December 6, 2022
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My letter to council on the proposed business tax | Invest & Innovate | Steve Levy

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Dear Mayor Burt and council members,

In 2019 I publicly supported the business tax being discussed at the Finance Committee and consultant findings.

But I am not able now to support the current proposal.

Here are my reasons, suggestions and comments.

1) The staff report picked up in a Daily Post headline says that the top five companies in terms of footage will pay only 20% of the total BR revenue.

I ask staff to tell in whatever detail is appropriate, who will pay the other 80%.

The BT is being promoted as a fair share tax for (basically) large, profitable tech companies.

But it appears that they will actually not pay the bulk of the tax.

IT IS IMPORTANT TO KNOW WHO IS PAYING THE BULK OF THE REVENUE TO BE ABLE TO ASSESS EQUITY AND COMPETITVENESS CONSIDERATIONS.

This is especially true if council approves the recommendations to provide offsets to those paying transient occupancy or sales taxes. I would exempt them completely but this proposal goes part way.

AND

if big hotels and retail stores are mostly exempt, then it really does focus on who the heck is actually bearing most of the burden from the proposed tax.

2) In the 2019 discussions equity and competitiveness were designated criteria for evaluating a BT. They seem to have disappeared from any evaluation.

Comment

Since most non tech businesses of whatever size (the 80% we do not know much about) have been struggling, in part, from trends that will continue–such as work from home, online shopping, I see serious equity challenges in the current tax.

Add to that, many of the missing 80% employ large numbers of low-wage workers.

Both the 20% and the 80% raise competitiveness issues as well as economic response likelihoods that were going to be addressed in the 2019 round.

For the 20%, leaving is always a possibility though I am not arguing that here. I do think with work from home already and a tax on used square footage, that we should expect some space economizing responses and discount the expected revenues accordingly.

For the 80%, we see closures every week. While some may be exempt under the 5,000 square foot exemption, not all will benefit. With a decline in customers here, not everyone will stay.

Many of our neighboring cities are welcoming new jobs with a competitive attitude. To argue that on one will leave lacks logic.

And these workers are customers for our small businesses.

3) I saw two other staff recommendations in their report–one is a step forward and one raises questions. I like the recommendation not to tax vacant space and see above for how that might grow.

With regard to companies with multiple sites, I can see the logic for aggregating sites for, say, Palantir but see no rationale for doing this for businesses like Coupa and CVS that operate separate locations to serve separate customers mostly.

4) Suggestions

In the 2019 round, we were discussing broad exemptions.

I would exempt retail, restaurants and raise the exemption to closer to the EPA first 25,000 square feet–perhaps 10,000 or 15, 000 square feet..

This serves the equity goal and makes the tax closer to council rhetoric that the tax is focused on large tech employers.

Then I would ask staff to then discuss what we learned from the 2019 round about competitiveness.

5) Related to point 4 is the finding that in many cases the proposed tax is much higher than the tax burden in neighboring cities as was found for the then higher tax proposals in the 2019 round.

Professionally I see no grounds for the Palo Alto has cache argument with perhaps a few exceptions. Our vacancy trends support this.

6) it is probably too late now but I wish the survey had explored alternatives like, for example, would you favor the tax more if x and y were exempted? or would you favor the tax more if the uses were guaranteed under the ballot measure? or would you favor the tax more if all businesses with less than 10,000 square feet were exempt?

Stephen Levy

Director

Center for Continuing Study of the California Economy

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