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Ballot Measure Changes
Modernization of the San José business tax was approved by San José voters on November 8, 2016 (Measure G). The approved changes will take effect July 1, 2017.

The City’s business tax was first adopted in 1963, and the methodology for calculating the current business tax was first adopted in 1984. The current rates had not been increased since 1986, three decades ago. More than 65% of San José voters approved the modernization measure and new rates at the November 2016 election.

The adjustments to the business tax that will take effect on July 1, 2017, include: 
  • Increasing the base tax
  • Increasing the incremental tax and making it more progressive
  • Increasing the cap (the maximum amount of the tax affecting large businesses)
  • Updating the application of the tax to more classes of businesses
  • Adding inflation-based adjustments for future tax rates

ONLINE REGISTRATION AND PAYMENT

Businesses will be able to register and pay their business tax online beginning July 2017 when the City completes the implementation of the business tax online payment system.

VOTER APPROVED CHANGES TO THE BUSINESS TAX

The charts that follow present the structure of the current and voter-approved business tax rates effective July 1, 2017.

Employee Count

 Businesses  Current  Effective July 1, 2017
 Base Tax  $150  $195
 Employee Count 1  FTE or EDD  FTE or EDD
 Incremental Tax: 1-2  $0  $0
 Incremental Tax: 3-35  $18 (9+) 2  $30 3
 Incremental Tax: 36-100  $18  $40
 Incremental Tax: 101-500  $18  $50
 Incremental Tax: 501+  $18  $60
 Cap  $25,000  $150,000


1 Businesses elect between calculating the number of employees based on Full-Time Equivalent (“FTE”) or based on the number employers report to the California Employment Development Department (“EDD”).
2 Current tax adds a per employee rate at the ninth employee.
3 The per employee rate begins at the third employee rather than the ninth employee. 

Residential Rental Property Units

Residential Landlords:
Rental Units 1
 Current  Effective July 1, 2017
 Base Tax  $150  $195
 Incremental Tax: 1-2  N/A (Not Counted)2  $0 (Base Tax applied)3
 Incremental Tax: 3-35  $5 (31+)4  $105
 Incremental Tax: 36-100  $5  $15
 Incremental Tax: 101-500  $5  $20
 Incremental Tax: 501+  $5  $25
 Cap  $5,000  $150,000

1 Maintains the exemption for rental housing owned by nonprofit organizations.
2 Current tax exempts residential landlords renting or leasing two or less rental units.
3 The base tax begins at the first rental unit rather than the third unit.
4 Current tax adds a per rental unit rate at the 31st unit.
5 The per rental unit rate begins at the third rental unit rather than the 31st unit. 

Commercial (Non-Residential) Rental Property Units

 Commercial Landlords  Current  Effective July 1, 2017
 Base Tax  $150  $195
 Tax per Square Foot  $0.01 (15,000+)1  $0.0252
 Cap  $5,000  $150,000

1 Current tax adds a square-foot rate at the 15,001st square foot.
2 The square-foot rate begins at the first square foot rather than the 15,001st square foot.

Mobile Home Parks Rental Units

 Mobile Home Parks –
Rental Units
 Current  Effective July 1, 2017
 Base Tax  $150  $195
 Incremental Tax: 1-2  N/A (Not Counted)1  $0 (Base Tax applied)2
 Flat Incremental Tax  $5 (31+)3  $104
 Cap  $5,000  $150,000

1 Current tax exempts mobile home parks renting or leasing two or less rental units.
2 The base tax begins at the first rental unit rather than the third unit.
3 Current tax adds a per rental unit rate at the 31st unit.
4 The per rental unit rate begins at the third rental unit rather than the 31st unit.

Water Meter Connections

 Water Companies  Current  Effective July 1, 2017
 Base Tax  n/a  $1951
 Flat Incremental Tax  $0.10-0.30 per connection  $1.00 per connection2
 Cap  $20,000  $150,000

1 Apply the Base Tax.
2 Rate changed from a range of connections to a per-connection rate.


Addition of a Financial Hardship Exemption for Small Business Owners with Limited Household Income


San José currently allows for several exemptions for the payment of the current business tax. These are provided by federal or state law, and several exemptions are specific to San José. The largest number of exemptions in San José is for businesses that qualify as a “low-revenue generating” small business (or “financial hardship”).

Currently, the financial hardship business income threshold is based on the poverty level guidelines established by the U.S. Department of Health and Human Services. The HHS poverty level is currently set at $12,060. Since the cost of living in the Bay Area is greater than the national average, the City Council approved an income threshold at two times (2X) the annual level established by the HHS.

Based on this formula, the City’s current financial hardship exemption threshold based on the poverty level established by the HHS is $24,120. This hardship exemption is applied based on business income regardless of total household income.

As part of the modernization, San José voters approved adding an additional exemption category for small business owners with limited household incomes. A small business can be exempt where the adjusted gross income of the small business owner does not exceed four times (4X) the annual poverty level established by the HHS.

Based on the current HHS poverty level, this threshold would be based on a household income of $48,240. This exemption based on household adjusted gross income (IRS Form 1040, Line 37) will allow a more generous exemption for low income households, and it maintains the current financial hardship exemption program based on business income (IRS Form 1040, Line 12). 
 
Extended Deadline to Register a New Residential Landlord Business -- Now December 15, 2017

New residential landlords of one or two rental units will now pay the San José business tax for the first time as of July 1, 2017. The City Council established a grace period until December 15, 2017, so that these residential landlords can apply for and secure a valid business tax certificate from the City and pay the business tax without incurring penalties and interest. If the payment of the business tax is made after December 15, 2017, then interest and penalties will accrue retroactive to July 1, 2017.


LINKS TO CITY COUNCIL AND COUNCIL COMMITTEE MEETINGS


Implementation Information


Legislative History