City of Oakland

Measure T - Majority Approval Required

TITLE: A Proposed Ordinance Amending Oakland's Business Tax Rates To Create A Progressive Rate Structure That Would: (1) Impose The Highest Rates On The Highest Grossing Businesses; (2) Increase Oakland's Annual Tax Revenue By An Estimated $20,900,000; And (3) Generate Approximately $124,000,000 In Total Annual Revenue For Municipal Services By Imposing Business Tax Rates Of .05% To .55% Of Gross Receipts, And Other Rates As Stated In The Measure.

The City of Oakland currently imposes business taxes on the holders of business licenses. Business taxes are currently assessed at a fixed rate based on the gross receipts or gross payroll and class of business. This measure adds additional business tax classes based on business activities and creates a progressive rate structure that assesses a higher rate on businesses with greater gross receipts or gross payroll in addition to establishing several graduated brackets within each tax class. This measure also would impose a minimum business tax of $60 on most businesses regardless of their gross receipts or gross payroll.

This measure will not alter Cannabis Tax rates and the City Council will retain its existing authority to lower Cannabis Tax rates following a public hearing. This measure will not authorize the City Council to amend other business tax rates without voter approval; and this measure does not change tax rates for residential rental businesses. However, triplexes are added as an additional type of property that qualifies for owner-occupied exemptions; and the measure also creates a partial exemption from class tax rates that lowers taxes for construction businesses with qualified apprenticeship programs and health care coverage.

This measure updates certain tax classes and tax terminology in the City's business tax code to more closely align them with classes and terminology used in the state and federal tax codes.

Economic consultants retained by the City's Finance Department estimate that this measure will generate approximately $20.9 million in additional annual revenue, the proceeds of which will be deposited into the City's General Fund. This measure does not have any impact on any other types of taxes other than business license taxes.

This measure was placed on the ballot by the Oakland City Council. Passage of this measure requires an affirmative vote of a majority of voters (i.e., more than 50% of the votes reject the measure.

Under the City of Oakland's current business tax code, the City imposes business taxes on the holders of business licenses at a fixed rate for each tax class based on the gross receipts or gross payroll of the business. This measure creates a progressive rate structure for business taxes that has the effect of changing Oakland's business tax burden such that companies with lower gross receipts will pay a reduced percentage of total business taxes and companies with higher gross receipts will pay a greater percentage of total business taxes. This measure also would impose a minimum business tax of $60 on most businesses regardless of their gross receipts or gross payroll.

This measure will not change residential rental business tax rates and will not alter Cannabis Tax rates, and the City Council will retain its existing authority to lower Cannabis Tax rates following a public hearing. This measure does not authorize the City Council to amend other business tax rates without voter approval.

This measure updates certain tax classes and tax terminology in the City's business tax code to more closely align them with the classes and terminology used in state and federal tax codes. The measure also ensures that the letters the City uses to classify various types of businesses correspond to the letters used in the tax-rate table in the Oakland Municipal Code, which may make it easier to find the relevant tax rates for each classification of business.

Economic consultants retained by the City's Finance Department estimate that this measure will generate approximately $20.9 million in additional annual revenue, the proceeds of which will be deposited into the City's General Fund. This measure does not have any impact on any other types of taxes other than business license taxes.

This measure was placed on the ballot by the Oakland City Council. Passage of this measure requires an affirmative vote of a majority of voters (i.e., more than 50% of the votes cast). A "yes" vote will approve the measure; a "no" vote will reject the measure.

Summary

This measure, if approved by a majority of voters, will update the current business tax ordinance (Chapter 5.04 of the Oakland Municipal Code).

Currently a flat tax rate applies to nearly all businesses regardless of annual gross receipts earned. The measure will maintain the current minimum $60 tax but will add five tax rate tiers based on.gross receipts of the business. The tax rates for businesses with less than $1 million in gross receipts will either be lower or equal to the current ordinance, depending on the business type. On the other hand, most businesses with gross receipts of more than $1 million will pay higher business tax rates.

The table below shows current and proposed tax rates by business class across the proposed tiers.

Additionally, the proposed measure increases the rates per vehicle for Taxi, Ambulance, Limousine services, and increases rates based on number of employees for Transportation/Trucking companies. The measure does not change the business tax rates for Cannabis businesses, Residential and Commercial Rentals, and Firearms ammunition.

New tax rates are effective January 1, 2023. The City Council may not amend or modify any business tax rates or minimum tax amounts except for Recreation and Entertainment businesses following a public hearing. However, they cannot increase the tax rate for cannabis businesses or any other tax for which voter approval is required.

Tax exemptions are available for affordable housing, buildings rented by the City, family daycare, and parking stall operators.

Financial Analysis

In fiscal year 2020-21, Business License Tax revenues were approximately $104 million. The City estimates the proposed measure would increase business tax revenues by approximately $21 million annually starting in fiscal year 2022-23. The proceeds are deposited in the City's General Purpose Fund and may be expended for any City purpose.

The City estimates that it will incur $1.8 million to implement the new tax structure. These costs include staff, office equipment, enhanced outreach, new tax software, and miscellaneous implementation costs. This includes staffing costs of approximately $560,000 annually to administer the measure.

Our independent analysis is based on the best information available at this time.