Proposed Richmond business tax change faces pushback

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Richmond City Hall (Photo credit: Mike Kinney)

A proposal to place a measure on the November ballot that would change Richmond’s business tax rate structure faced pushback at City Council last week after it was discovered that the business community had not been consulted on the measure.

In December, a coalition of city labor unions and advocates formed to study revenue-generating ballot measure proposals to remedy Richmond’s structurally imbalanced budget. After commissioning a public poll, the coalition recommended that Richmond’s city council move forward a business tax rate change for the Nov. 3 ballot that would reduce the tax burden on most businesses with under $250,000 in gross receipts but progressively increase the tax on businesses with higher gross receipts.

Under the proposal, Richmond’s business tax rate calculation would change from one based upon number of employees to one based upon gross receipts, a move city officials said could generate at least $4.9 million in additional revenue for the city. The progressive tax structure would range from .075 percent to 1.395 percent, with the highest rates being charged to businesses with the highest gross revenue, according to city staff.

The proposal faced sharp criticism at Tuesday’s council meeting after councilmembers learned the coalition behind the measure, called Lift Up Richmond, hadn’t bothered to consult with local businesses, the Richmond Chamber of Commerce or Council of Industries on the proposal’s impact.

“They’re the ones being affected, they’re the ones that are going to have to pay,” Councilmember Nat Bates said. “And I don’t understand why they were not included.”

Councilmember Demnlus Johnson III added that he understands the progressive tax reform movement, but believes failing to engage the business community isn’t good policymaking.

During public comment at the same meeting, Katrinka Ruk, the executive director of the Council of Industries, requested more time to review the economic impact of the proposed tax change. City Council ultimately voted unanimously to direct staff to engage with business representatives, but many are uncertain that process can be adequately accomplished before the Aug. 7 deadline to place a measure on the Nov. 3 ballot.

Both Ruk and James Lee, president and CEO of the Richmond Chamber of Commerce, expressed disappointment that the business community was not consulted on the long-planned tax proposal.

“Businesses who have calculated their potential business rates under the draft ordinance have found that their business tax would grow 3x, one 4x and one even 70x than what they are paying now,” Ruk said. “A business that currently pays $3,000 would pay $70,000.  A business who currently pays $500 would pay $13,000 – 1/3 of their net profits.”

Ruk added, “Gross receipts and net profits are two different things.”

From the City of Richmond staff report.

Paul Ibanez, co-owner Omega Pacific Electrical Supply, Inc., said the proposed tax change would have a significant negative impact on his business and would prompt consideration of not renewing its lease in Richmond.

Amid a pandemic during which many businesses are turning to remote working, the city risks losing businesses along with the tax revenue they bring to city coffers, Ruk said. Some Richmond businesses have had to defer their rent payments due to shelter-in-place restrictions, added Lee.

Lee said he “100 percent supports” the idea of generating more revenue for the city. He’s asked the city to postpone any decision on the business license tax proposal until next year to further discuss the impacts.

“I understand everyone needs to give and take to make this work,” Lee said. “My main concern is there was no collaboration on this.”

Earlier this month in Oakland, a similar proposal was blocked by its city council from appearing on the November 2020 ballot, and will instead appear on the November 2022 ballot, following pushback from the business community. A blue ribbon commission that includes business representatives was formed to further vet the proposal’s impact, which both Ruk and Lee said is also needed in Richmond.

With businesses in San Francisco and Oakland struggling to afford increased costs, Richmond should consider positioning itself as an affordable alternative, Lee added.

Under the current business tax structure in Richmond, the base rate for most businesses is $234.10, which goes up based on number of employees. The first 25 employees is $46.80 per employee, and any employee above that is taxed at $40.10.

Under the proposed gross receipts model, modeled after Oakland’s proposal, Richmond would charge most businesses with less than $250,000 in gross receipts a base rate of $100 per year, city staff said. For example, a beauty salon with one employee and gross receipts totaling $235,000 per year currently pays $280.90. Under the proposed tax model, it would pay $100.

Businesses making over $250,000 in gross receipts would pay a progressively higher tax rate. For example, a restaurant with 15 employees and annual gross receipts totaling $2.3 million currently pays $1,684.80. Under the proposed gross receipts tax model, the rate would change to $2,061.00 per year.

Some Richmond businesses already pay based on gross receipts, including marijuana businesses at 5 percent and movie theaters at .3 percent for revenues over $20,000.

The proposal includes tax rate changes for rental properties, which under Richmond’s model is currently $234.10 per location, no matter the size. Richmond is considering to have voters weigh in on Oakland’s proposed model where all properties are charged at 1.95 percent.

The City Council is expected to vote on a final ordinance as early as Tuesday. Prior to the evening council meeting, the city is set to hold a Zoom meeting with Richmond businesses at 10 a.m.