CITY OF OAKLAND
AGENDA REPORT
DATE: May 19, 2022TO: City Council and Members of the PublicFROM: Council President Nikki Fortunato BasCouncilmember Carroll FifeCouncilmember & President Pro Tempore Sheng ThaoCouncilmember Dan KalbSUBJECT: Progressive and Equitable Business Tax
RECOMMENDATION
We respectfully request that the City Council, in order to create a progressive business taxstructure in which companies that make more, pay more, and to raise revenue for the City’sgeneral purpose fund to strengthen city services:
Adopt A Resolution: 1. Amending Resolution No. 88227 C.M.S., Which, Among OtherThings, Submitted To The Voters At The November 8, 2022 General Municipal Election,An Ordinance Repealing And Replacing Chapter 5.04 Of The Oakland Municipal Code,To Modify Said Ordinance To Incorporate Recommendations From The Blue RibbonEquitable Business Tax Task Force; And 2. Directing The City Clerk To Take All ActionsNecessary To Prepare For And Conduct A November 8, 2022 General Municipal Election.
EXECUTIVE SUMMARY
The City of Oakland has an outdated, regressive, and complicated business tax system.
There has been robust discussion and engagement about reforming Oakland’s Business LicenseTax since 2020. Today, there is consensus that the business tax should be restructured withprogressive, tiered rates.
This proposed legislation replaces the July 14, 2020 resolution, incorporates the Blue RibbonEquitable Business Tax Task Force recommendations, andamends the proposal with feedbackfrom stakeholders since it was introduced on March 31, 2022 at the Rules & LegislationCommittee.
We have heard a great deal of input from businesses of all sizes, community groups,unions, and residents. In consideration of that input, we are putting forward thisamended proposed legislation.
Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax This proposal updates our local business taxes to an equitable and tiered gross receipts taxstructure,assessing progressively higher tax rates on businesses with higher revenue,achievingan equity reform. It will generate tens of millionsof dollars in additional revenue annuallytowards vital City services. It would also provide small businesses impacted by COVID withpermanent tax relief. It would modernize the gross receipts tax structure and close loopholes. Itwouldmaintain Oakland's ability to attract and retainbusinesses of all types and sizes, andprotect against significant job loss.
We thank all the stakeholders who have shared input and who have worked with us to craft thisproposal. We look forward to the proposal’s full consideration by the City Council to place it onthe November ballot for voter approval.
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Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax
BACKGROUND / LEGISLATIVE HISTORY
A. The Current System
The City of Oakland’s current business tax system, primarily based on gross receipts, was lastsubstantially updated in 2005, over 15 years ago. Gross receipts taxes are taxes paid on abusiness’s gross revenue, or gross receipts. In its current form, the City’s gross receipts taxstructure is flat, meaning that a business with $10 million in revenue is taxed at the same rate asa business with $100,000 in revenue. 1 The charts below include industries that would be affected by this proposal. Under the currentsystem, small businesses with $1 million or less in gross receipts, who account for 12% of totalgross receipts reported in Oakland, would pay 14% of the total business taxes collected in theCity. 2 By contrast, the businesses that earn morethan $1 million in gross receipts, who accountfor 88% of all gross receipts and taxable payroll reported in Oakland, would pay 86% of thetotal business taxes collected in the City. This structureplaces an inequitable burden onsmall businesses. 2 Data provided by Blue Sky Consulting Group.
1 City of Oakland, Department of Finance Gross Receipts Tax Rates, available at:https://cao-94612.s3.amazonaws.com/documents/Business-Tax-Classification-and-Rate-Tables-2020.pdf Item No.:________City CouncilMay 19, 2022Page3
Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax Under the proposed tax structure, this inequity would be addressed.Small businesses with$1 million or less in gross receipts, accounting for 12% of total gross receipts, would pay 9% ofthe total business taxes. Businesses that earn more than $1 million in gross receipts, whoaccount for 88% of all gross receipts and taxable payroll, would pay 91% of the total businesstaxes.
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Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax B. Legislative History
The City of Oakland Budget Advisory Commission formally recommended that the Councillook into new revenue streams in their Budget Advisory Memos in 2019, 2020 and 2021 aswell as in previous budget cycles. On July 14, 2020, the City Council unanimously adoptedResolutionNo. 88227 C.M.S.to place an equitablebusiness tax ballot measure on theNovember 8, 2022 ballot and to create an Equitable Business Tax Task Force to study the issuesand make recommendations to Council. On January 18, 2022, the City Council received aninformational report from the Equitable Business Tax Task Force with recommended businesstax rates. On March 31, 2022, the Rules and LegislationCommittee heard the previouslyproposed legislation. On April 28, 2022, the Rules and Legislation Committee heard aneconomic analysis of the five proposals to reform the business tax structure.
This proposed legislation replaces the July 14, 2020 resolution, incorporates the Blue RibbonEquitable Business Tax Task Force recommendations, andamends the proposal with feedbackfrom stakeholders since it was introduced on March 31, 2022 at the Rules & LegislationCommittee.
We have heard a great deal of input from businesses of all sizes, community groups,unions, and residents. In consideration of that input, we are putting forward thisamended proposed legislation.
ANALYSIS AND POLICY ALTERNATIVES
A. Equitable, Tiered Gross Receipts Tax Structure, Investments in City Services Our proposal provides a structural reform that would protect and add resources for vital cityservices, including homelessness services and housing, street and sidewalk maintenance, trashcollection, small business assistance, fire safety, and community safety, as well as supportstruggling small businesses by making our local business tax structure fairer to everyone. Aprogressive, tiered tax system where businesses that make more, pay more, is an importantavenue for revenue in a system that is antiquated and was last updated in 2005. By modernizingour tax system, we can give needed tax relief to small businesses who have been impacted byCOVID and generate the revenue we need to protect and enhance city services that we alldepend on — that have been constantly at risk of being cut back, even before this globalpandemic.
B. Policy Goals: Create an Equitable Tax Structure to Support Small Businesses andAsk Businesses That Make More to Pay More,TherebyRaising Revenue toStrengthen City Services There are four main goals of the equitable business tax proposal, which are based onrecommendations from theBlue Ribbon Equitable BusinessTax Task Forceand input fromstakeholders:
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Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax
1. Modernize the gross receipts tax structureand close loopholes, making the taxstructure more fair and equitable with a progressive, tiered rate structure thatasksbusinesses who make more to pay more by assessing progressively higher tax rates onbusinesses with higher revenue;2. Raise revenue to strengthen city servicesfor residentsand businesses of Oakland,raising new general fund revenue to address needs including homelessness services andhousing, illegal dumping clean-up, street and sidewalk maintenance, small businessassistance, fire safety, and community safety;3. Provide permanent tax relief to small businesses, particularly those impacted byCOVID, and provide them with improved city services;and4. Maintain Oakland's ability to attract and retain businessesof all types and sizes,protecting against significant job loss.
Under the proposed system, many small businesses in Oakland will see a reduction in theirgross receipts tax rate, while medium and large companies in Oakland will pay progressivelyhigher rates based on their gross receipts. The progressive, tiered system will ensure thatbusinesses that make more, pay more and will ultimately raise much-needed revenue for thecity’s general purpose fund.Moreover, in this grossreceipts tax structure, businesses willonly pay higher rates if they are earning more revenue. Businesses earning less revenuewill pay lower rates.
C. Policy Changes
The proposed system makes the following key changes to Oakland’s gross receipts taxstructure:
1. Tax Relief for Small Businesses:Almost 6,000 smallbusinesses will receive anaverage tax reduction of $110 or 17%. These tax cuts are targeted at the businesses andindustries most impacted by the COVID-19 pandemic, including retailers and grocerswith up to $2.5 million in annual gross receipts, as well as business and personalservices, wholesalers, and recreation and entertainment businesses with up to $1 millionin annual gross receipts.
2. Progressive, tiered structure:As a business’s grossreceipts increase, the rate they payon that revenue increases.While 90.1% of businesseswill receive a tax cut or payrates similar to what they pay now, the top 9.9% of businesses in Oakland willcontribute more while keeping our city regionally competitive.At the top taxbracket of $50M+, Administrative Headquarters, Grocers, and Miscellaneous will payfour (4) times more, while Media Firms will pay three (3) times more and seven otherbusiness categories will pay twice as much.
3. Closes loopholes: Creates a “master certificate” requirementfor all related businessentities for the purposes of determining the business tax due in the aggregation of theseentities’ gross receipts. Sunsets the five-year business tax exemption for new buildingconstruction on December 31, 2023.
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4. Incentives for construction contractorswho participate in a viable apprenticeshipprogram and provide guaranteed worker healthcare coverage.
5. Raises $22 million annually in new revenue to expand and improve city services:For too long, Oakland has been starved for resources to fund general city services thatimprove the quality of life for all residents and create a vibrant, safe and clean citywhere businesses can thrive. By raising $22 million in new general fund revenues,Oakland will be able to fund all functions of city government for decades to come,including homelessness services and housing, street and sidewalk maintenance, trashcollection, small business assistance, fire safety, and community safety.
The proposed system leaves “as-is” and unchanged the business tax rates for cannabisand residential and commercial rentals, which were both updated by the Council in 2019.
Below are the tax rates, as amended from the prior legislation heard at the March 31,2022 Rules & Legislation Committee meeting.Taxi/Limo/AmbulanceandTrucking/Transportation rates remain the same as the March 31, 2022 legislation, as proposedby CM Kalb.
D. Importance of City Services to the Business Community The Blue Ribbon Equitable Business Tax Task Force recommended a number of ways in whichthe city could improve support for businesses in our community, including increased fundingfor city services, especially for clean streets and homelessness services, and small businessassistance.
The 2017 Small Business Task Force developed a number of recommendations that are stillrelevant today, including improving service delivery to small businesses, better data collectionof the small business community, and coordinated marketing. The2021 Economic RecoveryItem No.:________City CouncilMay 19, 2022Page7
Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax Planalso includes recommendations for small business support, such as re-launching the City’sRevolving Loan Fund.CM Fife and CP Bas scheduledan informational report andrecommendations on the implementation of these and other small business andcooperative supports for the June 28, 2022 Community & Economic DevelopmentCommittee meeting.
A2020 study by students at the Goldman School ofPublic Policyfound that business tax ratesare not a factor in businesses’ decisions to locate in Oakland. 3 In a survey of 59 Oaklandbusiness owners, not a single respondent indicated that the business tax rates were a factor inwhy they chose to open their business in Oakland. In interviews with members of the businesscommunity, business owners and representatives from local chambers of commerce andBusiness Improvement Districts did not emphasize the gross receipts tax as being a particularlysalient aspect of the overall cost of doing business in Oakland.
However, what members of the business community did emphasize was the need for improvedcity services that are more responsive to the needs of business owners. Routine services such asstreet and sidewalk maintenance are of critical importance to businesses, as are the longer-termefforts the city puts into addressing the homelessness crisis and affordable housing crisis.Business owners understand that their taxes pay for these services, and some even went as faras to say in interviews that they would be happy to pay higher taxes for better funded services.
E. An Equitable Recovery
Ever since the last great recession in 2008, the City of Oakland’s staffing shortage has createdserious citywide service delivery problems. The City has a 12.42 percent vacancy rate as ofSeptember 22, 2021, which means that approximately 12.42 percent of budgeted full-timeequivalent positions are not currently filled. 4 TheCity is not able to sufficiently provideservices to businesses and residents alike, but passing a progressive gross receipts tax wouldhelp address that in the long term.
Rather than making cuts, the City should raise revenue, so it can increase its staffing capacityand provide better, more responsive services to its businesses and residents.Our priorities forOakland are clear: support small businesses, fix our streets, clean up trash, address thehomelessness crisis, and ensure fire and community safety. We saw what happened last timewe faced an economic downturn: vital city services were cut and never restored. Oaklandresidents are coming together to overcome this pandemic and are ready to work to make sureour communities recover. By acting now and reforming Oakland's business tax to make it moreequitable, we can make sure that communities are not further harmed, but are stronger as theeconomy recovers. 4 https://oakland.legistar.com/LegislationDetail.aspx?ID=5182307&GUID=1EB51A07-CD86-41DC-8E6E-8ADF48957B87&Options=&Search= 3 https://bit.ly/37KqQsJ
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Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax At the March 31, 2022 Rules & Legislation Committee meeting, theUC Berkeley Center forLabor Research and Education (CLRE) presented its report:Evaluating the Impact ofProposed Changes to Oakland’s Gross Receipts Tax, including an evaluation of the jobimpact estimates made by the Blue Sky Consulting Group and the key factors that affectbusiness location and expansion. CLRE discussed the importance of strengthening the city’srevenue base to support Oakland’s continued recovery from the impacts of the COVID-19pandemic and the importance of improving public services to support business growth andretention, most immediately by filling key staff positions that currently lack funding. Oakland’ssmall businesses in particular—which generate economic activity that stays local and supportsOakland’s residents of color—could benefit from both a reduced tax burden and additionalstrategic supports.A progressive business tax equitablyshifts responsibility so businessesthat make more pay more, which would benefit Oakland’s long-term economic health andis in alignment with the approaches being taken by similar jurisdictions.
IMPLEMENTATION AND ADMINISTRATION
These updates would be submitted to the voters as an ordinance on the November 8, 2022ballot, and should it pass with a simple majority vote, it would be effective as of January 1,2023. The Finance Department will update its systems and procedures to conform with theseproposed updates to thegross receipts tax structure.
FISCAL IMPACT
The proposed ballot measure updates the current flat gross receipts tax system into an equitableand progressive, or tiered, gross receipts tax system, byassessing progressively higher tax rateson businesses with higher revenue. In a progressive system, every business pays theirproportional share into the city’s general purpose fund. An analysis by Blue Sky ConsultingGroup shows that the proposed system with the amended rates is projected to generateapproximately $22 million in additional annual revenue to the City’s general purpose fund.
Amendments to the March 31, 2022 proposal include:● consolidating the tax brackets into five (5) tiers with the top tier at $50M+.● removing the 1.5% Administrative Headquarters tax. Note that Admin. HQs with $20Mor more in gross receipts will pay four (4) times the current rate.● adjusting the rates in the middle tiers.● Targeting tax breaks to small businesses in industries most impacted by the COVID-19pandemic.
Most (67%) of the businesses in the affected sectors would have no change in their businesstaxes, 23% would have a tax reduction averaging $110 per business, while 10% of the affectedbusinesses would have an average increase of approximately $9,719 per business.The largest percent increases for business tax rates would occur for businesses with more than$50 million in gross receipts and classified as Administrative Headquarters, Grocers, or“Miscellaneous.” Item No.:________City CouncilMay 19, 2022Page9 Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax
PUBLIC OUTREACH / INTEREST
Updating Oakland’s business tax has been discussed and debated significantly since 2020. Theauthors of the 2020 legislation (Councilmembers Bas, Thao and Kalb)met with the followingbusiness groups about the proposed changes to the gross receipts tax structure: MetropolitanChamber of Commerce, Ethnic Chambers of Commerce (including the African AmericanChamber, Chinatown Chamber, Latino Chamber, and Vietnamese Chamber), BusinessImprovement Districts and Associations, local merchant associations, Oakland Indie Alliance, Item No.:________City CouncilMay 19, 2022Page10
Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax Jobs and Housing Coalition and individual businesses. They also met with the RefundCoalition, a coalition of labor and community organizations that organize around the Citybudget.
In January 2021, City Council established theBlueRibbon Equitable Business Tax Task Forceto engage in a thorough process of analysis and stakeholder engagement to developcomprehensive recommendations for a modernized, progressive business tax. The elevenmember Task Force consisted of nine members of the business community. These businesscommunity members included representatives of small, medium, and large businesses,cooperatives, business improvement districts, and business associations. The Task Force alsohad one representative from labor and one workforce development representative.
The Task Force met 16 times over the course of 7 months from April 2021 to October 2021 andheld over 20 hours of public meetings and discussion. The Task Force meetings were open tothe public and the public could watch recorded videos of each meeting.
Over the course of the public meetings, the Task Force heard presentations from a wide array ofsubject matter experts ranging from affected businesses and business organizations like theOakland Chamber of Commerce and TRI Commercial to staff from cities with progressivebusiness taxes like the City and County of San Francisco’s Chief Economist Ted Egan and theFinance Department staff of the City of Richmond. Additionally, the Task Force received manypublic comments from businesses and community members over the course of the 16 meetings.After a thorough and transparent process, the Blue Ribbon Task Force delivered a set ofrecommendationsto City Council in January 2022.
Since the Task Force recommendations were approved, the authors of this legislation haveengaged numerous stakeholders including business associations, many individual businesses,community groups, labor unions and community members, including:Chambers of Commerce,Jobs and Housing Coalition, Refund Coalition, Oakland Indie Alliance, Network of Bay AreaWorker Cooperatives, Real People’s Fund, Oakland Rising, and Care 4 Community.
As noted above in Section D., to further address theneeds of small businesses, CM Fife andCP Bas scheduled an informational report and recommendations on the implementation ofsmall business supports that have been previously recommended. This report will be heard onJune 28, 2022 by the Community & Economic Development Committee.
We have heardrequests from small landlords to provideadditional tax relief. In 2019, theCouncil passed an ordinance that provides a ten-year tax exemption or tax reduction for certainowner-occupied residential rental properties under certain conditions.A residential landlordwho rents or leases up to three rooms in his or her principal place of primary residence, or up totwo accessory dwelling units (ADUs), or a covered unit in the case of duplexes, may be eligibleto be fully or partially exempt from the payment of business tax for the rental of residentialproperty from January 1, 2020 through December 31, 2030. More information & application isathttps://www.oaklandca.gov/services/owner-occupied-residential-landlord-business-tax-refund.
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Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax We have heard concerns about the outreach and implementation of this tax relief fromsmall landlords. To address these concerns, CP Bas and CM Fife scheduled aninformational report and recommendations on June 28, 2022 at the Community &Economic Development Committee.
COORDINATION
The City of Oakland Budget Advisory Commission (BAC) formally recommended that theCouncil look into new revenue streams in their Budget Advisory Memos in 2019, 2020 and2021 as well as in previous budget cycles. Council President Bas presented the 2020 proposalat the BAC Meeting on June 10, 2020, and presented the 2022 proposal at the BAC Meeting onApril 13, 2022.
In 2020, the Finance Department was extensively consulted about the legislation and provideddata and financial modeling critical to the development of the rate schedule. The FinanceDepartment provided the recommendations for modernizing and closing loopholes in the City’scurrent business tax structure. In 2022, the Councilmembers have been consulting with theFinance Department, who continues to engage the Economic and Workforce DevelopmentDepartment and Blue Sky Consulting Group to support economic analysis.
The City Attorney’s Office is extensively consulted for this legislation and developed theresolution to amend the business tax ordinance by ballot measure.
SUSTAINABLE OPPORTUNITIES
Economic:The additional revenue generated from thegross receipts tax will enable the City toincrease its capacity to provide services from its general purpose fund, including small businessassistance, homelessness services and housing, street and sidewalk maintenance, trashcollection and illegal dumping clean-up, fire safety, and community safety services.
Environmental:The additional revenue generated fromthe gross receipts tax would be used toreduce trash and litter on the streets, address the environmental impacts caused byunsheltered/unhoused persons living in the City streets, and develop structural solutions toupdate and improve outdated and wasteful systems within City government.
Race and Equity:In its current form, last updatedin 2005, the City’s gross receipts taxstructure is flat, meaning that larger businesses are taxed at the same rate as smaller businesses.This does not reflect the city’s current values ofhelping small, local businesses to thrive.Oakland’s smallest businesses disproportionately bear the burden of taxation, as noted above.
The authors have requested a race and equity analysis from the Administration. However, thedemographic data from the Finance Department reveals that about 40% of businesses decline toshare demographic information, and many of these are larger businesses. Nonetheless, we doknow thatthe overwhelming majority of businessesin Oakland are very small (93% have grossreceipts of under $1 million) and many are owned by BIPOC community members. It is notequitable that Oakland’s smallest businesses are paying a higher proportion of business taxes.Item No.:________City CouncilMay 19, 2022Page12 Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax The proposed structure is, at its core, an equity reform. It would update the City’s current flattax into an equitable, progressive tax system byassessingprogressively higher tax rates onbusinesses with higher revenue.It would generatetens of millions of dollars in additionalrevenue annually towards vital City services. It would also provide small businesses impactedby COVID with permanent tax relief. It would modernize the gross receipts tax structure andclose loopholes. It wouldmaintain Oakland's abilityto attract and retain businesses of all typesand sizes, and protect against significant job loss.
ACTION REQUESTED BY THE CITY COUNCIL
We respectfully request that the City Council, in order to create a progressive business taxstructure in which companies that make more, pay more and raise revenue for the City’sgeneral purpose fund to strengthen city services:
Adopt A Resolution: 1. Amending Resolution No. 88227 C.M.S., Which, Among OtherThings, Submitted To The Voters At The November 8, 2022 General Municipal Election, AnOrdinance Repealing And Replacing Chapter 5.04 Of The Oakland Municipal Code, ToModify Said Ordinance To Incorporate Recommendations From The Blue Ribbon EquitableBusiness Tax Task Force; And 2. Directing The City Clerk To Take All Actions Necessary ToPrepare For And Conduct A November 8, 2022 General Municipal Election.
For questions regarding this report, please contact Cinthya Munoz Ramos, Chief of Staff,Office of Council President Nikki Fortunato Bas, at [email protected].
Respectfully Submitted,
______________________________Nikki Fortunato BasCouncil President, District 2 ______________________________Carroll FifeCouncilmember, District 3 Item No.:________City CouncilMay 19, 2022Page13
Council President Nikki Fortunato Bas, Councilmembers Carroll Fife, Sheng Thao and Dan KalbSubject: Progressive and Equitable Business Tax ______________________________Sheng ThaoCouncilmember, District 4 ______________________________Dan KalbCouncilmember, District 41 Attachments:A. Council Resolution
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