New look for dirty S.J. tunnel.

Officials say increase is needed but disagree on how to distribute burden

SAN JOSE — There was little debate Tuesday that Silicon Valley’s largest city needs to update its antiquated business tax, which hasn’t been raised in three decades — but city leaders couldn’t agree on how to distribute the burden without weighing down one industry over another.

The City Council voted 9-1 to study how other cities charge business taxes and bring back ballot language at its Aug. 2 meeting. Councilman Johnny Khamis was opposed, and Councilman Pierluigi Oliverio did not return to his seat in time to vote, but had previously opposed. A majority of voters in November would have to approve any tax changes.

San Jose currently collects $12.7 million in revenue from taxing businesses, rental property owners, mobile home park operators and water companies. A proposed change recommended by city administrators and debated by the council Tuesday would double tax revenue to $25.4 million.

Some activists who had called for the city to raise its business tax said the proposal lets big companies off the hook while quadrupling the taxes of small rental property owners, and feared that would only lead to higher rent in an already-expensive market.

“The vision of this tax was to

ask the large businesses to pay their fair share,” said San Jose State sociology professor Scott MyersLipton, who led an effort to qualify a ballot measure raising the business tax. “This is not equitable.”

Councilman Donald Rocha agreed, suggesting slight increases to the rates businesses are charged per employee to ease the burden on landlords. He noted that the city’s proposed change would increase the share of total business tax revenue paid by residential landlords from 7 to 17 percent.

Myers-Lipton’s campaign earlier this year to raise the business tax gained steam, and a measure was on its way to voters. But business leaders rallied against the plan, and Mayor Sam Liccardo crafted an alternative to “double” business tax revenue without using MyersLipton’s approach.

The city’s plan, which could be modified in August based on the study of other cities, includes exclusions for small businesses with incomes of less than $23,760 a year.

Liccardo suggested doubling that to $47,520 to reduce burdens on small mom-and-pop shops. The city proposal would exempt nonprofit-owned housing and affordable housing. Units under rent control would be charged half the rates.

The study would compare the proportion of taxes collected from businesses and rental property owners in other cities, though major Bay Area cities like Oakland and San Francisco charge taxes based on revenue.

Khamis said the plan unfairly burdens property owners.

“I think rental property owners are going to be hit the hardest,” Khamis said. “I’m concerned that San Jose is becoming less and less business-friendly.”

But Kim Walesh, the city’s director of economic development, said the rental property business is quickly growing, and even under the largest tax hike, landlords would only pay an extra $4.50 a month.

“The business of being a landlord has become a significant business in this valley,” Walesh said during the meeting.

“There are many large successful property owners here, and as rent has gone up, they’ve become more successful.”