Like most Richmond businesses, Laner Electric Supply Co. is struggling to stay afloat amid the COVID-19 pandemic. Owner Sandra Escalante takes pride in not having to lay off members of her 14-member staff, but “it’s been quite challenging,” she said. “We got to just get through this hurdle.”
The economic impacts of the pandemic, however, isn’t the only hurdle that worries Escalante.
Tonight, Richmond City Council is set to review whether to place a measure on the November ballot that would change the cash-strapped city’s business tax license structure. Initially drawn up by a coalition of city labor unions and advocates who neglected to garner input from the local business community, the proposed measure would change the annual tax from one based upon number of employees to one based upon gross receipts, raising an estimated $3.2 million annually in new revenue for the city, according to city documents.
The proposed tax would be slightly reduced from the current tax structure for businesses with gross receipts under $250,000, but would progressively increase for businesses with higher gross receipts, in some cases exponentially. The latest tax proposal, which ranges from .06 percent to 5 percent of gross receipts, are based upon a model in Berkeley.
Escalante says the tax would be damaging for her business and couldn’t come at a worse time. While Laner Electric Supply’s gross receipts amount to about $10 million pre-pandemic, the cost of goods the business sells amount to over $9 million. After paying bills and labor costs, the net profit for the year was $65,000, she said. Under the proposed change to the city ordinance, Escalante could see her tax burden, currently at $950 per year, grow to tens of thousands of dollars per year.
Gross receipts isn’t the same as net profits, Escalante said.
“If I have to pass this on to my customers, we definitely won’t be competitive,” Escalante said, adding her small business must compete with Amazon and other online retailers. “What they have to realize is….we all have to purchase what we’re selling.”
Richmond business leaders echo the concerns of Escalante, a Richmond resident who is heavily involved in the local business community and expressed disappointment over just learning about the plan. While businesses say they want to do more to support the city at a difficult time, they are incensed at a lack of outreach about the proposed tax measure. A coalition of city labor groups and advocates formed in December last year, called Lift Up Richmond, came up with the idea, even hiring a consultant to study the measure. The coalition and its consultant neglected to seek input from Richmond businesses. Because of that, Richmond City Council declined to vote on the proposal at its meeting on July 21 and demanded that the outreach be done.
A couple of meetings later with the city, Richmond business leaders still feel they haven’t been heard. James Lee, president and CEO of the Richmond Chamber of Commerce, said the business community is “outraged” they weren’t consulted and that the city is now “scrambling” to garner support ahead of today’s deadline to place a measure on the November ballot.
“I have had several meetings with the city and every employee keeps saying, ‘We don’t have much time,” Lee said. “Why would you, knowing that time is an issue, precede to recommend a business tax increase? We oppose such an increase without a proper procedure that is transparent and collaborative.”
Katrinka Ruk, executive director of the council of industries, has called the current process “very upsetting.”
“The information they are presenting keeps changing meeting to meeting,” she said.
Initially, the business tax model proposed for Richmond was modeled after a proposal in Oakland, which, incidentally, was postponed to the November 2022 ballot following pushback from the business community. That proposal would tax businesses based on a range from .0075 percent to 1.395 percent. At the July 21 meeting, council asked that the city return with a proposal based instead upon Berkeley’s model.
Ruk says the Berkeley model remains problematic as it would mean exponential increases to the current tax for businesses already struggling during the pandemic. Business owners say they may be forced to close shop and relocate.
“We’re not saying businesses shouldn’t pay more,” Ruk said, who is calling for a collaborative effort to determine how that can happen.
Under the current business license tax structure, the base rate businesses pay is $234.10 per year that goes up per each employee working in Richmond, with the first 25 employees charged at $46.80 per employee and every employee beyond that charged at $40.10.
Under the proposed gross receipts model, small businesses with less than $250,000 would pay $200, excluding rental properties. Beyond that, different business categories will be taxed at different rates in a progressive manner based upon their gross receipts.
Exempted from the progressive tax structure are nonprofits, religious institutions, new affordable housing developments, buildings rented by the city and child day care centers.
In terms of rental properties, which currently pay $234 per location for the business tax, city staff recommends proposing a semi-tiered model in the ordinance that would charge a flat rate to property owners based upon gross receipts, similar to Oakland’s current model, but that provides a 50 percent discount to property owners that have units subject to rent control.