Oakland’s business tax may soon be completely revamped under a proposal put forward by councilmembers Nikki Fortunato Bas, Dan Kalb, and Sheng Thao. Bas, the lead author of the legislation, said the tax reform is long overdue and will provide a boost to small local businesses while raising millions in new revenue for city services.
“If we look at small businesses, we see that they pay more in gross receipt taxes in Oakland than across the bay in San Francisco,” said Bas. “If we look at very small businesses like this example of a laundry service, they pay more than double in gross receipts taxes in Oakland than in San Francisco.”
Oakland’s current business tax system was last updated in 2005. Presently, the city’s gross receipts tax structure is flat, meaning that a business with $10 million in revenue is taxed at the same rate as a business with $100,000 in revenue. According to Bas, small businesses with less than $158,000 in gross receipts currently contribute 80 percent of Oakland’s total business tax revenue.
Bas’ plan would transform the city’s business tax from a flat tax in which all companies, regardless of their size, pay the same rate, into a “progressive” plan in which the largest corporations pay the highest rates and small businesses actually see their tax burden reduced.
For example, under Oakland’s current business tax, all grocery stores pay a flat rate of .06% of their “gross receipts”—all the money a company earns in a year before subtracting its expenses—to the city. Under Bas, Kalb, and Thao’s plan, grocery stores that earn less than $1 million a year would continue paying .06% to the city, but bigger grocery stores, especially chains that earn much more, would pay higher rates. Companies like Safeway or Whole Foods, which earn billions annually, would pay a higher tax rate of .335%.
Bas and her co-authors estimate their revamped business tax could generate roughly $40 million in additional revenue per year. The money could be directed towards city services such as sidewalk repairs, picking up trash from illegal dumping, public safety, and homelessness services. Additional tax revenue would also help the city avoid having to make budget cuts, as it recently did due to a decline in tax revenues during the COVID-19 pandemic.
City employee unions are supporting the plan and have launched a “Lift Up Oakland” campaign in anticipation that the City Council will place the measure on the November ballot. Oakland voters will have the final say as to whether the tax reform should be implemented.
Bas, Kalb, and Thao modeled their tax reform on San Francisco’s business tax, which already uses a progressive structure to impose higher rates on larger companies with greater earnings.
“The idea of generating new revenue for Oakland has been an ongoing issue that comes up every budget cycle,” Councilmember Bas told The Oaklandside. She said she became interested in understanding all the forms of revenue in Oakland after going through her first budget process last year. “It was probably around November, December of last fall that I started looking at our business tax structure more closely.”
Kalb thinks it is imperative the tax measure be put on this year’s November ballot, rather than wait until a future election several years away. “One good part of this measure is it provides a tax reduction for most small businesses and, if we wait two more years, those businesses will not get that tax reduction and the tax savings,” said Kalb. “We want to be able to help our business sooner than later.”
For Anna Villalobos, co-owner and general manager of Oeste, the proposed tax would provide some helpful financial relief. The bar and cafe has been operating for three years, and Villalobos said business was booming before the pandemic. Once shelter-in-place was announced, and shortly after switching to curbside pick-up, business dropped about 95 percent, she said. The restaurant did obtain a federal Paycheck Protection Program loan and Oeste also partnered with World Central Kitchen to provide roughly 1,200 meals for vulnerable residents in the city, helping bring in more income. But, Villalobos said, “we are still in a position to not survive the pandemic.”
Last year, Oeste made more than $3 million in revenue and paid a 0.12% tax to the city. This year, Villalobos says they won’t make anywhere near that amount. If the new tax structure is approved, the tax rate for a restaurant like Oeste could drop to as low as .075%.
Some business lobbyists are cautious about plans to completely refashion Oakland’s business tax, however.
Gregory McConnell, President of The McConnell Group and Jobs and Housing Coalition, two business advocacy organizations, spoke about his concerns with the proposed tax. “We were told that polls were taken and people supported it. I assumed that the people supporting it were mostly people who won’t have to pay the additional tax, at least not directly.”
McConnell added that while the new tax could help fund city services, Oakland doesn’t have the best record in providing these services to constituents. “Time after time, people hear about those things and then they don’t see it,” said McConnell at a June 17 City Council committee meeting. “Credibility is a big issue with the City Council right now.”
The City Council will reconvene on July 7 at 1:30 p.m. to further consider changes to the business tax. The vote will occur on July 14 to decide whether the legislation will be considered for the November ballot.
