Do you support raising the cap on Sacramento’s business tax? Here’s what voters will consider

Sacramento voters will decide on March 5 whether the city’s business operating tax should be raised for the first time since 1991.

No business now in Sacramento pays more than $5,000 a year in business operating taxes, even the largest companies in the city.The new tax increases raise the maximum rate by as much as 400%.

City officials said that given inflation, a tax increase is overdue. City consultants recommended that the tax be increased in both 2010 and 2020, but the City Council never acted to put the issue on the ballot.

This time around, Sacramento’s budget woes have played a major part in the City Council’s approval to put the issue to the voters.

Council members gave approval to a tax increase on Nov. 15. They see the hike as a way to help the city with its anticipated budget deficit, which could reach $24 million in the 2024-25 fiscal year and $25 million in 2025-26.

Inflation, increased pension costs and salary costs for employees, and increased liability insurance premiums have all contributed to the anticipated budget shortfalls.

The biggest Sacramento businesses would see the maximum levy increase to $125,000 from the current $5,000 under a plan approved by the City Council. This increase would be phased in over a five-year period, effective July 1, 2024.

After that, future increases would be based on inflation.

Stores like Macy’s and Walmart would also be subject to higher taxes, but their maximum yearly payment would be $ 25,000 this coming July, $50,000 in 2025 and $75,000 in 2026.

The tax increase would also affect professional license holders who own businesses, including psychologists, certified public accountants, dentists, physicians and audiologists.

They would see yearly license fees of $684.The professionals currently pay annual license fees of $75, $150 or $300, depending on the number of years they have been licensed.

In addition, the yearly tax for licensed professionals who are employed by professional business holders would increase to $68 a year from $30.

Unlike companies that would see a ramp-up over five years, the professional license holders would be required to pay the full tax increase on July 1.

City figures show the higher taxes could increase Sacramento’s revenue by $3.7 million in its first year of implementation, going up to $6 million in the fifth year.

This represents a big jump in revenue given that the city has raised around $8.8 million a year from the business operating tax over the last decade, according to a city analysis.

The challenge for city officials will be to get the referendum passed by voters. Council members have said that they are trying to balance raising needed funds for the city while not antagonizing the business community by asking for too large a tax increase.

“If we don’t nail this right and if we overreach we could get nothing,” Councilman Eric Guerra said of a possible referendum defeat. “And I think that is the concern.”

How has Sacramento’s business community responded?

The city’s most influential business group, the Sacramento Metropolitan Chamber of Commerce, has yet to take a position on the higher business taxes.

The business group’s incoming president and CEO, Robert Heidt Jr., has said he will examine whether to support the tax after he starts in early January.

Originally, the City Council had considered raising the business tax to as much as $200,000 for large businesses before settling on the $125,000 maximum cap.

Around 10 businesses in the city will pay a maximum $125,000 if the referendum passes, city officials said.

The rate businesses pay is based on a tax rate of 0.04% of a company’s gross receipts. It is the same as the current rate; what’s changed is the maximum payments.

One business that would pay the maximum tax is almond grower and processor Blue Diamond Growers, one of Sacramento’s largest companies.

Blue Diamond spokeswoman Mallorie Hayes showed up at the Nov. 15 City Council meeting to urge the legislative body to go with the $125,000 maximum tax instead of the $200,000 that they were also considering.

“We understand the need to increase the business operations tax, but believe it should be done in a manner that considers the nuances of the business community and acknowledges these actions are not done in a vacuum,” Hayes said.

She said the city tax is on top of additional fees charged by the city of Sacramento, which would have “a compounding effect” on the company.

Hayes got her way. The City Council passed the $125,000 maximum tax a few minutes after she spoke.

Another group that successfully requested a fee reduction was the Sacramento Realtors Association.

Erin Teague, the group’s government affairs director, argued before the council that raising the yearly $100 licensing fee for brokers to $684 in one move on July 1 was not right.

“Catching up on 30 years of inflation in less than a year is completely unfair to small businesses,” she said.

Sacramento Mayor Darrell Steinberg said he wanted the real estate communities’ support for the referendum and led a successful effort among council members to lower the fees.

The referendum now states that real estate brokers will pay $150 a year next July 1, $200 in 2025 and $228 in 2026. After that, the fee will be based on the consumer price index.

Starting next July, the brokers will also pay $68 yearly for each employee, up from the current $30.

Teague said her group is remaining neutral on the tax increase, neither supporting nor opposing the measure.

The ballot measure will be decided by the electorate on the same day that they choose a new mayor for Sacramento.