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Revised Business License Tax

For several weeks, an ad-hoc committee of the City Council has been working on a draft revision of Richmond’s business license tax (RMC Chapter 7.04, Business Licenses) for the November 2006 ballot. When it was first rumored that they were cooking up a “gross receipts tax” to extract millions of dollars from mom and pop businesses, the Richmond Chamber of Commerce went into ballistic panic mode and has been waging a war against the concept ever since without even seeing a draft.

The motivation for the revision is a need to create additional revenue for the City to address huge unfunded needs, such as additional police staffing and upgrading and maintaining streets to at least minimum standards.

A summary of the proposed revisions in tabular form is attached. The revisions would essentially accomplish the following:

  • Institute a 10% rise in the tax for a small business. The basic tax would go from $257 to $283, and the tax per employee would go from $51.50 per employee to $56.65 for up to 25 employees and from $44.00 to $48.50 for over 25 employees. That would add about $154/year to my firm’s business license tax, or about $0.42/day. I don’t believe that would provide an incentive to move to another city, nor would it motivate a prospective business to avoid Richmond.
  • Change the formula for taxing residential rental property owners from a tax of $257 per “location,” to $90 per unit. The current formula is inherently unfair, because the owner of a single dwelling unit pays the same tax as the owner of a 1,000-unit complex. This is a good thing, and will save money for a lot of mom and pop landlords. The tax on commercial landlords would also move from $257 per “location,” to $0.03 per leasable square foot per year. This would amount to about $0.0025/square foot per month for rents that are typically in the $0.50 to $1.50/square foot per month level in Richmond.
  • The real stroke of genius is the tax on manufacturers, which amounts to $0.125% (0.00125) of the value of raw materials used. For a typical manufacturer that may use $1 million per year of raw materials, the tax would be only $1,250 per year. For Chevron operating at full capacity and oil at $77/barrel, the tax would generate $8.4 million per year.

Because no roadmap or draft document has been available until now, this issue has stirred up a huge opposition in the business community, with the Chamber of Commerce running point. In fact, it appears that it would have little effect on 99% of the business community, and the infrastructure and quality of life improvements it could fund may actually help typical businesses. For a typical Richmond resident, the tax changes would be essentially painless and could result in vastly improved services and quality of life. The proposed amendment is scheduled to be voted on by the City Council on July 25.