Business tax measures head to San Mateo County voters

Demand for the change came into sharp focus recently as a steep state budget deficit left some cities’ revenue streams in a precarious position, while inflation and tough lending conditions have stalled the real estate development market throughout the region.

The most recent fiscal year 2024-25, which ended in June, saw a roughly $8 million budget deficit, per most recent estimates, though elected officials hope the ballot measure will narrow the shortfalls.

Currently, South San Francisco uses about four taxation methodologies dependent on the type of business, ranging from a per employee to gross receipts and per-unit model, with the employee model most prevalent. The new model would retain a mostly per-employee format, but would simplify general business categories into just a few main groups, depending on their sizes. Small businesses, defined as up to nine employees, would have a $30 per employee rate, $45 per employee for medium-sized companies — up to 99 employees — and $55 for those with 100 or more workers. Hotels and short-term rentals would mostly retain a per-unit structure, and construction contractors would be taxed based on project valuation.

Measure W is anticipated to generate about $2.6 million per the city attorney’s estimate, although Mayor James Coleman said the figure would likely be north of $3 million.

“The business license tax has not been updated since 2008. It’s also very regressive,” he said. “Grocery stores are the highest impacted because they have a low profit margin and not a lot of revenue, but the large life science companies have a lot of revenue per employee, a lot of investment, lots of venture capital, and so they’re paying a lot less of their share of operating costs.”

Unlike others, the city also voted not to cap the amount of BLT revenue from each business, which Coleman said was an important factor when deciding on whether to support the measure, as “every company should be taxed fairly, to whatever rate we set.”

Some industry groups, such as California Life Sciences, cautioned against higher tax rates, which they said could lead to stagnation or an innovation slowdown.

South City has the largest cluster of biotechnology firms in the county, many housed east of Highway 101, which keeps the city an attractive place for the industry regardless, Coleman said, adding that they worked closely with the companies and have lowered the per-employee rate significantly since their discussions.

“What they really are looking at is being in a central location … and you get that just by nature of having over 250 biotech companies already located in South San Francisco,” Coleman said. “That’s what [companies] are really looking at, not necessarily the rates of the business license tax.”

No formal opposition to the measure has been submitted to the county.

Foster City

While Foster City is home to several large firms, including Gilead, Visa and Zoox, it still has a smaller corporate footprint than South San Francisco, in part a function of its smaller size. And to keep a healthy financial position and boost economic development, the city has opted to include a $250,000 annual tax payment cap, though it would increase rates for some of the largest businesses.

If passed by voters in November, Measure V would maintain the gross receipts model — which taxes companies based on their revenue not employees — and is expected to generate an additional $1.4 million more each year.

“Some of these other cities are doing pretty complex models that depend on the type of business and changes the type of structure that’s being used,” Foster City Councilmember Jon Froomin said. “With gross receipts, you’re creating sustainable revenue based on the success of the companies that are in your community. … As the community businesses succeed and raise more revenue, their BLT goes up and we have more revenue from that source.”

The proposal would increase the rate for many businesses, especially the city’s largest, ranging from 75 cents per $1,000 in gross receipts to $3 per $1,000 in gross receipts, depending on the firm’s revenue. The city’s smallest businesses would only be subject to a minimum $100 annual tax.

“We need to look long term. We need to look at the ability to attract businesses to come to town, and we need to have fees and costs that are in line with others or have a reasonable nexus to the kinds of services and the quality of life in the community,” Froomin said.

He added that garnering feedback and conversation from employers was difficult — though like South City, no formal opposition has been listed on the county website.

According to the argument in favor of the measure, “since 2016, three of our four main revenue sources have increased between 21% and 67%, while the fourth, our business license tax, has had a meager revenue increase of 4%.”

Belmont

By putting Measure DD on the ballot, Belmont is also looking to change its BLT model, with no formal opposition listed. The most recent projections show a $1.3 million surplus for fiscal year 2024-25, but the city has been actively looking to increase its commercial presence and has several large biotechnology projects in the pipeline. However, some are stalled due to a tough lending market.

The new BLT model would consolidate and simplify the number of business categories — going from more than 20 to four categories — ranging from restaurants to professional services, such as technology firms. The rate would follow a gross receipts model where businesses would pay 40 cents to $1 per $1,000 of their total receipts revenue depending on the type of establishment, although cannabis operations would pay $100 per $1,000. It would also reduce the base rate to $25, which businesses would be exempt if their receipts are less than $10,000.

A staff report noted that more than 60% of businesses would see reductions in rates, although larger firms would likely see increases.

The city is not projecting an additional revenue increase from the measure, but, according to the argument put forth by supporters, said it would support small businesses by updating the city’s “outdated, 48-year-old business license tax — which is outdated, cumbersome and disproportionately burdens small business owners.”

Councilmember Robin Pang-Maganaris said, unlike other cities, the intention was not to increase its revenue stream.

“A major interest for us was to make sure to not overly burden our small businesses,” she said. “It could be that we will end up, instead of being revenue neutral, we will become revenue generating with new businesses coming in. But it was not our attempt to impact our current businesses by having it become a revenue-generating tax.”

In July, the Belmont City Council unanimously voted to add the measure to the ballot.