Cupertino puts controversial business ‘head tax’ plan on hold until at least next year

Council says more time is needed to create a viable plan

Cupertino’s elected officials have put on hold a controversial proposal for an employee “head tax” on Apple and other businesses just weeks after Seattle repealed a similar plan in the face of fierce opposition from Amazon, Starbucks and other large employers.

The City Council’s 3-1 vote Tuesday to wait until at least next year before putting a plan before voters leaves Mountain View as the only Silicon Valley city still proceeding with a socalled head tax. The majority of Cupertino’s council members indicated more time is needed to come up with a viable plan and do proper outreach with the city’s business community.

“I really think we should not tax now and plan later,” Councilwoman Savita Vaidhyanathan said.

Councilman Barry Chang dissented, saying that waiting even another year would prolong the city’s traffic problems. The coun-

cil had talked about using revenue raised from the tax to help alleviate traffic congestion and a housing shortage, which have been exacerbated by an enormous work force and continued tech growth in Silicon Valley.

“I think not only here, the big corporations in the entire nation, the corporations need to take up their fair share to help solve the problems we are facing now,” Chang said. “So that’s why this issue needs to be done and needs to be done now instead of waiting.”

Chang said he proposed a more ambitious plan two years ago — which would have charged businesses $1,000 per employee — but it was shot down by other council members.

“Two years passed. If we don’t do anything this time now, another two years will pass, nothing will happen, I guarantee you,” Chang said.

The council’s decision should come as good news for the city’s business community. In an interview earlier this week, Cupertino Chamber of Commerce spokesman Rick Kitson said many businesses consider the tax proposal premature and half-baked. Without a specific plan, the city could use the revenue for anything, he added.

“Whereas Mountain View, I think, they have been working on this for six months or more, Cupertino has been working on this for six weeks,” Kitson said. “The fact of the matter is without a project it is just money for the city. If we take a step like this, we want it to be part of a transit solution and right now it’s just premature. No one knows the full impact.”

Before deciding to delay, the council was presented with a handful of options that would have generated anywhere from $4.1 million to $32.4 million in annual revenue. Each would have asked employers to pay a flat base fee that progressively increases as the employee count rises.

The city’s current business tax, which is based on square footage, brings in about $800,000 a year.

Cupertino’s decision to wait leaves Mountain View, headquarters of Google, as the only city still shooting for a November ballot measure to tax businesses based on their employee numbers. Sunnyvale has been doing so since the 1970s.

Like Cupertino, Mountain View’s current business tax is based on businesses’ square footage, which Mayor Lenny Siegel characterized as “anachronistic as well as low.”

Under a ballot proposal that is expected to go before the City Council for approval Tuesday, Mountain View’s roughly 3,700 businesses would pay a progressive flat rate based on their size and a progressive per-employee rate. The model would generate at least $6.1 million annually, ostensibly to pay for a slew of transit projects and provide housing opportunities.

The Mountain View council is leaning toward a general tax, which if approved would go into effect in January 2020, according to Siegel.

“The idea is that the expansion of employment in Mountain View has created both a housing shortage, which leads to people driving greater distances, and of course with inadequate transit, and so there is a nexus between the problem and the solution,” Siegel said.

He added that unlike Seattle’s ditched employee tax proposal, which was primarily meant to ease homelessness, Mountain View’s plan also targets transit improvements and housing, which also benefits Google’s employees.

Under Mountain View’s tax model, businesses with up to 49 employees would be charged a base rate of $100 per year and those with more would be charged a base rate plus a per-employee fee that climbs as does the number of workers up to a maximum of $150 per at Google, which employs 23,000.

Sunnyvale, the home of LinkedIn and Yahoo, already charges businesses a per-employee tax. That tax has been in place since the 1970s, according to city spokeswoman Jennifer Garnett, noting it supports services such as public safety, parks and road maintenance.

Sunnyvale currently has 8,000 businesses that pay this tax. Apple, Google and Amazon all have major office campuses in the city, and Facebook plans to open a million-squarefoot campus soon.

The per-employee fee is capped at $11,768.60 for businesses with 946 or more employees.

At the City Council’s June 12 meeting, Councilman Gustav Larsson suggested it revisit and possibly raise some of those rates.

“In looking at the current structure of our head count tax, I think it’s worth considering if it’s doing everything that we want it to be doing,” Larsson said. “For example, the cap that we have on employers with more than 946 employees, the business license tax caps out at that point. Now that we have a number of larger employers, should we reevaluate that?”

But to prevent a repeat of the Seattle experience, Larsson encouraged a slow and thorough analysis that would include multiple study sessions, community outreach and polling before asking voters to weigh in on the tax at the polls.

Sunnyvale Mayor Glenn Hendricks said Monday the council likely won’t discuss revisiting its head count tax until later this year, and any ballot measure likely won’t appear until 2020.