REPORT TO COUNCIL
SUBJECT
Title
Action on a Resolution to Authorize an Increase in the Business License Tax Corresponding to an Increase in the Annual Inflation Rate Effective July 1, 2026
Report
BACKGROUND
The City of Santa Clara’s Business License Tax was updated through a voter-approved ballot measure on November 8, 2022 (Measure H). Prior to this, there had been no business tax adjustment for 30 years. The approved measure implemented a new tax structure effective July 1, 2023, with an annual inflation adjustment mechanism outlined in Section 3.40.160 of the Santa Clara City Code (City Code). This ensures that the business tax keeps pace with inflationary changes to support essential city services. The first inflation adjustment of 2.7% was implemented on July 1, 2025 (see attachments 1 and 2).
DISCUSSION
The Business License Tax is structured to provide equitable revenue contributions from businesses operating in Santa Clara while ensuring that tax burdens remain aligned with inflation. The 2022 voter-approved Measure H established a tax framework that allows for an annual inflation adjustment based on the Consumer Price Index (CPI) for the San Francisco-Oakland-Hayward Area. As mandated by Section 3.40.160 of the City Code, these adjustments are subject to approval by the City Council and are capped at a maximum increase of 5% per year to prevent excessive financial impact on businesses.
For Fiscal Year 2026-27, the March 2026 CPI report published by the U.S. Bureau of Labor Statistics (BLS) reflects an annual inflation rate of 2.5%. Accordingly, it is proposed that Business License Tax rates will be adjusted by 2.5%, resulting in the following changes:
• The current tax of $46.22 per employee will increase to $47.37 per employee.
• The current tax of $15.40 per rental unit will increase to $15.78 per unit.
• The annual cap of $359,450 per business will increase to $368,436 per business.
The Business License Tax provides funding for public safety, infrastructure maintenance, economic development programs, and community services. By implementing this inflation-based increase, the City upholds its commitment to long-term fiscal sustainability without imposing sudden, large-scale tax hikes.
This annual CPI-based adjustment is critical to preventing the erosion of City revenue due to inflation while ensuring that businesses continue to contribute fairly to the cost of maintaining high-quality city services.
Although a formal amendment to the City’s business license tax ordinance is not legally required, the City Attorney’s Office will work with Finance staff and the City Clerk to add a note within the City Code sections containing the original business license tax rates indicating that any new tax rate approved by the City Council for the applicable fiscal year will be posted on the City’s business license tax webpage.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of a California Environmental Quality Act (“CEQA”) pursuant to pursuant to section 15378 (b)(4) of Title 14 of the California Code of Regulations in that it is a fiscal action which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
FISCAL IMPACT
Based on the estimated total business tax revenue of approximately $6.0 million for FY 2025/26, the 2.5% CPI-based increase effective July 1, 2026, will result in an additional $150,000 in revenue in FY 2026/27.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
On April 8 and April 15, 2026, notices of the proposed increase were published in the Santa Clara Weekly in the manner set forth in Government Code Sections 6062a and 66018.
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Adopt a resolution authorizing the annual inflation adjustment for the Business License Tax, effective July 1, 2026, in the amount of 2.5% as allowable under Santa Clara City Code Section 3.40.160
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. RTC 25-367
2. Resolution No. 25-9433
3. Resolution Adjusting the Business License Tax to be effective July 1, 2026