OAKLAND — The way Oakland taxes its businesses is going to change, but how isn’t clear yet because four proposals to accomplish that are competing to get on the November election ballot.
One proposal is being pushed by City Council members Nikki Fortunato Bas and Carroll Fife, who formally introduced it Thursday at a council committee meeting. It would eliminate the city’s flat tax rate on businesses’ gross receipts and switch to a progressive, tiered rate that increases as a company’s gross receipts grow. The proposal would annually haul in $40 million more than what businesses currently pay, they say.
The other three proposals, also touted as progressive, have been crafted by labor and business groups. Because the November ballot already will be packed with races and measures, the council has urged the various groups to work together to come up with a compromise version.
“There are so many issues we are asking voters to pay attention to, then we are asking them to analyze four different measures of the same issue. I think that sends a poor message,” Councilmember Sheng Thao said at the meeting.
The effort to revamp the business license tax began in 2020, when Fortunato Bas proposed giving small companies a slight break and raking in more money from the larger ones.
Instead of sending her proposal straight to the ballot back then, the council formed a task force to analyze the potential consequences of a tax structure change and get feedback from business owners and other special interests. The task force returned with a recommendation for a progressive gross receipts tax in January that would boost the city’s annual revenue by $32.7 million.
Fortunato Bas and Fife subsequently came up with a modified version of that proposal, one that charges slightly different rates to various categories of businesses. They say that under their proposal, about 97% of the city’s businesses would end up paying either the same as now or less, while 3% would face a higher rate.
A coalition of labor groups has developed a similar proposal, dubbed Our Oakland Initiative. That proposal also would give a tax cut to smaller businesses, and increase the tax burden on those with more than $1 million in gross receipts.
Meanwhile, major business groups like the Oakland Metropolitan Chamber of Commerce have opposed the proposals, which they argue will hurt businesses still reeling from pandemic lockdowns.
“Our tax base is too small. We do not have enough business to be taxed. The rate of increase needs to be reasonable, not drastic and desperate,” said Zack Wasserman of the Oakland Metropolitan Chamber of Commerce.
The Chamber’s proposal, which it also describes as progressive, wouldn’t tax big businesses as deeply. Small businesses with less than $1 million in gross receipts in certain sectors would pay only $60 in annual taxes the first three years. Altogether, its plan would raise taxes about $15 million a year.
The Bay Area Council, a business-sponsored public policy organization, released a study that estimates the task force’s proposal would cause even more job losses than the 2,000 projected by city staff.
“The unintended consequences and ripple effects of this massive tax hike proposal would not only seriously hobble Oakland’s slow recovery from the pandemic but would jeopardize the city’s longer-term prospects for growing the economy, attracting jobs and securing new companies and investment,” Jeff Bellisario, executive director of the Bay Area Council Economic Institute, said in a written statement included with the study.
“It would also place unhealthy reliance on large companies for a bigger share of city budget revenue that could disappear if employers flee to less costly locations,” he added.
But Sara Hinkley, of the UC Berkeley Labor Center, contended Thursday there’s no clear evidence that taxes or any other single factor drives business decisions to locate somewhere or move. An accessible labor market, real estate costs, customer base, public services, safety and cleanliness also are factors that enter into businesses’ decisions.
She also noted that many businesses will be able to deduct the gross receipts tax from their state and federal income taxes.
Proponents of the more progressive tax proposals say it’s time for corporations to pay their fair share, and that increasing city revenue will help it pay for the services that maintain clean, safe streets and reduce homelessness, blight and other issues the business community often cites as problems.
The council committee is to continue discussing all four tax proposals later this month. Although the full council likely will choose only one proposal to put on the ballot, the other initiatives can also qualify if the required number of signatures are gathered.
