Apple ‘head’ tax gets another look

Cupertino city officials will decide tonight whether to put a measure before voters this fall asking them to change the way the city taxes Apple and other businesses.

If the council agrees, a measure will be on the November ballot asking residents to authorize charging bigger businesses a “head” or per-employee tax, depending on the size of the company. If the measure passes, the tax could generate upwards of $8 to $10 million a year for the city, with Apple’s share alone about $7 to $9 million. However, if the council rejects the proposal, it would likely shelve the measure for another year or two.

The city intends to use the revenue to cut traffic congestion, but because it is a general revenue and not a specific tax, it could change at the whim of future councils, a concern for some voters.

Cupertino’s current business tax has been in effect since 1992 and is based on businesses’ square footage, a model some council members believe is outmoded. The tax generates about $800,000 annually for the city’s general fund.

If the restructured tax measure is approved on Tuesday, the Cupertino council would follow Mountain View’s footsteps, which agreed to put a similar measure on the November ballot last month. Some form of a head tax already exists in San Jose, Sunnyvale and Redwood City.

Cupertino is considering two distinct tax models that are estimated to generate $8 million and $10 million in revenue. Both models aim to protect small and medium sized businesses by having the per-employee rate kick in only after the 100th employee and rise progressively as the number of employees increases. In one model, the rate ranges from $50 to $325 per employee for businesses with more than 5,000 employees, while the second model caps at $425.

While Cupertino’s proposal has received a generally favorable response from residents and city officials, some, including Mayor Darcy Paul, have supported a more restrained approach to give the city time to properly engage the business community and come up with a detailed spending plan. But earlier this month, the council decided to call a special meeting on July 31 and forge ahead with a careful but hastened study of the proposal after realizing that a special election next year would be too costly and that taking it up again in 2020 would require a longer wait.

An ad hoc committee was subsequently formed with council members Barry Chang and Steven Scharf and a second survey was conducted and polled more than 600 likely voters on specific ballot language and support of the measure. Notably, just as many respondents opposed as supported the proposal.

Over the course of the month, city officials also met with about 30 businesses that would be impacted by the restructuring. Both the Chamber and Apple expressed “deep concern” with the limited timeline and outreach regarding the tax restructuring, according to a city staff report. They are asking the council to delay the proposed measure to 2020.

The meeting is expected to get underway around 6 p.m. today at Cupertino Community Hall, 10300 Torre Ave.