Redwood City voters to consider business license tax update

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. There is no formally filed opposition to the measure. 

The current business license tax was established over a decade ago, and “it hasn’t kept up with the times” and is inequitable, Councilmember Diane Howard said.

The current cap for tax collection is just over $7,000, letting large businesses get a “real big discount” that burdened smaller businesses, Howard said. Addressing this strain on these businesses was the driving goal of the proposed modernized tax, Councilmember Chris Sturken said. 

“The goal is to give small businesses just a little bit of relief, especially as they’re emerging from COVID and they’re still trying to claw their way out of that economic crisis,” Sturken said. 

In addition to the new cap, the measure proposes categorizing businesses to consider the differences in income in certain occupations, regardless of employee count. 

“Small businesses could be two or three lawyers, right next to a bakery that has two or three employees and they’re both paying the same business license tax, and we felt that was not equitable, it was not fair,” Howard said. 

The tax will generate approximately $7.7 million, addressing significant deficits the city projects in coming years, which is upwards of $9 million annually. Public safety and parks and recreation are the two major areas the city hopes to maintain.

“It will be used for those services and operations that our business community relies on,” Sturken said. “When they pick up the phone to call 911, when they’re having deliveries made on our streets, when their employees are enjoying our parks and squares, all of those services and spaces are funded by this measure.” 

Revenue from the tax will not go toward funding new jobs in the city, but will help sustain current employees and provide appropriate raises as the cost of living continues to rise, Howard said. 

“We need to ensure our future by making sure we retain the employees we have,” Howard said. “This money is part of the puzzle to make sure that we keep and retain, and no layoffs, and that’s really important.” 

A former proposal considered a change from the current structure to a gross receipts-based tax, but community feedback seemed to suggest this would be complex to calculate and would not allow for tax bill predictability. 

Although the expected revenue does not “plug a hole” in the deficit, the measure would be a “big piece of the puzzle that is going to help us stay on track and stay sustainable,” Howard said. 

Residents passed a 0.5% sales tax in 2018. Although Sturken said “nothing is off the table” in terms of future considerations of how to increase revenue — such as adjusting the city’s transit occupancy tax — this measure looks to the business community for help. 

“We decided to work with the business community and give residents a break,” Sturken said. “Everybody is taking their turn and doing their part, that’s the goal here. Everybody does their part to support the city and all of the services and operations we rely on.”