Oakland’s proposed corporate tax changes would hit larger companies hardest

Oakland's proposed corporate tax changes would hit larger companies hardest

The additional $32.7 million would go into the city’s general fund, which pays for fire, police, human services, parks and recreation and other departments.

The proposal would restructure the city’s gross-receipts tax system — which currently differs by industry, but is the same regardless of the size of the company — and replace the existing payroll tax for large companies with a new administrative headquarters gross receipts tax. A gross receipts tax applies to a company’s gross sales, without deductions for business expenses, while a payroll tax is paid on the wages and salaries of employees.

Highlights


  • The Oakland City Council initially planned to put a ballot measure on the November 2020 ballot to restructure the business tax structure, but was a vote short in approving it and created a task force to study the issue instead. The task force included small and large business owners and their representatives.

  • If Oakland moves forward with the new tiered tax structure and it’s approved by a majority of voters, it wouldn’t be the first Bay Area city to do so. San Francisco and Richmond have tiered business tax structures.

On Tuesday, two members of the 11-member Blue Ribbon Equitable Business Tax Task Force presented its findings to the council. Their proposal mostly relies on an increase of taxes for about 1,500 companies, which represent 3% of all businesses in the city.

“It’s really high time for Oakland to update this outdated regressive tax structure and make sure that we have the revenue that we need and deserve to provide essential city services,” said Council President Nikki Fortunato Bas, who has been working for a more “progressive” business tax structure.

Erin Roseman, the director of the city’s finance department, urged the council to thoroughly vet the proposal for “unintended consequences,” in particular how changes due to COVID might affect the tax revamp since companies may shift workers out of the area since it’s now easier to have employees telecommute. She said the proposal could result in a “net decline” of more than 2,000 jobs in the city and cautioned against any major changes to the tax structure and suggested phasing in tax changes over a number of years.

“The extent to which pandemic-induced economic changes will persist is still unknown,” Roseman wrote. “Many businesses have found that they can remain productive with a remote or partially remote workforce. This change has already resulted in increased office vacancies in Oakland and in other cities throughout the country, with more potentially on the horizon as office leases come up for renewal and businesses reassess their needs.”

Ari Takata-Vasquez, the chair of the task force, said Tuesday that projections show any change to the business tax would lead to a loss in jobs. The task force presented a plan that requires larger businesses to pay a higher rate than smaller businesses in the same category.

The task force’s proposal also creates a new administrative headquarters tax of $15 per $1,000 in gross receipts for large national companies that have administrative functions in Oakland. It’s unclear how many companies this would apply to. The new tax tier would be in lieu of the existing payroll-based administrative headquarters tax for companies that have more than 1,000 employees and $1 billion in revenue, according to the proposal. On average, headquarters firms could see a tax increase of more than 760%.

At Tuesday’s council meeting, many residents and representatives from labor groups called in support of the proposed business tax structure and said large corporations need to pay their “fair share” while cutting taxes for smaller businesses. “This revenue is critical to protect our public services,” one speaker said.

Barbara Leslie, the CEO of the Oakland Chamber of Commerce, said she is “deeply concerned” about the “severity” of the proposals and the threat of lost jobs. In Oakland’s current business tax structure, tax rates vary from $.60 to $13.95 per $1,000 in gross receipts. Retail, restaurants and other businesses pay $1.20 per $1,000 in gross receipts and business and personal services firms and contractors pay $1.80 per $1,000 in gross receipts. Residential and commercial landlords pay the most: $13.95 per $1,000.

A spokesman from PG&E said the proposal puts the burden on large companies and could lead them to leave the city. Jackie Ray, a spokeswoman from Clorox, said the company previously has supported updating the tax structure, but doesn’t support this proposal. But several spokespeople from large companies called in opposition.