the ordinance in the Sacramento Bulletin within a certain time period.
When would it go into effect if it passes?
If it passes, the changes to the business operations tax would be effective July 1, 2024. The city’s new fiscal year begins that day.
It’s unclear if the effective date could be delayed if the measure winds up in court for a hearing on whether it’s legally valid.
Correction: A previous version of this story incorrectly identified the organization which Dr. Aaron Lech represents. It has since been updated.
