Foster City is postponing placing a business license tax increase on the ballot for the upcoming November election, with the city still looking to bring a new measure forward in the future.
Mayor Richa Awasthi said city staff would conduct more research and analysis to explore different options and to ensure the new tax model is equitable for small and large businesses. Speaking after the July 6 announcement, Awasthi said that, in her opinion, the city was not close to having a feasible ballot measure after not receiving enough input from the affected businesses.
“We are back to the drawing board,” Awasthi said.
Awasthi said some businesses were open to the tax, but the city wanted more information before asking the voters for a tax increase, as it only heard from a small number of businesses. City staff will now conduct additional outreach to the business community for insight as it works to retain businesses and create a feasible tax. The city will also track business license tax methods in neighboring cities. Awasthi said the council wants to make Foster City a welcoming place for businesses, with a fair tax that helps the city pay increased costs to maintain the city. The city hopes to create a win-win for both parties by incorporating new methodologies.
“Increased collaboration with our businesses, ingraining them in the fabric of our community, and making decisions by working together is paramount,” Awasthi said in a press release. “That’s why enhanced outreach to business owners will be a major component of our assessment process.”
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The council was mulling changing its business license tax cap and gross receipts rate targeting 20 large businesses. The city has a gross receipts rate of $0.00075 and a $35.9 million receipt cap, resulting in a maximum business license tax of $26,985. Raising the receipt cap, for example, to $50 million would increase the maximum business license tax to $37,500, a potential citywide revenue increase of $163,000. The council started looking at changes in March due to multiyear General Fund structural deficits over the next five years due to revenue declines from the pandemic. It also faces pension cost increases due to recent contracts with city workers and inflationary costs that can affect infrastructure projects. Some on the council also noted smaller mom-and-pop businesses are paying full rates, but larger companies had lower rates due to the cap, resulting in inequities.
The push to increase tax rates faced significant resistance from some affected Foster City companies like Sycomp, a large technology company. In a letter to the city, the company said it would consider relocating if necessary because of serious concerns about the increase. In a June 6 public letter to the council, Sycomp said it was in discussions with other businesses about creating a litigation fund to fight the tax because it was cheaper than paying for a tax increase. It said the council failed to heed the bad business environment after the pandemic and inflation and claimed it had not meaningfully occupied its leased space in over two years. In previous April discussions, the council stated it did not want to create a breaking point for businesses that would see companies change headquarters because of the tax. Sycomp said it was also frustrated it had not had contact from the city about possible options or plans for talks nearly a month after it sent the letter.
The City Council needed to make a decision by the early August ballot measure timeline. The city said it would consider a new measure in the future following analysis and outreach. The next scheduled municipal election is in November 2024.
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