The Foster City Council is considering an increase to its business license tax cap through a November ballot measure, but the city will gather input from affected businesses to evaluate the provision before deciding.
Foster City is considering raising its business license tax cap and gross receipts rate through a ballot measure to boost city revenue amid financial instability. However, the council is trying to balance its financial needs with the needs of big business, so at its April 4 meeting it asked staff to increase their outreach.
“I understand the financial situation we are in as a city and we need to generate more revenue, but I think we need to reach out to the business community and understand their tolerance. If you put it on the ballot, who will vote for it? Foster City residents, not businesses will be affected,” said Council Member Sam Hindi.
Hindi said he could not decide to add a ballot measure to raise the cap until there is more outreach and transparency for the business community. As of April 4, Foster City had contacted one business of the 20 that would be affected. All 20 businesses have gross receipts greater than $36 million.
Councilman Patrick Sullivan agreed with Hindi and wanted more information on a breaking point for a business. He said that he did not want to put companies in a bad position. He suggested a survey or more data.
“We would hate to see someone suddenly change their headquarters to not be here in Foster City,” Sullivan said.
The city has a gross receipts rate of $0.00075 and an income limit of $35.9 million, resulting in a maximum business license tax for a business of $26,985. Increasing the receipt cap, for example, to $50 million would raise the maximum business license tax to $37,500, a potential $163,000 increase in citywide revenue. City revenue from business license taxes was about $1.5 million in 2021, up from $1.7 million to $1.6 million in previous years.
The city is looking at tax increases due to structural General Fund deficits expected for several years over the next five years due to decreased revenue caused by the pandemic. It also faces unfunded pension liabilities and cost increases from inflation. In March, fiscal challenges prompted the council to explore increases in the business license tax.
Councilmember Sanjay Gehani and Deputy Mayor Jon Froomin said it was important to identify what other neighboring cities with similar businesses were doing around license taxes to benefit the community and businesses. Other cities base their license tax on the number of employees or a combination of number of employees and gross receipts. Compared to other cities, Foster City was in the middle range of tax rates.
Gehani agreed that the council was not yet ready to decide. However, he wanted a decision before the August 12 ballot measure timeline. He pointed out that smaller family businesses are paying full rates. He also wanted to consider how to increase the increases in subsequent years to ensure that a discussion was not needed every few years.
“I would like to have a very transparent conversation with them about the challenges we face and understanding how the cap has benefited many of these companies over the last nine years,” Gehani said.
Mayor Richa Awasthi suggested looking at cities that have raised the business license tax, such as Oakland.
“Those are the lessons learned that we should be looking at, along with outreach,” Awasthi said.
Staff said the city would communicate with businesses about the impact and potential concerns and possibly come back with different model recommendations.