Richmond City Council on Tuesday voted to place a measure on the November ballot to change the city’s business tax structure despite vehement opposition from the business community, which had called for more time to discuss the measure given the economic hardships of the COVID-19 pandemic.
The measure would change the tax from one based upon number of employees to one based upon gross receipts, raising an estimated $3.2 million in additional annual revenue for the financially struggling city, about double the amount it currently takes in from the tax.
The progressive tax would slightly reduce the annual payment on businesses with gross receipts under $250,000, but would progressively increase the payment for businesses with higher gross receipts. Businesses would be taxed on a range of .06 percent to .68 percent of gross receipts, depending on the type of business (see chart). The model is based upon one used in Berkeley. Under the plan, ammunition and firearms would exceed the rate sheet with a rate of 2.4 percent, and cannabis would remain at its current rate of 5 percent.
The City Council also chose to mimic Berkeley’s model of taxing residential rentals, with proposed rates of 1.08 percent for five units or less and 2.88 percent for over five units. Properties with four or fewer units could receive a credit on rent program fees under the proposal.
The proposal would exponentially increase the annual tax for businesses struggling to stay afloat during the pandemic, according to members of the Richmond Chamber of Commerce and Council of Industries.
The measure was initially drawn up by a coalition of city labor unions and advocates who neglected to garner input from the local business community. On July 21, Richmond City Council declined to vote on the proposal in order for further outreach to be done, but business leaders remain disappointed in the decision. Katrinka Ruk, executive director for the Council of Industries, said the City Council “did not respond to concerns of business or even review material presented by rental groups.”
“Council was not concerned how this will impact jobs and the local economy,” Ruk said, adding rates approved at the City Council meeting Tuesday were “higher than rates previously discussed.”
Councilmembers Eduardo Martinez, Melvin Willis, Ben Choi and Jael Myrick voted in favor of placing the measure on the ballot. Voting no were Councilmembers Nat Bates and Tom Butt, and abstaining was Demnlus Johnson III, who in a previous meeting expressed disappointment with the lack of outreach to the business community.
Councilmember Bates warned the tax could drive out businesses. Mayor Butt said he’s for years called for business license tax reform, but was “not happy with the way this evolved.”
“Neither was I happy with the deceptive way staff presented the options as having a benign effect on business, cherry picking illustrative examples that showed either minimal impacts or, in some cases, reductions,” Butt said in his e-forum newsletter Friday.
In examples of the proposed new tax structures impact on businesses, the city pointed out that a restaurant with 15 employees and $2.3 million in annual gross receipts would go from paying the current $950 per year to $3,680 that year. Meanwhile, a barber shop with one employee and gross receipts under $250,000 would go from paying $280 to $200.
Butt said the city neglected to show more extreme examples. A professional services business with 15 employees and gross annual receipts of $3 million would go from paying $904 to $13,500 per year, he pointed out.
“Although I can’t verify it, at least one business claimed its taxes would go from $6,000 a year to $600,000 a year, a 10,000% increase,” the mayor said.
Business leaders have said they’re willing to pay more to help the city. The Council rejected a plan by Mayor Butt to double existing rates, which he said would raise the same amount of money as the current proposal.
“Unfortunately, this is a continuation of City Council policy that is driven by a hatred of police, business and especially landlords,” the mayor said.
