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Calif. City's Voters Approve Changes To Business Tax Method

By James Nani · Nov 17, 2020, 11:20 AM EST

Voters in the city of Richmond, California, have approved a measure changing the methodology for the city's business license tax calculation to base it on gross receipts instead of the number of employees.

Measure U was approved by about 72% of voters, according to preliminary results published on Friday. The measure amends the business tax rate structure to allow the city to tax businesses based on a range of 0.06% to 5% of gross receipts rather than how many employees the business has, according to an analysis. The measure is estimated to raise $9.5 million annually, an increase from the roughly $3.5 million the city receives annually from its current business license tax structure.

The new rates take effect July 1, 2021.

Under the current structure, the base rate is $234.10 a year. The rate increases depending on how many employees work in the city, with a charge of $46.80 per employee for the first 25 employees and then $40.10 for each employee after the first 25, according to an analysis. Two types of businesses are taxed on gross receipts: the cannabis industry at 5% and movie theaters at 0.3% of revenue over $20,000, according to the analysis.

The changes approved by voters repeal the current structure and calculate the business license tax based on the amount of gross receipts in Richmond. The city will charge a specific percentage based on the type of business and the amount of revenue generated, according to the analysis.

Businesses that don't generate more than $250,000 in gross receipts will pay a $100 business license tax, except for rental properties and cannabis businesses. Rental properties would fall under a different gross receipts structure based on units, according to the analysis, and cannabis businesses would pay a business tax of $50 per year for each $1,000 of annual gross receipts.

Different taxing structures will also exist for firearms ammunition businesses, taxi and limousine services, and transportation and trucking businesses. 

For most businesses, the changes will also apply different rates to different categories of business and within those categories apply a progressive rate depending on gross receipts, the analysis said. Exemptions from the law include religious institutions, nonprofit schools, city-rented buildings and child day care providers.

Supporters of the measure had said that the new tax structure would be fairer by having larger businesses pay more, while repealing the current payroll tax structure and increasing funds for city services. Opponents argued the measure would amount to an overall increase in taxes, which could provide an incentive for businesses to leave the city.

The measure was approved as several California cities are considering gross receipts taxes, including Berkeley and Oakland.

--Editing by Neil Cohen.

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