After considering multiple versions, the Sacramento City Council voted unanimously Tuesday to place a business operations tax measure on the March 2024 primary election ballot.
If voters approve the measure by a simple majority, the city will update the tax and adjust it for inflation for the first time since 1991.
The update could increase the city’s revenue from the tax by $6 million a year, Finance Director Pete Coletto said. Over the past decade, the tax has generated about $8.8 million annually, according to a staff presentation.
Council members have explored a variety of possible changes to the tax over the past month, but said the proposed measure strikes a balance between raising more money and being considerate of concerns from businesses. Council member Eric Guerra said business representatives have explained they can deal with certain proposals, but opposed others.
“If we don’t nail this right and if we overreach, we could get nothing,” Guerra said. “And I think that is the concern. And if the last election cycle taught us anything on how many ballot measures failed, we have to be thoughtful about it.”
The city needs additional revenue because of a budget deficit in the financial forecast. Rising inflation, interest rates and labor and liability costs are expected to strain the budget, according to the city's five-year forecast. Without including homeless service costs, the city is projected to have a deficit of $25 million in the 2025-26 fiscal year.
Sacramento currently caps annual business operations tax payments at $5,000. The ballot measure would gradually increase the maximum annual payment to $125,000 over a five-year period. After five years, the city would adjust the cap based on the Consumer Price Index.
If the measure passes, businesses with annual gross receipts of less than $100,000 would pay a minimum of $50 a year. 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, according to a staff presentation.
Blue Diamond Growers is one of the businesses that could owe the maximum, company spokesperson Mallorie Hayes told the council on Tuesday. She said $125,000 is more reasonable than a cap of $200,000, which the council also considered for the measure.
“We understand the need to increase the business operations tax, but believe it should be done in a manner that considers the nuances of the business community and acknowledges that these actions are not done in a vacuum,” Hayes said. “This tax is on top of additional fees, costs and compliance requirements of the city’s that have a compounding effect on business operations.”
Erin Teague, government affairs director for the Sacramento Realtors Association, also requested a modification the council included in the final version of the ballot measure. Teague asked for the proposal to phase in a new flat tax rate for professionals over five years. The council had considered approving a ballot measure that would immediately set a flat rate of $684.
“Catching up on 30 years of inflation in less than a year is completely unfair to small businesses,” Teague said. “There should be a way to right-size the fee over time.”
If voters pass the measure, the updated tax would be effective July 1, 2024, Coletto said. The tax goes toward the general fund, meaning the city spends it on a variety of services.
A consultant recommended the city modernize the tax in both 2010 and 2020, but previous councils didn’t vote to put a measure on the ballot. Council members requested staff look into updating the tax during budget hearings this past spring.
Voters will weigh in on the measure, titled the “Sacramento Business Operations Tax Update of 2024,” in the March 5 primary election.
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