Los Gatos voters will decide this fall whether to raise the local business tax rate for the first time in more than 30 years in an effort to shore up the town’s forecasted budget deficit.
Measure J would increase the town’s base business tax rate by 30 percent for businesses with more than $50,000 in annual gross receipts. Taxes for licensed businesses have not increased in the town since 1991.
The tax rate for retail businesses with more than $50,000 in gross receipts would also be increased by 40 percent, while e-commerce businesses would be added to the town’s “manufacturing, wholesaling and jobbing” tax category.
That category’s tax rate would also be increased by 120 percent, and the change would chiefly affect the subscription video streaming and production company Netflix, which is headquartered in Los Gatos.
Town officials estimate the tax increase would generate roughly $1.2 million per year and would make the town’s tax structure more progressive, with larger businesses paying a higher tax rate.
Under the city’s current regressive structure, a business with more than $1 million in gross receipts has a lower tax rate than a business with roughly $50,000 in gross receipts.
$4 million annual deficit in the forecast
Measure J is one effort by the town to shore up an annual forecasted budget deficit of roughly $4 million per year over the next five fiscal years.
“We’re looking for some way of this to be self-sustaining so we don’t have to put a budget initiative (on the ballot) every couple of years, particularly if we’re in an inflationary time,” Town Councilman Matthew Hudes said during a discussion on the ballot measure at the council’s Aug. 2 meeting.
Town officials did not rule out potentially placing a local sales tax hike on the 2024 ballot, but argued the business tax increase was more pressing as the local tax rates have not increased with inflation.
Local business owners and business groups have expressed theoretical support for the measure, but warned against penalizing businesses for their success, particularly the town’s largest businesses including Netflix.
“All people that I’ve spoken to do understand the fact that we have not changed the flat rates since 1991 and would … consider maybe incrementally increasing that, but not so much that it really hurts the business,” Los Gatos Chamber of Commerce executive director Catherine Somers said.
According to Assistant Town Manager Arn Andrews, roughly 75 percent of the town’s licensed businesses are currently taxed under the flat rate tax structure.
Measure J will require a simple majority vote on the Nov. 8 ballot to be adopted. If approved, the revenue will be placed in the town’s general fund to be used for local services like law enforcement.
