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CC 6-19-18 Written Communications Item #5 Business License Tax Presentation1 Potential Restructuring of the Business License Tax June 18, 2018 Employer-Based Revenue Measure Background •March 2018: 2018-19 Work Program - Employer- based revenue measure to address traffic congestion •May 2018: voter poll •June 5, 2018: study session on potential revenue measures •June 18: Business Forum CC 6/19/18 Item #5 2 Business License Tax Structures ●Square Footage (current) ●Payroll ●Base + rate per employee Current Structure - $800,000 FY17-18 Square Footage Range Rate Tax Range Home Occupations - 0 0 $144 1-5,000 0.0380 $144-$334 5,001-25,000 0.0331 $334-$996 25,001-75,000 0.0287 $996-$2,431 75,001-100,000 0.0237 $2,431-$3,024 100,001-150,000 0.0189 $3,024-$3,969 150,001+ 0.0048 $3,969+ 3 Over 3,800 Business Licensees 70% 25% 4% 1% 0 SF 1‐5,000 SF 5,001‐25,000 SF 25,001‐75,000 SF 75,001‐100,000 SF Payroll Taxes Agency Payroll Expense Threshold Payroll Tax Rate San Francisco, CA >$300,000 0.711% Newark, NJ >$2,500 1% Jersey City, NJ (Proposed) TBD 1% (Proposed) Tri-Met Transportation District (Oregon) All wages 0.7537% Lane County Mass Transit District (Oregon) All wages 0.73% New York City Metropolitan Transportation Authority (MTA) >$312,500 to $375,000 >$375,000 to $437,500 >$437,500 0.11% 0.23% 0.34% • Tax rate applied to salaries/wages • SF is transitioning away from a payroll tax to tax on gross receipts 4 Employee-Count Business Tax ●Employers pay a per employee (EE) amount ●Flat rates for small businesses ●Progressive per-EE rate increases as EE count increases Employee-Count Model Assumptions ●3,500 non-exempt business licenses with 39,000 employees ●2,200 out-of-town businesses ●Data from CA EDD, US Census, and City BL database ●No EE rate for first 99 employees ●No cap 5 Few Medium to Large Businesses ●One business employs 2/3 of Cupertino workers ●Only about 30 businesses would be subject to per- employee rate 0 5,000 10,000 15,000 20,000 25,000 30,000 1-10 11-50 51-100 101-250 251-500 501-1,000 1,001-5,000 5,001+ Estimated Employees by Business Size Model 1: per EE rate up to $150 Employee   Range # Businesses Estimated #  Employees Base Rate Employee   Rate Total   BL Tax 1‐93,128              3,400               150 ‐                   469,200$          10‐49 300                  4,000               250 ‐                   75,000$            50‐99 40                    2,400               500 ‐                   20,000$            100‐249 25                    3,350               500 50$              56,250$            250‐499 5                      1,350               500 75$              47,625$            500‐999 1                      500                   500 100$           26,725$            1,000‐4,999 500 125$            ‐                          5,000+ 1                      24,000             500 150$           3,426,550$      Total 3,500              39,000             4,121,350$      6 Model 2: per EE rate up to $300 Employee   Range # Businesses Estimated #  Employees Base Rate Employee   Rate Total   BL Tax 1‐93,128              3,400               150 ‐                   469,200$          10‐49 300                  4,000               250 ‐                   75,000$            50‐99 40                    2,400               500 ‐                   20,000$            100‐249 25                    3,350               500 50$              55,000$            250‐499 5                      1,350               500 100$           50,000$            500‐999 1                      500                   500 150$           33,000$            1,000‐4,999 500 200$            ‐                          5,000+ 1                      24,000             500 300$           6,608,000$      Total 3,500              39,000             7,310,200$      Model 3: per EE rate up to $425 Employee   Range # Businesses Estimated #  Employees Base Rate Employee   Rate Total   BL Tax 1‐93,128              3,400               150 ‐                   469,200$          10‐49 300                  4,000               500 ‐                   150,000$          50‐99 40                    2,400               500 ‐                   20,000$            100‐249 25                    3,350               500 75$              78,125$            250‐499 5                      1,350               500 100$           68,875$            500‐999 1                      500                   500 200$           36,775$            1,000‐4,999 500 300$            ‐$                   5,000+ 1                      24,000             500 425$           9,411,500$      Total 3,500              39,000             10,234,475$    7 Model 4: per EE rate up to $1,000 Employee   Range # Businesses Estimated #  Employees Base Rate Employee   Rate Total   BL Tax 1‐93,128              3,400               150 ‐                   469,200$          10‐49 300                  4,000               500 ‐                   150,000$          50‐99 40                    2,400               500 ‐                   20,000$            100‐249 25                    3,350               500 50$              56,250$            250‐499 5                      1,350               500 100$           50,250$            500‐999 1                      500                   500 250$           33,100$            1,000‐4,999 ‐                   ‐                    500 500$            ‐                          5,000+ 1                      24,000             500 1,000$        21,158,100$    Total 3,500              39,000             21,936,900$    Model 5: per EE rate up to $1,500 Employee   Range # Businesses Estimated #  Employees Base Rate Employee   Rate Total   BL Tax 1‐93,128              3,400               150 ‐                   469,200$          10‐49 300                  4,000               500 ‐                   150,000$          50‐99 40                    2,400               500 ‐                   20,000$            100‐249 25                    3,350               500 75$              78,125$            250‐499 5                      1,350               500 100$           68,875$            500‐999 1                      500                   500 250$           36,825$            1,000‐4,999 ‐                   ‐                    500 750$            ‐                          5,000+ 1                      24,000             500 1,500$        31,662,075$    Total 3,500              39,000             32,485,100$    8 Model 6: per EE rate up to $700 Range # Businesses Estimated  #  Employees Base Rate Empoyee   Rate Total   BL Tax 1‐93,128              3,400               150 ‐                   469,200$          10‐49 300                  4,000               500 ‐                   150,000$          50‐99 40                    2,400               500 ‐                   20,000$            100‐249 25                    3,350               500 50$              56,250$            250‐499 5                      1,350               500 100$           50,250$            500‐999 1                      500                   500 200$           33,050$            1,000‐4,999 500 350$            ‐                          5,000+ 1                      24,000             500 700$           14,833,000$    Total 3,500              39,000             15,611,750$    Other Key Parameters ●General vs. Specific ●Part-time employees ●Other business types ●Inflation index ●Annual audits ●Timeline and phasing 9 Potential Projects ●Transportation ●Public infrastructure ●Potential partnerships for affordable housing development Electric Community Shuttle ●6 shuttles operating weekdays 8 am to 6 pm ~$1.5M/year ●6 shuttles operating daily 8 am to 6 pm ~$2M/year 10 Library Expansion ●“Perch” Addition ●Approximate Size: 4,420sf ●Estimated Cost: ~$8.5M New City Hall ●Approximate Size 40,000 sf ●Two Floors with Underground Parking ●Estimated Cost: ~$75-95M 11 Enhanced Community Facilities Potential Amenities include: ●Aquatic Center (2 pool): ~$25-50M ●Multistory Gym (50k s.f.): ~$50-100M ●Multistory Arts / Performance/ Community/ Incubator Space (100k s.f.): ~$80 - 120M ●Renovated Sports Center: ~$15-18M ●Expanded Senior Center: ~$10-15M Bicycle Transportation Plan ●Stevens Creek Class IV Bike Lanes, Phases 2 & 3: ~$5-6M ●McClellan/DeAnza Intersection Reconfiguration: ~$1-2M ●Bike/Ped Overcrossing of Hwy 85 at the Oaks: ~$10-20M ●Carmen Rd Bridge: ~$2-4M ●Junipero Serra Trail: ~$7-52M ●Regnart Creek Trail: ~$5-6M ●UPRR Bridge to Snyder-Hammond: ~$2-6M ●UPRR Trail - ~$10-20M 12 Hwy 85 Transit Guideway Study – Hwy 101 in San Jose to Hwy 101 in Mt. View Although $350M is currently included in the Santa Clara County Measure B Program, this funding could bridge any gaps to expedite planning and design - ~$5-10M Automated Guideway Transit Study – Mt. View Transit Station to I-280/Wolfe Rd Study to connect future Mountain View system (North Bayshore to downtown transit station) to Apple/Vallco area. Study cost - ~$1.5-2M 13 Transit Study – Stevens Creek Corridor to Downtown San Jose Study to connect the Cupertino and Santa Clara and downtown San Jose with timely and viable transit, possible subway system. Conceptual Study cost - ~$1.5-2M Leveraging Revenue Model EE Rates Est. Rev (in millions) Est. COP (in millions) 1 $50-150 $4.1 $41.0 2 $50-300 $7.3 $73.0 3 $75-425 $10.2 $102.0 4 $50-1,000 $21.9 $219.0 5 $50-1,500 $32.5 $325.0 14 Tax Agreements ●Council may enter into tax agreements to refund BLT for: ●community benefit ●public-private partnerships Business Outreach ●Continuing discussions with Chamber of Commerce ●Targeted largest businesses for one-on-one meetings ●Business Forum on June 18th 15 Initial Business Feedback ●Timeline seems rushed ●Not enough business outreach ●Revenue should be tied to a solution Next Steps ●July 3: Ballot language approval to meet November 2018 deadline (due to Council recess) ●Arguments & rebuttals (Council designee) ●Resolution on expenditure priorities (TBD)