A Sacramento City Council committee on Tuesday took a step toward putting a business operations tax measure on the March 2024 ballot.
Sacramento is looking into updating the tax for the first time since 1991 in order to adjust for inflation and generate more money for the city budget.
The law and legislation committee voted unanimously for staff to draft a business tax measure that could increase city revenues by about $6.6 million a year. Over the past decade, the tax has generated about $8.8 million annually, according to a city staff presentation.
Sacramento currently caps annual business operations tax payments at $5,000 for all businesses, even ones reporting making more than $25 million a year. The proposal would increase the maximum payment to $150,000.
“I think it’s derelict of duty for us not to consider this and move forward,” Council member Lisa Kaplan said.
Staff found Sacramento’s maximum tax is lower than that of seven other California cities they surveyed. Fresno and San Jose have a maximum of about $21,000 and $176,000, respectively, while Folsom and Bakersfield are among those that don’t cap annual business tax payments.
A consultant recommended the city modernize the tax in both 2010 and 2020. In 2010, the council considered increasing the tax rate and the maximum payment, but didn’t put a measure on the ballot.
Council members requested staff look into updating the tax during the budget hearings this spring. Financial projections in the city’s current budget show the city could see a deficit in the general and Measure U fund as soon as the next fiscal year. Rising inflation, interest rates and labor and liability costs are expected to strain the budget, according to the five-year forecast.
The city could have a deficit of $24.5 million in the 2024-25 fiscal year if it continues current homeless services and doesn’t receive state funding, Budget Manager Mirthala Santizo said in May. Without including homeless service costs, the city is projected to have a deficit of $25 million in the 2025-26 fiscal year.
On Tuesday, staff said they have yet to begin outreach to businesses on the proposed tax increase. Only one business owner spoke against the proposed business tax increase during the meeting.
“If we want more money and revenue for our infrastructure, we need to go after the people that are not licensed and permitted for the land uses,” said Douglas Nelson of College Oak Towing. “So, this is not the answer here of hitting and taxing the people that are already in business that are doing the right thing.”
Assistant City Manager Leyne Milstein said staff plan to discuss the proposal with the businesses community in the coming weeks. She added city staff are looking to put the business tax measure on the March ballot so it doesn’t appear with any state bonds in November 2024.
“Our fear is that people are going to go down that list and go, no, no, no, no, no, no, no,” Milstein said. “And so we want to give this a fighting chance to not be buried with all of those other measures that we understand may be coming forward.”
The proposal would not increase the business tax rate, which sits at 0.04%. It also would not apply to cannabis businesses. The city has a separate cannabis business operations tax set at 4% of gross receipts.
The full council is expected to discuss the proposal within the next two months. On Nov. 14, the full council could vote to put a business operations tax update on the March 2024 ballot, city staff said. The ballot measure would need a simple majority vote to pass because the tax goes toward the general fund.
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