Business, cannabis tax headed for ballot in Burlingame

The council voted 4-1 to add the question, which would require simple majority voter approval. The City Council since early this year has been discussing ways to increase city revenue following a budget shortfall caused largely by lost hotel tax income amid the pandemic.

“The circumstances that started in March 2020 really hurt our budget and so we have been wrestling with how to deal with that, and at the same time we have a very ancient business license tax structure,” City Manager Lisa Goldman said.

The new tiers would be set for businesses grossing less than $250,000, between $250,000 and $1 million and more than $1 million, with annual rates in each category at $200, $300 and $750, respectively.

The city estimated combined yearly revenue from the increase would be $1.5 million with another $1 million to come from the city’s lone cannabis delivery business that has yet to officially open. The city expects to collect $583,600 this year from the current business tax.

Councilmembers also noted revenue would grow if more cannabis deliverers move in, reaching closer to $4 million with four operators, the maximum allowed per city rules adopted last year. The city pointed to road repairs, police patrols, undergrounding power lines and fire prevention as potential city services that could be boosted.

“For a city with a $70 million general fund, that is a meaningful amount of money,” Councilmember Michael Brownrigg said.

The council earlier this year had discussed a progressive tax rate to be paid based on a percentage of gross receipts, hoping to capitalize on large companies like Meta’s Reality Labs, headquartered in the city, or those in the biotech sector likely to move in coming years.

But faced with an increasingly complex structure to contend with unequal profit margins, the council opted for the simpler tiered approach. Within the city, there are 3,712 businesses in the lowest earning category, 1,769 in the medium group and 355 top grossing, according to a city report.

“This was the compromise we arrived at to make it palatable to voters and make it acceptable to the business community,” Mayor Ricardo Ortiz said.

With the dissenting vote, Councilmember Emily Beach argued for moving ahead with the cannabis tax but holding off on the business tax to pursue a progressive rate for the next election. She pointed to potentially billion-dollar companies that would end up paying only a few hundred dollars more yearly than those with just a few employees.

“I think we can do better if we take a little bit more time on it,” she said. “Some of those businesses that are larger do have a tremendous impact on our city, on our infrastructure.”

Brownrigg indicated he would be open to supporting Beach’s preference, but ultimately joined the majority, noting that the council could still reexamine a more progressive structure at a later date.

He said also his concern was less to do with the “relatively trivial” tax hike and more to do with the increased paperwork, including for those operating in multiple cities that would need to calculate the local portion of their receipts to determine their tax bracket.

Also on the table for a future election is a parcel tax, something of which Beach has also been a proponent. She’s referenced East Palo Alto’s Measure HH from 2018, which levied a $2.50-per-square-foot tax on office buildings larger than 25,000 square feet, as a potential model. Councilmembers in the past have agreed such a measure would be the optimal way to tax large companies in the city.

In the meantime, Councilmember Donna Colson said she had received positive feedback from the local business community for the tiered approach.

“The fact that we didn’t do a gross receipts, that is the number one reason that the Broadway [Business Improvement District] endorsed this,” she said. She added that most business owners she had heard from understood the need to support the city in providing services like cleaning and crime prevention.

“The reality of it is that our finances may not entirely recover, and even if it is an additional $800,000 to $2 million or $3 million a year, that’s a significant amount of revenue that drops right to the bottom line that helps us provide those good city services that people and businesses in this city want,” she said.

Regarding combining both tax measures in a single question, the council cited easing the process.

“If you do two separate taxes, it’s a lot of work and it’s going to be very hard to get people to actually campaign and walk and raise money for two different taxes,” Councilmember Ann O’Brien Keighran said.

According to a city report, most nearby jurisdictions tax based on gross receipts or number of employees. Comparably sized cities with gross receipt taxes include San Bruno, Menlo Park and Foster City, which gain $2.2 million, $2.3 million and $1.7 million from the tax, respectively, while San Carlos, with rates based on employees, gains $1 million.

(650) 344-5200, ext. 105