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Councilmembers Nikki Fortunato Bas and Carroll Fife are proposing placing a measure on the November ballot that would eliminate Oakland’s flat tax rate on businesses and replace it with a progressive tax rate they say would bring in more city revenue and help small businesses thrive.
Their proposed progressive business tax would give small businesses some relief on the taxes they pay and bring in more money from the city’s larger companies. If put on the ballot this year by a majority of the City Council and approved by voters, the new tax structure could bring in an estimated $40 million in revenue annually. Oakland would join San Francisco, Richmond, Walnut Creek, and San Jose in having a tiered-tax structure.
“A core part of what we are trying to do here is provide small businesses relief as well as increase services,” Bas said at a council committee meeting Thursday where the proposal was discussed.
Business interest groups are watching the proposal closely and some are floating competing measures, worried the tax might drive companies and jobs out of the city.
Bas first introduced the idea of a progressive tax in 2020, a key initiative during her first term in office. Her plan ran into business opposition and ultimately came one vote short of going before voters in November 2020. Instead, the council voted to create a blue-ribbon committee task force to study the impacts of such a tax. The task force delivered its recommendations to the council last year.
Bas and Councilmember Fife, who has joined as a co-sponsor, say their version of the tax would modernize the city’s 20-year-old tax structure and provide relief to more than 20,000 small businesses. The estimated $40 million in new revenue could be used to expand city services, including addressing homelessness and fixing city streets and parks.
About 93% of Oakland businesses—an estimated 49,000— are considered small, according to Bas and Fife, and earn less than $1 million in gross receipts each year. But they are taxed at the same rate as much larger businesses in Oakland. Under the current system, a business with $10 million in revenue pays the same in taxes as a business with $100,000 in revenue.
The council members said 97% of businesses would pay the same tax rate as now or get a slight break, while the top 3% would contribute more.
Their tiered proposal lowers rates for businesses earning up to $1 million, and increases rates in the $75 million to $100 million bracket for businesses in auto sales, wholesale businesses, and hotels and motels. It would create a new bracket for all companies headquartered in Oakland making $100 million or more.
Large companies would have to pay $15 per $1,000 of their Oakland employees’ payroll, which could generate an additional $8.2 million, according to Bas and Fife’s proposal.
At Thursday’s meeting, Bas explained the difference between what a retailer grossing under $500,000 a year pays in taxes in Oakland compared to other cities with a tiered system. For instance, in San Francisco, that retailer would pay $230 in taxes; in Oakland, they pay $600.
Members of SEIU Local 1021, the city’s largest union, and the Oakland firefighters union are among Bas and Fife’s supporters. “It isn’t a revolution, it’s not a seismic shift. It’s the only chance we have to fund the things we need,” said firefighter union president Zac Unger.
North Oakland resident Rachel Beck said it’s time to switch the tax rate and hopes it will help prevent longtime residents from being pushed out of Oakland by providing more funding for safety-net programs, including for small business owners. “You can keep both small businesses and my longtime Oakland neighbors here in town,” Beck said.
Concerns and competing proposals
The Oakland Chamber of Commerce, which opposes Bas and Fife’s plan, is one of two groups collecting signatures to put their own version of the tax measure on the ballot. The Chamber’s version would not increase rates as much on large businesses. IFPTE Local 21, the second largest union representing city employees, and other community groups in January announced a signature-gathering campaign to place another version of the tax on the ballot. One key difference in the union and community plan is that they want tax incentives for businesses that provide apprenticeship programs. It’s possible the councilmembers and unions and community groups will eventually align around a single plan.
Attorney Zach Wasserman, chair of the Chamber of Commerce board, said he supports a progressive license tax but said the councilmember’s proposed structure would “harm Oakland businesses and its residents.”
“Our tax base is too small,” Wasserman said Thursday. “We do not have enough businesses to be taxed.”
The city’s finance department said the council proposal could result in a loss of 2,300 jobs, but a UC Berkeley researcher working with Bas and Fife cautioned against using a “broad measure of how the tax increase might produce specific job losses.”
Oakland resident Samuel Becerra, who said he works in real estate development, opposed any significant increases, saying it would would “kill jobs” because businesses could go elsewhere, making Oakland’s labor market less competitive.
Carl Chan, president of the Chinatown Chamber of Commerce board, also opposed more progressive rates and said employees of corporations are patrons of small businesses, particularly downtown. “Let’s not pick sides. No matter what business we are in, we are here to support each other,” Chan told the Rules Committee.
Councilmember Dan Kalb urged the groups working on competing measures to find common ground so there won’t be more than one ballot measure before voters. A traditional November ballot is typically packed with candidates and measures and Councilmember Sheng Thao said the city should not “shoot ourselves in the foot” by overwhelming voters.
Fife and Bas stand by their proposal, but are in talks with groups floating alternative ballot measures. “We have an opportunity here,” Bas said. “Our business tax has been growing and other taxes have been growing. We have to take advantage of the fact that we are on an upswing. We have to believe this is Oakland’s time to address the structural issues that’ve been holding back our budget.”
“I am encouraged we are all on the same page about making sure big businesses do pay their fair share,” Fife added. “We’ve got to understand, they are not going to readily say ‘tax us more.’ We are pushing for the most impactful change that we can get to invest in the services we know we are lacking.”
The city’s finance department is scheduled to return to the Rules Committee on April 21 to present a fiscal analysis of each of the business tax propositions. The committee will again discuss Bas and Fife’s proposal at the April 28 meeting.