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, in...
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