Business license tax update heads to voters in Redwood City

If approved by voters, the tax increase would be phased in over two years — 50% of each rate will be made effective July 1, 2025, and the full rate will be effective the following year. 

The expected net revenue is $7.7 million, which seeks to address the projected structural deficit of $9.3 million annually in coming years. Revenue generated would go toward maintaining ongoing city services that would otherwise have to be discontinued or scaled down, City Manager Melissa Stevenson Diaz said.   

A former proposal considered changing to a gross receipts-based tax model, but community feedback seemed to suggest this would be complex to calculate and would not allow for tax bill predictability. However, community surveys suggested support for city services. 

“We wanted to develop an approach that is reasonable and fair,” Councilmember Diane Howard, who served on the ad hoc committee, said. “We listened, we did a lot of listening and we needed to. Councilmembers did a lot of extensive outreach and we made changes based on what we heard from businesses.”

The ordinance includes exemptions of the tax for all child care businesses, maintains the current fee for landlords to promote housing development efforts, and keeps other increased rates on par with neighboring communities. The ordinance also would allow the council to revisit the tax annually and lower rates, not raise, if deemed necessary. 

The current business license tax generates about $2.8 million every year and rates for smaller businesses are estimated to be 10 times that of larger businesses, according to a staff presentation. 

“We are not asking businesses to fully fill the deficit,” Howard said. “But this proposal will help us maintain city services at our current level.” 

Multiple business owners and representatives spoke during public comment raising concerns over the impact of increased taxes, especially to those who operate multiple locations in various cities who may also impose their own business license tax. 

The Chamber of San Mateo County opposes the measure, board Chair Lennies Gutierrez said during public comment, claiming the increases are “unreasonable and unacceptable.”

Pat Mapelli, land use manager for Graniterock, said these companies are already feeling the effects of the many imposed tax increases. 

“The cost of increase to business typically is going to be passed on to the consumers,” he said during public comment. “And that’s not something we enjoy doing.” 

Redwood City is not alone in its consideration of adjusting its business license tax. Belmont is moving to a gross receipts model, Foster City is similarly updating its rates and also making the maximum payment of $250,000. South San Francisco is also looking to update its model later this week. 

Although the revenue needs have driven efforts to get this measure on the ballot, the council still raised concern over appealing to businesses staying in, and coming to the area. 

Speaking from the perspective of being a business owner, Mayor Jeff Gee said it’s important to consider the greater fiscal impact if businesses were deterred from establishing or remaining in Redwood City, such as worker impacts on local retail sales tax. 

“We need to figure out how to be proactive and attract and retain businesses because keeping a business in Redwood City is a lot less expensive and easier to do than trying to bring a new business to Redwood City,” he said. 

Focus should also be placed on filling the current commercial building vacancy the city maintains, Councilmember Elmer Martinez Saballos said. 

“We have amazing office spaces that are currently available with the third largest share of office space in the county available, and we have a lot more coming in the pipeline with more than 1 million square feet under construction right now,” Martinez Saballos said. 

The measure will be placed on the November ballot for voter consideration. 

In other business, the City Council gave its final stamp of approval for the Hopkins Avenue Traffic Calming Project which installed infrastructure to slow vehicle speed between El Camino Real and Alameda de las Pulgas and made the street a one-way.