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Ballot Measure Changes

Base Tax and Incremental Tax Rate Change Effective July 1st, 2018

The General Business Tax
was first adopted on July 15, 1963.  The methodology used for calculating the Business Tax (Chapter 4.76 of the San Jose Municipal Code) was adopted in 1984 and adjusted in 1986.  In November 1996, the rates were increased to reflect an annual inflation factor as part of the New Realities Task Force recommendations contingent on voter approval.  Because the voters did not approve the continuation of the increase in November 1998, the rates were returned to the levels prior to November 1996.  Those rates stayed in effect until San José voters approved the Business Tax Modernization measure on November 8, 2016.  In addition to expanding the application of tax to more business classes, the Business Tax Modernization measure also increased the base tax, the incremental tax, and the cap (the maximum amount of tax affecting large businesses). The Business Tax Modernization measure rates went into effect July 1, 2017 and will be adjusted annually on July 1st for inflation changes.

The following charts present the business tax rate structure after the Business Tax Modernization, along with the current and inflation adjusted rate to be effective July 1, 2018:  

Employee Count

Every person engaged in business in the City shall pay a business tax based on employee count1, unless the basis of the tax is otherwise prescribed in the San José Municipal Code.

Businesses:

Employee Count 1

July 2017- June 2018

Effective July 1, 2018 3

Base Tax: 1-2 employees

$195.00

$197.90

Incremental Tax: 3-35 2

$30.00

$30.90

Incremental Tax: 36-100 2

$40.00

$41.20

Incremental Tax: 101-500 2

$50.00

$51.50

Incremental Tax: 501+ 2

$60.00

$61.80

Cap

$150,000

$154,500

1 Businesses choose 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 Incremental tax rates are applicable per employee.

3 As prescribed in San Jose Municipal Code Section 4.76.365, the base tax rate shall be adjusted annually if the cost of living in the City has increased over the preceding base period as shown by the Consumer Price Index (All Urban Consumers for All Items for the San Francisco-Oakland-San José Area) using February to February data; limited to 1.5% per year on the minimum base tax, 3.0% per year on the incremental tax brackets, and 3.0% per year on the cap. 


Residential Rental Property Units

Every person in the City engaged in the business of renting or leasing any residential real estate shall pay a business tax based on the number of rental units held for rental, unless the basis of the tax is otherwise prescribed in the San José Municipal Code.

Residential Landlords:

Rental Units

July 2017- June 2018

Effective July 1, 2018 2

Base Tax: 1-2 units

$195.00

$197.90

Incremental Tax: 3-35 1

$10.00

$10.30

Incremental Tax: 36-100 1

$15.00

$15.45

Incremental Tax: 101-500 1

$20.00

$20.60

Incremental Tax: 501+ 1

$25.00

$25.75

Cap

$150,000

$154,500

Commercial (Non-Residential) Rental Property Units

Every person in the City engaged in the business of renting or leasing any nonresidential real estate shall pay a business tax based on the square footage of space held for rental, unless the basis of the tax is otherwise prescribed in the San José Municipal Code.

Commercial Landlords

July 2017- June 2018

Effective July 1, 2018 2

Base Tax

$195.00

$197.90

Flat Incremental Tax:

per Square Foot 1

$0.02500

$0.02575

Cap

$150,000

$154,500

Mobile Home Parks Rental Units

Every person in the City engaged in the business of renting or leasing any mobile home parks shall pay a business tax based on the number of lots held for rental, unless the basis of the tax is otherwise prescribed in the San José Municipal Code.

Mobile Home Parks –

Rental Lot

July 2017- June 2018

Effective July 1, 2018 2

Base Tax: 1-2 lots

$195.00

$197.90

Incremental Tax: 3+ lots 1

$10.00

$10.30

Cap

$150,000

$154,500

1 Incremental tax rates are applicable per unit.

2 As prescribed in San Jose Municipal Code Section 4.76.450, the base tax rate shall be adjusted annually if the cost of living in the City has increased over the preceding base period as shown by the Consumer Price Index (All Urban Consumers for All Items for the San Francisco-Oakland-San José Area) using February to February data; limited to 1.5% per year on the minimum base tax, 3.0% per year on the incremental tax brackets, and 3.0% per year on the cap.




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 are able to register and pay their business tax online. More information can be found on the "Make a Payment" page: http://sanjoseca.gov/index.aspx?NID=5598 

VOTER APPROVED CHANGES TO THE BUSINESS TAX

The charts on the Business Tax Rates page represent the structure of the current and voter-approved business tax rates effective July 1, 2017.

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).

The extension for residential landlords has been extended to June 30, 2018.

LINKS TO CITY COUNCIL AND COUNCIL COMMITTEE MEETINGS


Implementation Information


Legislative History