HomeMy WebLinkAboutStaff Report 14540
City of Palo Alto (ID # 14540)
City Council Staff Report
Meeting Date: 8/1/2022 Report Type: Action Items
City of Palo Alto Page 1
Title: Adoption of Resolutions: (1) Placing a Business Tax on the November
2022 Ballot; (2) Placing a Measure Affirming the Natural Gas Utility Transfer
on the November 2022 Ballot; and (3) Establishing Advisory Spending
Guidelines for Business Tax Proceeds
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the City Council:
1. Adopt one of the two attached Resolutions to submit a measure to the voters at the
general municipal election on November 8, 2022, to adopt a business tax—either
Attachment A, reflecting Council’s June 20th direction, or Attachment B, reflecting an
alternative measure proposed by the Ad Hoc Committee.
2. Adopt the attached revised Resolution establishing advisory spending guidelines
regarding use of business tax proceeds if passed by voters (Attachment C).
3. Adopt the attached Resolution to submit a measure to the voters at the general
municipal election on November 8, 2022, to affirm the natural gas utility transfer
(Attachment D).
BACKGROUND & DISCUSSION
The Palo Alto City Council places a high value on fiscal sustainability and has worked diligently
with City staff to put the City on strong fiscal footing into the future. The Fiscal Sustainability
Workplan of 2019 (CMR 10267) outlines a number of City initiatives, including proactive funding
contributions for the city’s long-term liabilities for both pension and Other Post-Employment
Benefits (OPEB) which have already been implemented and strategies to structurally balance
the General Fund’s revenue and expenditures on an ongoing basis.
The two revenue measures before Council are important elements in continuing progress
towards long term sustainable budgets that meet the public’s evolving needs. A summary of the
City’s work on revenue generating ballot measures can be found in CMR 13983, Attachment G.
City of Palo Alto Page 2
Most recently, staff returned to the City Council on June 13, 2022 (CMR 13983 and CMR 14501)
and June 20, 2022 (CMR 13984) with draft language for a business tax and a measure to affirm
the natural gas general fund transfer for the November 2022 election, and a resolution to
establishing advisory spending guidelines for the use of business tax proceeds.
Measure Adopting a Business Tax. Unlike most communities in California, Palo Alto does not
require local businesses to contribute to city services and programs through a business tax.
Prior to the COVID-19 pandemic, the Council discussed adding a business tax to enhance the
City’s long-term fiscal sustainability and to help meet significant emerging public needs,
particularly with respect to rail grade separations and affordable housing.
The Council considered various business tax models. On March 23, 2020, in response to the
COVID-19 public health emergency and sharp economic contraction, the City Council directed
staff to suspend work on the development of a local business tax measure for November 2020.
In August 2021 (CMR 12381), Council directed City staff to resume this work and designated the
Finance Committee as the working body to review and make recommendations on a potential
business tax for the November 2022 election. Taken together, over four years the Committee
and City Council have met a total of 23 times to discuss the most appropriate manner of
structuring a potential business tax, including refinement of the tax structure for fairness and
equity, advisory spending guidelines for revenues, constituent surveys, and community and
stakeholder engagement.
Final Tax Proposals
On June 20, the Council directed staff to make revisions to the business tax structure and return
with final documents on August 1st. That measure is before Council in Attachment A.
The Council also established an ad hoc committee to be appointed by the Mayor to continue
discussions with the business community on the tax structure. The ad hoc committee,
consisting of Mayor Burt and Councilmembers Filseth and Dubois, met with representatives of
the business community multiple times prior to and subsequent to the June 20 Council
meeting. As an alternative to the proposal directed by the City Council on June 20, the ad hoc is
recommending a revised tax structure. Staff have included documents reflecting this alternative
in Attachment B. The ad hoc alternative differs from the June 20 Council direction by:
1) Increasing the number of smaller businesses that would be exempt from the tax by
raising the square footage exemption threshold from 5,000 square feet to 10,000
square feet.
2) Adjusting the monthly tax rate from $0.06 and $.12 cents per square foot (depending on
size) to a monthly rate of $0.10 per square foot for all non-exempt businesses above
10,000 square feet.
As a result of these changes, the estimated revenue that would be generated by the tax would
be approximately $15 million.
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Should the Council wish to place this alternative on the ballot for voter consideration, the
Council would need to adopt the documents in Attachment B.
Measure Affirming the Natural Gas Utility Transfer. Palo Alto is fortunate to own and operate
its own utilities. In 1950, Palo Alto voters approved a Charter provision authorizing the use of
some utility rate revenues for City services. This was a common practice. California cities that
started publicly-owned utilities in the post-war era typically set rates at reasonable levels and
used some of the proceeds to fund city services. Over the ensuing decades, Palo Alto’s natural
gas and electric utilities have transferred funds each year into the City’s general fund, providing
a stable revenue source that supports a range of City services and community priorities,
including police protection, fire and emergency medical services, 911 response, parks, and
roads.
In 2010, Californians adopted Proposition 26, which added new rules on how cities may set
rates and charges for services, and how they may use the funds collected. The new law did not
directly address utility rate transfers, and most California cities with public utilities continued
their historic transfer practice. Since 2010, however, a series of court decisions raised questions
about the transfers, and in 2015, a class action lawsuit, Green v. City of Palo Alto, was filed that
claimed Palo Alto’s natural gas and electric transfers are unlawful under Proposition 26. In
2021, the Santa Clara Superior court held that the electric transfer is lawful and may continue.
The court also held, however, that a portion of the natural gas transfer is a tax that requires
voter approval to continue. Both sides have appealed.
City leaders believe it is prudent to seek voter affirmation of the City’s long-standing practice of
transferring some natural gas revenues into the general fund to maintain City services that are
valued by the community. Voter affirmation of the City’s existing transfer practice will continue
Palo Alto’s longstanding natural gas rate-setting practice and will not be the cause of a rate
increase. The City’s current natural gas utility rates for residential customers remain below
comparators such as PG&E. Additional information on gas rate comparisons can be found in the
FY 2023 Gas Utility Financial Plan.
Consistent with responsible fiscal stewardship, the City has been reserving funds so that money
is available to issue refunds to natural gas ratepayers at the appropriate time. Last year, the City
cut services, in part due to the Covid-related economic contraction and in part due to setting
aside the transfer funds instead of spending the funds on services as has been the practice for
decades. Service cuts included firefighters, police officers, and librarians. Next year, the City will
use one-time funds to partially restore services but if the existing transfer practice is not
reaffirmed by the voters, ongoing service reductions will likely be required.
Revenue Measures Being Considered by Other Jurisdictions
City of Palo Alto Page 4
The City of Palo Alto is not the only jurisdiction reviewing potential ballot measures for voter
consideration as part of the November 2022 election. Below is a short snapshot of potential
revenue measures Bay Area jurisdictions are contemplating:
• City of Oakland: in consultation with the business community, the City has placed a
measure on the ballot that would amend the existing business tax in Oakland, estimated
to generate an additional $22 million in revenues. The measure would establish new tax
rates for businesses based on gross receipts, estimated to generate an addition $22
million annually. The City is also asking voters to approve a $850 million general revenue
bond to support infrastructure investments and an initiative measure imposing a parcel
tax ($68/parcel) to renovate the Oakland Zoo.
• City of Santa Clara: the City is pursuing two measures for November 2022:
1) Affirmation of its electric utility transfer to the general fund ($30 million
annually), this is akin to the City of Palo Alto affirmation of the natural gas
transfer to the general fund; and
2) Modernization of its business tax, increasing the cost assessed on employee
head count to $45/employee ($6.1 million annually).
• City of Belmont: the City initially pursued a modernization of its Business Tax, but has
pivoted and is now considering revisions to its transient occupancy tax (hotel tax) to
raise the rate to 14 percent.
• City of Foster City: the City of Foster City decided to postpone the consideration of
placing a ballot measure on the November 2022 general election to conduct more
research and analysis to explore various tax methodologies and characteristics.
TIMELINE
The Santa Clara County Registrar of Voters (ROV) requires measure resolutions be submitted no
later than August 12, 2022.
RESOURCE IMPACT
Ballot Measure Placement Resource Impact
The ROV estimates that placing two measures on the November 2022 election ballot will cost
approximately $172,000, or $86,000 each. Total costs for the November 2022 election,
including Councilmember elections, is estimated at $333,000. Appropriation for these funds is
included in the FY 2023 Adopted Budget at the prior estimate of $320,000.
Ballot Measure Revenue Generation Resource Impact
The local revenue generated by a potential ballot measure will be directly impacted by the
structure and rates approved by the City Council. The revenue estimates are summarized
below:
▪ Business Tax: Approximately $15.5 to $19 million gross revenues annually
The tax elements directed by Council on June 20, 2022 meeting (Attachment A) are
estimated to generate approximately $19 million annually. The alternative proposed by the
Ad Hoc Committee (Attachment B) is estimated to generate approximately $15.5 million
City of Palo Alto Page 5
annually. Administrative costs to collect and implement either version of tax are estimated
up to $1 million.
▪ Affirmation of the existing Natural Gas Utility Transfer: $7 million gross revenues annually
This would affirm the City’s current budget practice of inclusion of this expense in the
development of natural gas utility rates and would not increase natural gas rates for Palo
Alto ratepayers beyond existing forecasted changes. No new administrative costs would be
incurred.
STAKEHOLDER ENGAGEMENT
Feedback was solicited from the community and stakeholders in the form of an online and mail-
in communitywide survey (433 respondents), six focus group sessions, a community listening
session, city newsletter and blog posts, utility bill inserts, and three voter surveys. A landing
page on the City’s website titled, Fiscal Sustainability: A Community Conversation, was also
developed.
ENVIRONMENTAL REVIEW
This activity is not a project under the California Environmental Quality Act (CEQA) as defined in
CEQA Guidelines, Section 15378, because it has no potential for resulting in either a direct or
reasonably foreseeable indirect physical change in the environment.
.
Attachments:
• Attachment A: Resolution Placing a Business Tax on Nov 2022 Ballot - June 20 Council
Direction
• Attachment B: Resolution Placing a Business Tax on November 2022 Ballot - Ad Hoc
Proposed Alternative
• Attachment C: Resolution Regarding Business Tax Advisory Spending Guidelines
• Attachment D: Resolution Placing Natural Gas Utility Transfer on November 2022 Ballot
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Resolution No. ______
Resolution of the Council of the City of Palo Alto Calling an Election for
November 8, 2022 for Submittal to the Qualified Electors of the City a Measure
Amending Title 2 of the Municipal Code to Add Chapter 2.37 to Establish a Tax
on Businesses Operating in the City of Palo Alto
R E C I T A L S
A.Unlike most communities in California, the City of Palo Alto does not require local
businesses to contribute to city services through a local business tax. As Palo Alto looks to the
future, City leaders have determined that the time has come to seek voter approval to tax mid-
sized and large businesses operating in the City, so that the business sector does its part to help
the City to meet evolving challenges, including the need for long term stable funding for public
safety services and the need for significant investments in affordable housing and grade
separated train crossings that maintain mobility for vehicles, bicyclists, and pedestrians.
B.A proposed ordinance attached hereto and incorporated herein by reference as
Attachment “A” (the “Ordinance”) would amend the Palo Alto Municipal Code to add Chapter
2.37 to Title 2, to establish a general tax on businesses operating in the City of Palo Alto that
would be imposed at a monthly rate for each square foot occupied by a business in the city, with
no tax imposed on the first 5,000 square feet occupied by a business in the city, a tax of six cents
for each square foot occupied by a business in the city between 5,000 and 20,000 square feet,
and twelve cents for each square foot occupied by a business in the city above 20,000 square
feet. The tax would be imposed at half the rate for the first two years. Annual adjustments would
be made for inflation, limited to 5%. Grocery stores would be exempt, and offsets would be made
for businesses that remit transient occupancy tax and for payers of discretionary sales and uses
tax. The business tax would terminate in thirty-five years.
C.Proceeds from the tax would be placed in the general fund for general
governmental purposes. The City Council has approved advisory spending guidelines after
considering input from residents and stakeholders on City spending priorities.
D. By its Resolution No. 10045 the City Council called a general municipal election for
November 8, 2022 (“Election”).
E.Pursuant to Government Code Section 53724 and Election Code Section 9222, the
City Council desires to submit the Ordinance to the voters of the City.
The City Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Findings. The City Council finds and determines that each of the findings
set forth above are true and correct.
SECTION 2. General Tax Election. The City Council proposes to impose the general tax
set forth in the Ordinance and to present this proposal to the voters on November 8,
Attachment A
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2022.
SECTION 3. Measure. Pursuant to Elections Code Section 9222, the City Council hereby
submits the Ordinance to the voters at the Election and orders the following question to be
submitted to the voters at the Election:
Shall the measure to raise funds for improving public
safety, affordable housing, rail crossing safety, homeless
services, and general city services, by levying a tax on
businesses in the City of Palo Alto at a monthly rate of 6 to
12 cents per square foot occupied by a business, with
annual adjustments for inflation (limited to 5%) and
exemptions for grocery stores and businesses under 5,000
square feet, raising approximately $19 million annually for
35 years, be adopted?
YES
NO
This question requires the approval of a majority of those casting votes.
SECTION 4. Adoption of Measure. The measure to be submitted to the voters is
attached to this Resolution as Exhibit A and incorporated herein by this reference.
SECTION 5. Notice of Election. Notice of the time and place of holding the election is
hereby given, and the City Clerk is authorized, instructed and directed to give further or additional
notice of the election, in time, form and manner as required by law.
SECTION 6. Impartial Analysis. Pursuant to California Elections Code Section 9280, the
City Council hereby directs the City Clerk to transmit a copy of the measure to the City Attorney.
The City Attorney shall prepare an impartial analysis of the measure, not to exceed 500 words in
length, showing the effect of the measure on the existing law and the operation of the measure,
and transmit such impartial analysis to the City Clerk on or before August 23, 2022.
SECTION 7. Ballot Arguments. Pursuant to Elections Code Section 9286 et. seq.,
August 16, 2022 at 5:00 p.m. shall be the deadline for submission of arguments in favor of, and
arguments against, any local measures on the ballot. If more than one argument for and/or
against is received, the priorities established by Elections Code Section 9287 shall control.
SECTION 8. Rebuttal Arguments. The provisions of Elections Code Section 9285 shall
control the submission of any rebuttal arguments. The deadline for filing rebuttal arguments
shall be August 23, 2022 at 5:00 p.m.
SECTION 9. Consolidation Request. The Council of the City of Palo Alto requests the
governing body of any other political subdivision, or any officers otherwise authorized by law, to
partially or completely consolidate such elections and the City Council consents to such
consolidation. The Council requests the Board of Supervisors of Santa Clara County to include on
the ballots and sample ballots, all qualified measures submitted by the City Council to be ratified
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by the qualified electors of the City of Palo Alto. The Council acknowledges that the election will
be held and conducted according to procedures in the Elections Code, including Section 10418.
SECTION 10. Request for County Services. Pursuant to Section 10002 of the California
Elections Code, the Council of the City of Palo Alto hereby requests the Board of Supervisors of
Santa Clara County to permit the Registrar of Voters to render services to the City of Palo Alto
relating to the conduct of Palo Alto’s General Municipal and Special Elections which are called to
be held on Tuesday, November 8, 2022. The services shall be of the type normally performed by
the Registrar of Voters in assisting the clerks of municipalities in the conduct of elections
including, but not limited to, checking registrations, mailing ballots, hiring election officers and
arranging for polling places, receiving absentee voter ballot applications, mailing and receiving
absent voter ballots and opening and counting same, providing and distributing election supplies,
and furnishing voting machines.
SECTION 11. Transmittal of Resolution. The City Clerk is hereby directed to submit
forthwith a certified copy of this resolution to the Santa Clara County Board of Supervisors and
to the Registrar of Voters.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSENTIONS:
ATTEST: APPROVED:
_____________________________ ______________________________
City Clerk Mayor
______________________________
APPROVED AS TO FORM: City Manager
_____________________________ ______________________________
City Attorney Director of Administrative Services
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Attachment A
Ordinance No. _____
Ordinance of the Council of the City of Palo Alto Amending Title 2 of the
Municipal Code to Add Chapter 2.37 to Establish a Tax on Businesses Operating
in the City of Palo Alto
The People of the City of Palo Alto do ordain as follows:
SECTION 1. Title 2 (Administrative Code) of the Palo Alto Municipal Code is hereby
amended by adding Chapter 2.37 (Business Tax) as follows:
Chapter 2.37
BUSINESS TAX
2.37.010 Title
This chapter is the “City of Palo Alto Business Tax Ordinance.”
2.37.020 Definitions
The definitions in this section apply to the words and phrases used in this chapter unless
the context clearly indicates otherwise.
(a) “Business” means any commercial enterprise, trade, calling, art, vocation, profession,
occupation, or means of livelihood, whether or not carried on for gain or profit.
(b) “Business operator” means a person who transacts, maintains, manages, operates,
controls, engages in, conducts, carries on, or owns a business in the city. It does not
include the employee of a business who is not an owner or proprietor of the business.
(c) “Calendar year” means the year beginning January 1 and ending December 31.
(d) “City” means the City of Palo Alto.
(e) “CPI Index” means the Consumer Price Index—All Urban Consumers for All Items for the
San Francisco-Oakland-Hayward Area or any successor to that index designated by the
Federal Bureau of Labor Statistics or the city council.
(f) “Fiscal year” means the year beginning July 1 and ending June 30.
(g) “Fixed place of business” means a place of business located in the city boundaries and
occupied for the particular purpose of operating a business.
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(h) “Grocery store” means a business that exists for the primary purpose of selling a range
of food items to consumers for consumption off site, such as canned foods; dry goods;
fresh produce; fresh meats, fish, and poultry; and any area that is not separately owned
within the store where food is prepared and served, including a bakery, deli, and meat
and seafood departments, or as otherwise defined in 14 CCR section 18982(a)(3),
provided that any store that combines grocery items with other retail products or
services is a grocery store for the purpose of this chapter only if two-thirds or more of
the occupied space is designated to the sale of grocery items as listed in this section.
(i) “Hotel” has the meaning provided in section 2.33.010.
(j) “Operate” means to conduct a business and includes all stages of conducting a business
from initial planning to the wind-down of a business, whether or not a profit is being
made.
(k) “Person” means any individual, firm, partnership, joint venture, association,
corporation, limited liability company, estate, trust, receiver, syndicate or other group
or combination acting as a unit and includes the plural as well as the singular number.
(l) “Quarter” means the three-month quarter of the fiscal year. The “first quarter” is the
months of July, August, and September; the “second quarter” is the months of October,
November, and December; the “third quarter” is the months of January, February, and
March; and the “fourth quarter” is the months of April, May, and June. The term “same
quarter of the previous fiscal year” means the quarter of the same number in the
previous fiscal year.
(m) “Square footage” means the rentable square footage used by a business as specified in a
business’s lease or, if the business floor space is owned by the business, as calculated in
the same manner as if the area was rented using commonly accepted standards of
measurement for leasing purposes such as the Standard Methods of Measurement
published by the Building Owners and Managers Association (BOMA). Any method of
measurement used must meet the following minimum standards:
(1) It shall be computed by measuring to the inside finish of permanent outer
building walls and shall include space used by columns and projections necessary
to the building.
(2) It shall include both the area used by the business and a proportionate share of
the building service areas such as lobbies, corridors and other common areas in a
building unless assigned to another business for tax calculation purposes.
(3) It shall not include vertical penetrations through the building such as stairs,
elevators, or heating, ventilation, air conditioning, utility, or telephone systems,
except on the lowest floor of stairs and elevators.
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(4) For the business of renting or leasing property, it shall include area used
primarily for the business operator’s offices and operational facilities.
(5) It shall not include residential uses, including multiple-family use as defined in
section 18.04.030(102), two-family use as defined in section 18.04.030(141),
single-family residential use as defined in section 18.04.030(86)(A)), mobile
home park as defined in section18.04.030(97), residential care homes as defined
in section 18.04.030(124), supportive housing as defined in section
18.04.030(135.5), transitional housing as defined in section 18.04.030(138),
emergency shelter as defined in section 18.04.030(50), and any equivalent
residential use defined by the city.
(6) It shall include hotel as defined in section 18.04.030(73).
(7) Square footage for businesses with multiple locations will be measured and tax
assessed will be calculated based on the aggregate square footage for the
business for all locations in the city.
(n) “Tax Administrator” means the Director of Administrative Services, or successor
position, or their designee.
(o) “Transient Occupancy Tax” means the tax imposed under section 2.33.020.
(p) “Transitory business” means a business that operates in the city for less than 90 days in
the course of one calendar year (such as seasonal sale lots, special events,
concerts/performances/circuses, filming, and party rentals).
(q) “Vacant” means a severable portion of the physical location that a business is
occupying, such as an entire floor, a building, or a portion of a floor with independent
entrance and exit, that is free from any use, fixtures, furniture, and equipment, and is
immediately available for use by a new tenant or owner.
2.37.030 Obligation to Pay Business Tax
(a) It is unlawful for any business operator, either for themselves or for any other person, to
operate in the city any business taxed under this chapter without paying all business tax
required by this chapter.
(b) If a business has more than one business operator, then the payment of the business tax
by one business operator excuses any other business operators from the obligation to
pay the business tax for that period for which the tax has been paid.
(c) The requirement to pay business tax is in addition to and separate from the
requirement to obtain a business registration certificate under section 4.60.030.
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(d) The payment of business tax does not authorize the doing of any act which the person
or business paying the business tax is not otherwise entitled to do and does not excuse
the business from complying with other applicable Code requirements.
2.37.040 Imposition of Business Tax
Any business operator operating a business at a fixed place of business in the city must
pay a business tax at the following rates:
(a) Beginning January 1, 2023, the tax shall be imposed at the following rates:
(1) For the first 5,000 square feet occupied by a business in the city, no tax shall be
imposed.
(2) For each square foot occupied by a business in the city between 5,000 and
20,000 square feet, a monthly tax of three (3) cents per square foot shall be
imposed.
(3) For each square foot occupied by a business in the city over 20,000 square feet,
a monthly tax of six (6) cents per square foot shall be imposed.
(b) Beginning January 1, 2025, the tax shall be imposed at the following rates:
(1) For the first 5,000 square feet occupied by a business in the city, no tax shall be
imposed.
(2) For each square foot occupied by a business in the city between 5,000 and
20,000 square feet, a monthly tax of six (6) cents per square foot shall be
imposed.
(3) For each square foot occupied by a business in the city over 20,000 square feet,
a monthly tax of twelve (12) cents per square foot shall be imposed.
2.37.050 Annual CPI Adjustment of Tax Rate
(a) Beginning with the 2026-27 fiscal year, and each fiscal year thereafter, the tax rates in
subdivisions (b)(1) and (b)(2) of section 2.37.040 shall be automatically increased by a
percentage equal to the percentage increase in the CPI Index in the previous calendar
year (“the CPI Increase”).
(b) Notwithstanding subdivision (a) of this section, in any year in which the CPI Increase is
more than 5%, the increase in the tax rate will be limited to 5%.
//
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2.37.060 Disposition of Tax Revenue
The tax imposed by this chapter is for the purpose of raising revenue for the general
governmental purposes of the city. All of the proceeds from the tax imposed by this chapter
shall be placed in the city’s general fund.
2.37.070 Exemptions from Tax
(a) The following businesses are exempt from the tax imposed by this chapter:
(1) Any business exempt from the tax by the laws of the United States or the State
of California;
(2) Grocery stores;
(3) Businesses that occupy or use 5,000 square feet or less in the city; and
(4) Transitory businesses.
(b) If a business operator operates a single integrated business that has two or more parts,
one or more of which could be exempt from the tax imposed by this chapter if operated
as a separate business, the city may, at its discretion, exempt from the tax any part of
the business that would be exempt if operated as a separate business, provided the
business’s square footage can be reasonably allocated between the parts. If the city
determines that the square footage cannot be reasonably allocated between the
different parts of the business, then the entire business shall be taxed, unless to do so
would violate a law of the United States or the State of California.
2.37.080 Business Tax Offsets
(a) A business operator that operates a hotel in the city may deduct from the business tax it
owes for a quarter for the business of operating the hotel an amount equal to the total
transient occupancy tax collected and remitted to the city in the same quarter of the
previous fiscal year from transients staying at the hotel.
(b) The business operator of a business that has discretion to determine the location of the
place of sale, place of use, or principal place of negotiation for sales or use tax purposes
and which exercises that discretion and designates the city as the place of sale, place of
use, or principal place of negotiation for sales or use tax purposes which results in the
city receiving sales or use tax revenues that it would not otherwise have received, but
for the business’s exercise of its discretion to designate the city as the place of sale,
place of use, or principal place of negotiation for sales or use tax purposes
(“Discretionary Sales or Use Tax Sales”) may deduct from the business tax it owes for a
quarter an amount equal to one half of the total sales tax or use tax received by the city
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from the Discretionary Sales or Use Tax Sales of that business in the same quarter of the
previous fiscal year. This offset can offset up to, but no more than, 75% of the business’s
quarterly business tax. The city and a business operator may enter into an agreement
implementing this section.
(c) A business claiming an offset under this section must claim the offset with its tax filing
for the quarter for which the offset is claimed.
(1) If the information necessary for a business to claim an offset is not available, the
business may defer claiming an offset for up to one year or for another period of
time set by written agreement with the city.
(2) The Tax Administrator may require a business claiming an offset to submit
additional information to support the claim of the offset. The request for
additional information must be made in writing and the information must be
provided within thirty (30) days.
(3) If the Tax Administrator determines that an offset claimed by a business is
incorrect, the Tax Administrator may make an Initial Determination of the
amount, if any, of the offset and the amount of tax due under section
2.37.150(a).
2.37.090 Quarterly Tax Payments
(a) The tax imposed by this chapter shall be paid quarterly. The tax for each quarter is due
the first day of the following quarter and is delinquent thirty (30) days later.
(b) For the first quarter in which a business begins operating in the city, the business’s tax
shall be prorated for the number of days that the business was operating in the quarter.
(c) For the last quarter in in which a business operates in the city before closing, the
business’s tax shall be prorated for the number of days that the business was operating
in the quarter.
2.37.100 Business Tax Filing for a New Business
When a business begins operating in the city for the first time, the business operator
must provide the Tax Administrator with the following information, verified by the business
operator as true and correct under penalty of perjury of the laws of the State of California,
before beginning the operation of the business in the city:
(a) The name of the business and the address or addresses at which it will be operating in
the city;
(b) The date on which the business will begin operating;
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(c) The nature of the business’s activities;
(d) The square footage in which the business will be operating in the city; and
(e) Any other information required by the Tax Administrator.
2.37.110 Quarterly Tax Returns
With each quarterly tax payment, a business operator must submit a quarterly tax
return which contains the following information, verified by the business operator as true and
correct under penalty of perjury of the laws of the State of California:
(a) The name of the business and the address or addresses at which it is operating in the
city;
(b) The nature of the business’s activities;
(c) The square footage in which the business is operating in the city;
(d) If the business operator claims an offset under section 2.37.080, sufficient information
and documentation to establish the business’s right to the offset and the amount of the
offset;
(e) Any other information required by the Tax Administrator; and
(f) The amount of tax due based on the square footage of the business.
2.37.120 Agreements for Installment Payments
The Tax Administrator may enter into an agreement with a business operator to allow a
business operator to pay the tax on a more or less frequent basis.
2.37.130 Businesses Operating in the Same Location
(a) Each business operator operating a business in a location where one or more other
business are also operating is obligated to pay business tax measured by the square
footage occupied by that business.
(b) The payment of business tax by a business operator absolves any other business
operator from having to pay business tax measured by the same square footage.
(c) Two or more business operators that are operating businesses in the same square
footage may contractually agree which business will pay the business tax measured by
that square footage.
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2.37.140 Delinquent Taxes (Penalties and Interest)
(a) When a tax becomes delinquent, a penalty of 10% of the amount of the delinquent tax
will be added to the amount of tax due. If the tax remains unpaid sixty (60) days after
becoming delinquent, an additional penalty of 25% of the amount of the delinquent tax
(excluding accrued interest and the initial penalty) will be added to the amount of tax
due.
(b) On the first of each month that a tax is delinquent, interest in the amount of 1.5% of the
delinquent amount, excluding penalties and interest, will be added to the amount of tax
due.
(c) A business operator may apply to the Tax Administrator for a reduction or waiver of any
accrued penalties or interest, and the Tax Administrator may reduce or waive any
accrued penalties or interest upon a finding of good cause.
2.37.150 Administrative Procedure to Assess or Correct Tax
(a) If the Tax Administrator determines that a business operator has incorrectly reported
any information to the city or has not paid all or any of the tax, penalties, or interest
that are due, the Tax Administrator may, using any information available to the Tax
Administrator, issue an Initial Determination stating what the Tax Administrator believes
to be the correct information and, if new or additional tax, penalties, or interest are due,
how much tax, penalties, or interest are due. An Initial Determination must be issued
within five (5) years of the last day of the quarter to which the Initial Determination
applies, except in the case of an audit conducted under section 2.37.200, in which case
it must be issued within ninety (90) days of the completion of the audit and can apply to
any of the quarters that were subject to the audit. The Initial Determination shall be
served on the business operator either personally or by U.S. mail to the most recent
address for the business operator in the Tax Administrator’s records. Service is effective
upon deposit of the Initial Determination in the U.S. Mail.
(b) A business operator affected by an Initial Determination may within fifteen (15) days of
service of an Initial Determination contest the Initial Determination and request a
hearing before the Tax Administrator by filing with the Tax Administrator a written
request for a hearing. The further accrual of penalties and interest shall be tolled upon
the filing of a request for a hearing. If a business operator does not contest an Initial
Determination and request a hearing with the Tax Administrator within fifteen (15) days
of service of the Initial Determination, the Initial Determination shall become final and
cannot be appealed.
(c) If a business operator timely contests an Initial Determination and requests a hearing,
the Tax Administrator shall set a hearing within thirty (30) days of the filing of the
request for a hearing. Notice of the hearing shall be served on the business operator
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either personally or by U.S. mail to the most recent address for the business operator in
the Tax Administrator’s records.
(d) At the hearing the business operator may present evidence and argument regarding the
Initial Determination to show why the Initial Determination is incorrect and to show
what the determination of the Tax Administrator should be. Within sixty (60) day after
the close of the hearing, the Tax Administrator shall serve a Final Determination, setting
forth the Tax Administrator’s determination of the facts and issues that were the subject
of the Initial Determination. The Final Determination shall be served on the business
operator either personally or by U.S. mail to the most recent address for the business
operator in the Tax Administrator’s records. Service is effective upon deposit of the Final
Determination in the U.S. Mail. Unless an appeal of a Final Determination is filed under
section 2.37.170, any penalties or interest tolled under subdivision (b) of this section will
resume accruing ten (10) days after the service of the Final Determination.
2.37.160 General Administrative Remedy
(a) Any person affected by a decision of the Tax Administrator (“the challenger”), except for
decisions under section 2.37.150, may challenge that decision by filing a written
objection to the decision with the Tax Administrator. The objection must be filed within
fifteen (15) days of the issuance of the decision being challenged. If the Tax
Administrator was required to provide notice of the decision, then the time to file an
objection to the decision begins to run from the date of service of the notice of the
decision. The Tax Administrator shall serve a written response to the objection within
thirty (30) days of the filing of the objection, which period can be extended by the Tax
Administrator for an additional thirty (30) days. The Tax Administrator’s response to the
objection shall be served on the challenger either personally or by U.S. mail to the most
recent address for the challenger in the Tax Administrator’s records.
(b) The challenger may request a hearing on the Tax Administrator’s response to the
objection by filing a request for a hearing with the Tax Administrator within fifteen (15)
days of service of the response to the objection. If a timely request for a hearing on a
response to the objection is filed with the Tax Administrator, the Tax Administrator shall
set a hearing within thirty (30) days of the filing of the request for a hearing. Notice of
the hearing shall be served on the challenger either personally or by U.S. mail to the
most recent address for the challenger in the Tax Administrator’s records.
(c) At the hearing the challenger may present evidence and argument regarding the
decision being challenged to show why the decision is incorrect and to show what it
should be. Within sixty (60) days after the close of the hearing, which the Tax
Administrator may extend for an additional sixty (60) days, the Tax Administrator shall
serve a Final Determination on the decision, setting forth the Tax Administrator’s
determination of the decision that was challenged. The Final Determination shall be
served on the challenger either personally or by U.S. mail to the most recent address for
the challenger in the Tax Administrator’s records. Service is effective upon deposit of
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the Final Determination in the U.S. mail.
2.37.170 Appeals
(a) A Final Determination of the Tax Administrator under section 2.37.150, subdivision (d),
or section 2.37.160, subdivision (c), can be appealed to the City Manager by filing a
written notice of appeal with the City Manager within fifteen (15) days of service of the
notice of the Final Determination being appealed.
(b) Only a business operator who files a timely request for a hearing on an Initial
Determination under section 2.37.150 and participates in the hearing or a challenger
who files an objection to a decision and files a request for a hearing on the response to
the objection under section 2.37.160 and participates in the hearing can file an appeal
under this section.
(c) If a timely appeal is filed with the City Manager, the City Manager, or the City Manager’s
designee, shall set a hearing within thirty (30) days of the filing of the appeal, which may
be extended by the City Manager for an additional thirty (30) days. Notice of the hearing
shall be served on the appellant either personally or by U.S. mail to the most recent
address for the challenger in the Tax Administrator’s records. The tolling of the accrual
of penalties or interest under section 2.37.150, subdivision (b), shall continue upon the
timely filing of an appeal under this section.
(d) At the hearing the appellant and the Tax Administrator may present evidence and
argument regarding the decision being appealed to show why the decision is correct or
incorrect and to show what it should be. Within sixty (60) days after the close of the
hearing, which the City Manager or the City Manager’s designee may extend for an
additional sixty (60) days, the City Manager or the City Manager’s designee shall serve a
written decision, setting forth the resolution of the appeal. The decision shall be served
on the appellant either personally or by U.S. mail to the most recent address for the
appellant in the City Manager’s records. Service is effective upon deposit of the decision
in the U.S. Mail. Any penalties and interest that were tolled under section 2.37.150,
subdivision (b), shall resume accruing ten (10) days after the service of the decision.
(e) A decision of the City Manager, or the City Manager’s designee, served under
subdivision (d) of this section is subject to judicial review under sections 1094.5 and
1094.6 of the Code of Civil Procedure with a writ petition filed in the appropriate court
within ninety (90) days of the service of the written decision. Any tax, penalties, or
interest determined by the decision to be owed to the city by the appellant must be
paid to the city as a precondition to filing a writ petition challenging the decision, but a
claim for a refund under section 2.37.190 does not have to be filed before filing a writ
petition.
//
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2.37.180 Constitutional Apportionment
(a) No tax imposed by this chapter shall be applied to a business operator so as to
constitute an undue burden on interstate commerce or intercity commerce or be
violative of the equal protection or due process clauses of the United States or California
constitutions.
(b) A business operator who contends that the application of a tax imposed by this chapter
on the business operator constitutes an undue burden on interstate commerce or
intercity commerce or violates the equal protection or due process clauses of the United
States or California constitutions may apply to the Tax Administrator for an
apportionment of the tax imposed on the business operator that would remove the
constitutional violation by filing a written request with the Tax Administrator that
explains the factual and legal basis for the claimed constitutional violation and proposes
a method of apportionment that would resolve the alleged constitutional violations.
(c) The Tax Administrator, in consultation with City Attorney, shall review the application
and within sixty (60) days of the filing of the application, which deadline may be
extended for an additional sixty (60) days, issue a decision on the application. The
decision on the application shall be served on the business operator either personally or
by U.S. mail to the most recent address for the challenger in the Tax Administrator’s
records. The decision can be challenged under section 2.37.160.
2.37.190 Refunds
(a) A business operator who believes that any tax, penalty, or interest has been illegally,
erroneously, or mistakenly paid to, collected by, or otherwise received by the city may
file a claim for a refund of the amount of tax, penalty, or interest claimed to have been
improperly received by the city.
(b) The claim must be filed with the Tax Administrator and signed under penalty of perjury
by the business operator. The claim must state:
(1) The legal and factual basis for the refund claim;
(2) The amount of tax, penalty, or interest allegedly improperly received by the city;
(3) The date or dates that the improper payments were made to the city; and
(4) The address of the claimant.
(c) The claim must be filed with the Tax Administrator within one (1) year of the date of the
allegedly improper payment to the city.
(d) The Tax Administrator shall provide a written decision on the claim within thirty (30)
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days of the filing of the claim by serving the decision on the claimant either personally
or by U.S. mail to the address provided in the claim. Service is effective upon deposit of
the response in the U.S. Mail.
(e) A claimant may challenge the Tax Administrator’s decision on a refund claim under
section 2.37.160.
(f) This section does not apply to:
(1) A claim for a refund arising out of a decision of the Tax Administrator, City
Manager, or City Manager’s designee under sections 2.37.150, 2.37.160,
2.37.170, or 2.37.190; or
(2) A claim that could have been asserted by the claimant, but was not, under
sections 2.37.150, 2.37.160, 2.37.170, or 2.37.190.
2.37.200 Audits
(a) The Tax Administrator may conduct an audit of any business operator to ensure proper
compliance with the requirements of this chapter.
(b) To initiate an audit the Tax Administrator shall provide written notice to the business
operator that is the subject of the audit of the initiation of the audit by serving the
notice personally or by U.S. mail to the most recent address for the business operator in
the Tax Administrator’s records. The notice shall state the period of time subject to the
audit.
(c) Notice of the initiation of an audit for a quarter for which either a business tax filing for
a new business or quarterly tax return was submitted under section 2.37.100 or section
2.37.110 must be served within five (5) years of the last day of the quarter to which the
filing or return applied.
(d) Notice of the initiation of an audit for a quarter for which neither a business tax filing for
a new business nor a quarterly tax return was submitted under section 2.37.100 or
section 2.37.110, but for which the business was registered as a business under section
4.60.030, must be served within seven (7) years of the last day of the quarter for which
the filing or return should have been filed.
(e) Notice of the initiation of an audit for a quarter for which neither a business tax filing for
a new business nor a quarterly tax return was submitted under section 2.37.100 or
section 2.37.110, and for which the business was not registered as a business under
section 4.60.030, must be served within ten (10) years of the last day of the quarter for
which the filing or return should have been filed.
(f) Upon completion of an audit, the Tax Administrator may make an Initial Determination
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under subdivision (a) of section 2.37.150 of any taxes, penalties, and interest
determined to be owed and not paid for the audit period. The Initial Determination
must be issued within ninety (90) days of the completion of the audit. If a business
operator subject to audit is unable or unwilling to provide sufficient records to enable
the Tax Administrator to verify compliance with this chapter, the Tax Administrator is
authorized to make a reasonable estimate of the amount of tax due and the reasonable
estimate shall be entitled to a rebuttable presumption of correctness.
2.37.210 Maintenance and Review of Records
(a) Business operators must maintain for six (6) years records of square footage and
information necessary to calculate the tax. If the Tax Administrator serves notice of the
initiation of an audit, the information pertinent for the quarters subject to the audit
must be maintained until the conclusion of the audit.
(b) The Tax Administrator may with reasonable notice inspect the premises and records of
the business operator.
(c) The Tax Administrator may request the city council to issue an administrative subpoena
for records of a business operator or other persons with relevant information.
2.37.220 Confidentiality of Records
All documents submitted to the city by a business operator under this chapter and all
documents of a business operator inspected by the Tax Administrator in the conduct of an audit
are presumed to be confidential and will not be subject to public inspection to the fullest extent
allowed by law and must be maintained so that the contents of the documents will not become
known except to persons charged with the administration of this chapter. Confidential
documents may be shared with consultants retained by the city to aid in the administration of
this chapter, provided the consultants agree to maintain the confidentiality of the documents.
However, nothing in this section precludes the city from aggregating information and releasing
it in a manner that does not identify any particular business or connect any information with a
particular business.
2.37.230 Action to Collect Delinquent Taxes
(a) Any tax, penalty, and interest imposed on a business operator under this chapter is a
debt owed by the business operator to the city, which may be recovered in an action
filed by the city in a court of competent jurisdiction.
(b) An action under this section shall be filed within three (3) years of an Initial
Determination becoming final under subdivision (b) of section 2.37.150, the issuance of
a Final Determination under subdivision (d) of section 2.37.150 that is not appealed, the
issuance of a Final Determination under subdivision (c) of section 2.37.160 that is not
appealed, or the issuance of a decision under subdivision (d) of section 2.37.170.
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(c) During the pendency of an action filed under this section, interest will continue to
accrue under subdivision (b) of section 2.37.140 until the entry of judgment.
(d) Before filing an action, the city may serve the business operator either personally or by
U.S. mail at the most recent address for the business operator in the Tax Administrator’s
records with notice of the pending action and give the business operator fifteen (15)
days to pay all of the delinquent taxes, penalties, and fees. If all of the of the delinquent
taxes, penalties, and fees are not paid within the fifteen-day period, then an additional
penalty of 25% of the amount of the delinquent tax (including accrued penalties and
interest) shall be added to the total delinquency and may be recovered in the action.
2.37.240 Errors Not Binding on the City
No error by the Tax Administrator or any other officer, employee, or agent of the city in
the application of this chapter shall prevent, prejudice, or estop the collection by or for the city
of the full amount of tax owed by any person under this chapter.
2.37.250 Dates
If the last day for the performance of any act under this chapter is a Saturday, Sunday,
or holiday recognized by the city, then the date for the performance of that act is extended to
the next day that is not a Saturday, Sunday, or holiday recognized by the city.
2.37.260 Rules and Regulations
(a) The Tax Administrator may adopt rules and regulations that are not inconsistent with
the provisions of this chapter as may be necessary to aid in the application and
enforcement of this chapter.
(b) The Tax Administrator may adopt rules providing for the service or filing of any notices,
filings, returns, or submittals required by this chapter. These rules may provide
alternative means for serving or filing any notice, filing, return, or submittal, and may
clarify the method of serving or filing any notice, filing, return, or submittal provided for
in this chapter.
2.37.270 City Council Amendments
(a) The city council may amend this chapter in any way it deems necessary without the
approval of the electorate, provided the amendment does not increase the amount of
tax that any person would pay.
(b) Any amendment to this chapter that would reduce the amount of tax any taxpayer
would pay, either temporarily or permanently, must be approved by two-thirds (2/3) of
the members of the city council.
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(c) Notwithstanding subdivision (a) of this section, the city council may with the approval of
two-thirds (2/3) of its members and without approval of the electorate reduce, revise,
or eliminate any of the business tax offsets in section 2.37.080.
2.37.280 Severability
If any word, phrase, sentence, part, section, subsection, or other portion of this chapter,
or any application thereof to any person or circumstance is declared void, unconstitutional, or
invalid for any reason, then such word, phrase, sentence, part, section, subsection, or other
portion, or the prescribed application thereof, shall be severable, and the remaining provisions
of this chapter, and all applications thereof, not having been declared void, unconstitutional or
invalid, shall remain in full force and effect. The People of the City of Palo Alto hereby declare
that they would have passed this ordinance, and each section, subsection, sentence, clause and
phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences,
clauses or phrases had been declared invalid or unconstitutional.
2.37.290 Savings Clause
No section, clause, part, or provision of this chapter shall be construed as requiring the
payment of any tax that would be in violation of the Constitution or laws of the United States of
America or of the Constitution or laws of the State of California.
2.37.300 Sunset
The tax imposed by this Chapter shall cease to be imposed on January 1, 2058.
SECTION 2. Implementation Procedures
1. The new tax imposed by this ordinance will go into effect on January 1, 2023.
2. Notwithstanding sections 2.37.090, 2.37.100, and 2.37.110 of the codified part of this
ordinance, the tax imposed by this ordinance will initially be due on the following schedule:
(a) The initial tax payment for the tax that has accrued since January 1, 2023 will be
due on January 1, 2024, or on a subsequent date established by the Tax Administrator and will
be delinquent 30 days later if not paid.
(b) With its initial tax payment, each business shall provide the following
information:
(1) The name of the business and the address or addresses at which it will be
operating in the city;
(2) The nature of the business’s activities;
(3) The square footage in which the business will be operating in the city;
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(4) If the business operator claims an offset under section 2.37.080,
sufficient information and documentation to establish the business’s
right to the offset and the amount of the offset;
(5) Any other information required by the Tax Administrator; and
(6) The amount of tax due based on the square footage of the business.
(c) A business that begins operating for the first time after January 1, 2023, must
submit its initial tax payment and initial information by the date provided in this uncodified
section or by the date provided in codified section 2.37.090, whichever is later.
SECTION 3. General Tax. Proceeds of the tax imposed by this Ordinance shall be
deposited in the general fund of the City and shall be available for any legal purpose.
SECTION 4. Effective Date. This ordinance shall be effective only if approved by a majority
of the voters and shall go into effect immediately after the vote is declared by the City Council.
SECTION 5. Execution. The Mayor is hereby authorized to attest to the adoption of this
Ordinance by the voters of the City by signing where indicated below.
I hereby certify that the foregoing Ordinance was PASSED, APPROVED and ADOPTED by
the People of the City of Palo Alto voting on the 8th day of November, 2022.
ATTEST:
__________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
City Attorney City Manager
___________________________
Director of Administrative Services
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Resolution No. ______
Resolution of the Council of the City of Palo Alto Calling an Election for
November 8, 2022 for Submittal to the Qualified Electors of the City a Measure
Amending Title 2 of the Municipal Code to Add Chapter 2.37 to Establish a Tax
on Businesses Operating in the City of Palo Alto
R E C I T A L S
A.Unlike most communities in California, the City of Palo Alto does not require local
businesses to contribute to city services through a local business tax. As Palo Alto looks to the
future, City leaders have determined that the time has come to seek voter approval to tax mid-
sized and large businesses operating in the City, so that the business sector does its part to help
the City to meet evolving challenges, including the need for long term stable funding for public
safety services and the need for significant investments in affordable housing and grade
separated train crossings that maintain mobility for vehicles, bicyclists, and pedestrians.
B.A proposed ordinance attached hereto and incorporated herein by reference as
Attachment “A” (the “Ordinance”) would amend the Palo Alto Municipal Code to add Chapter
2.37 to Title 2, to establish a general tax on businesses operating in the City of Palo Alto that
would be imposed at a monthly rate for each square foot occupied by a business in the city, with
no tax imposed on the first 10,000 square feet occupied by a business in the city, and a tax of ten
cents for each square foot occupied by a business in the city above 10,000 square feet. The tax
would be imposed at half the rate for the first two years. Annual adjustments would be made for
inflation, limited to 5%. Grocery stores would be exempt, and offsets would be made for
businesses that remit transient occupancy tax and for payers of discretionary sales and uses tax.
The business tax would terminate in thirty-five years.
C.Proceeds from the tax would be placed in the general fund for general
governmental purposes. The City Council has approved advisory spending guidelines after
considering input from residents and stakeholders on City spending priorities.
D. By its Resolution No. 10045 the City Council called a general municipal election for
November 8, 2022 (“Election”).
E.Pursuant to Government Code Section 53724 and Election Code Section 9222, the
City Council desires to submit the Ordinance to the voters of the City.
The City Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Findings. The City Council finds and determines that each of the findings
set forth above are true and correct.
SECTION 2. General Tax Election. The City Council proposes to impose the general tax
set forth in the Ordinance and to present this proposal to the voters on November 8,
2022.
Attachment B
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SECTION 3. Measure. Pursuant to Elections Code Section 9222, the City Council hereby
submits the Ordinance to the voters at the Election and orders the following question to be
submitted to the voters at the Election:
Shall the measure to raise funds for improving public
safety, affordable housing, rail crossing safety, homeless
services, and general city services, by levying a tax on
businesses in the City of Palo Alto at a monthly rate of 10
cents per square foot occupied by a business, with annual
adjustments for inflation (limited to 5%) and exemptions
for grocery stores and businesses under 10,000 square feet,
raising approximately $15.5 million annually for 35 years,
be adopted?
YES
NO
This question requires the approval of a majority of those casting votes.
SECTION 4. Adoption of Measure. The measure to be submitted to the voters is
attached to this Resolution as Exhibit A and incorporated herein by this reference.
SECTION 5. Notice of Election. Notice of the time and place of holding the election is
hereby given, and the City Clerk is authorized, instructed and directed to give further or additional
notice of the election, in time, form and manner as required by law.
SECTION 6. Impartial Analysis. Pursuant to California Elections Code Section 9280, the
City Council hereby directs the City Clerk to transmit a copy of the measure to the City Attorney.
The City Attorney shall prepare an impartial analysis of the measure, not to exceed 500 words in
length, showing the effect of the measure on the existing law and the operation of the measure,
and transmit such impartial analysis to the City Clerk on or before August 23, 2022.
SECTION 7. Ballot Arguments. Pursuant to Elections Code Section 9286 et. seq.,
August 16, 2022 at 5:00 p.m. shall be the deadline for submission of arguments in favor of, and
arguments against, any local measures on the ballot. If more than one argument for and/or
against is received, the priorities established by Elections Code Section 9287 shall control.
SECTION 8. Rebuttal Arguments. The provisions of Elections Code Section 9285 shall
control the submission of any rebuttal arguments. The deadline for filing rebuttal arguments
shall be August 23, 2022 at 5:00 p.m.
SECTION 9. Consolidation Request. The Council of the City of Palo Alto requests the
governing body of any other political subdivision, or any officers otherwise authorized by law, to
partially or completely consolidate such elections and the City Council consents to such
consolidation. The Council requests the Board of Supervisors of Santa Clara County to include on
the ballots and sample ballots, all qualified measures submitted by the City Council to be ratified
by the qualified electors of the City of Palo Alto. The Council acknowledges that the election will
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be held and conducted according to procedures in the Elections Code, including Section 10418.
SECTION 10. Request for County Services. Pursuant to Section 10002 of the California
Elections Code, the Council of the City of Palo Alto hereby requests the Board of Supervisors of
Santa Clara County to permit the Registrar of Voters to render services to the City of Palo Alto
relating to the conduct of Palo Alto’s General Municipal and Special Elections which are called to
be held on Tuesday, November 8, 2022. The services shall be of the type normally performed by
the Registrar of Voters in assisting the clerks of municipalities in the conduct of elections
including, but not limited to, checking registrations, mailing ballots, hiring election officers and
arranging for polling places, receiving absentee voter ballot applications, mailing and receiving
absent voter ballots and opening and counting same, providing and distributing election supplies,
and furnishing voting machines.
SECTION 11. Transmittal of Resolution. The City Clerk is hereby directed to submit
forthwith a certified copy of this resolution to the Santa Clara County Board of Supervisors and
to the Registrar of Voters.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSENTIONS:
ATTEST: APPROVED:
_____________________________ ______________________________
City Clerk Mayor
______________________________
APPROVED AS TO FORM: City Manager
_____________________________ ______________________________
City Attorney Director of Administrative Services
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Attachment A
Ordinance No. _____
Ordinance of the Council of the City of Palo Alto Amending Title 2 of the
Municipal Code to Add Chapter 2.37 to Establish a Tax on Businesses Operating
in the City of Palo Alto
The People of the City of Palo Alto do ordain as follows:
SECTION 1. Title 2 (Administrative Code) of the Palo Alto Municipal Code is hereby
amended by adding Chapter 2.37 (Business Tax) as follows:
Chapter 2.37
BUSINESS TAX
2.37.010 Title
This chapter is the “City of Palo Alto Business Tax Ordinance.”
2.37.020 Definitions
The definitions in this section apply to the words and phrases used in this chapter unless
the context clearly indicates otherwise.
(a) “Business” means any commercial enterprise, trade, calling, art, vocation, profession,
occupation, or means of livelihood, whether or not carried on for gain or profit.
(b) “Business operator” means a person who transacts, maintains, manages, operates,
controls, engages in, conducts, carries on, or owns a business in the city. It does not
include the employee of a business who is not an owner or proprietor of the business.
(c) “Calendar year” means the year beginning January 1 and ending December 31.
(d) “City” means the City of Palo Alto.
(e) “CPI Index” means the Consumer Price Index—All Urban Consumers for All Items for the
San Francisco-Oakland-Hayward Area or any successor to that index designated by the
Federal Bureau of Labor Statistics or the city council.
(f) “Fiscal year” means the year beginning July 1 and ending June 30.
(g) “Fixed place of business” means a place of business located in the city boundaries and
occupied for the particular purpose of operating a business.
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(h) “Grocery store” means a business that exists for the primary purpose of selling a range
of food items to consumers for consumption off site, such as canned foods; dry goods;
fresh produce; fresh meats, fish, and poultry; and any area that is not separately owned
within the store where food is prepared and served, including a bakery, deli, and meat
and seafood departments, or as otherwise defined in 14 CCR section 18982(a)(3),
provided that any store that combines grocery items with other retail products or
services is a grocery store for the purpose of this chapter only if two-thirds or more of
the occupied space is designated to the sale of grocery items as listed in this section.
(i) “Hotel” has the meaning provided in section 2.33.010.
(j) “Operate” means to conduct a business and includes all stages of conducting a business
from initial planning to the wind-down of a business, whether or not a profit is being
made.
(k) “Person” means any individual, firm, partnership, joint venture, association,
corporation, limited liability company, estate, trust, receiver, syndicate or other group
or combination acting as a unit and includes the plural as well as the singular number.
(l) “Quarter” means the three-month quarter of the fiscal year. The “first quarter” is the
months of July, August, and September; the “second quarter” is the months of October,
November, and December; the “third quarter” is the months of January, February, and
March; and the “fourth quarter” is the months of April, May, and June. The term “same
quarter of the previous fiscal year” means the quarter of the same number in the
previous fiscal year.
(m) “Square footage” means the rentable square footage used by a business as specified in a
business’s lease or, if the business floor space is owned by the business, as calculated in
the same manner as if the area was rented using commonly accepted standards of
measurement for leasing purposes such as the Standard Methods of Measurement
published by the Building Owners and Managers Association (BOMA). Any method of
measurement used must meet the following minimum standards:
(1) It shall be computed by measuring to the inside finish of permanent outer
building walls and shall include space used by columns and projections necessary
to the building.
(2) It shall include both the area used by the business and a proportionate share of
the building service areas such as lobbies, corridors and other common areas in a
building unless assigned to another business for tax calculation purposes.
(3) It shall not include vertical penetrations through the building such as stairs,
elevators, or heating, ventilation, air conditioning, utility, or telephone systems,
except on the lowest floor of stairs and elevators.
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(4) For the business of renting or leasing property, it shall include area used
primarily for the business operator’s offices and operational facilities.
(5) It shall not include residential uses, including multiple-family use as defined in
section 18.04.030(102), two-family use as defined in section 18.04.030(141),
single-family residential use as defined in section 18.04.030(86)(A)), mobile
home park as defined in section18.04.030(97), residential care homes as defined
in section 18.04.030(124), supportive housing as defined in section
18.04.030(135.5), transitional housing as defined in section 18.04.030(138),
emergency shelter as defined in section 18.04.030(50), and any equivalent
residential use defined by the city.
(6) It shall include hotel as defined in section 18.04.030(73).
(7) Square footage for businesses with multiple locations will be measured and tax
assessed will be calculated based on the aggregate square footage for the
business for all locations in the city.
(n) “Tax Administrator” means the Director of Administrative Services, or successor
position, or their designee.
(o) “Transient Occupancy Tax” means the tax imposed under section 2.33.020.
(p) “Transitory business” means a business that operates in the city for less than 90 days in
the course of one calendar year (such as seasonal sale lots, special events,
concerts/performances/circuses, filming, and party rentals).
(q) “Vacant” means a severable portion of the physical location that a business is
occupying, such as an entire floor, a building, or a portion of a floor with independent
entrance and exit, that is free from any use, fixtures, furniture, and equipment, and is
immediately available for use by a new tenant or owner.
2.37.030 Obligation to Pay Business Tax
(a) It is unlawful for any business operator, either for themselves or for any other person, to
operate in the city any business taxed under this chapter without paying all business tax
required by this chapter.
(b) If a business has more than one business operator, then the payment of the business tax
by one business operator excuses any other business operators from the obligation to
pay the business tax for that period for which the tax has been paid.
(c) The requirement to pay business tax is in addition to and separate from the
requirement to obtain a business registration certificate under section 4.60.030.
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(d) The payment of business tax does not authorize the doing of any act which the person
or business paying the business tax is not otherwise entitled to do and does not excuse
the business from complying with other applicable Code requirements.
2.37.040 Imposition of Business Tax
Any business operator operating a business at a fixed place of business in the city must
pay a business tax at the following rates:
(a) Beginning January 1, 2023, the tax shall be imposed at the following rates:
(1) For the first 10,000 square feet occupied by a business in the city, no tax shall be
imposed.
(2) For each square foot occupied by a business in the city over 10,000 square feet,
a monthly tax of five (5) cents per square foot shall be imposed.
(b) Beginning January 1, 2025, the tax shall be imposed at the following rates:
(1) For the first 10,000 square feet occupied by a business in the city, no tax shall be
imposed.
(2) For each square foot occupied by a business in the city over 10,000 square feet,
a monthly tax of ten (10) cents per square foot shall be imposed.
2.37.050 Annual CPI Adjustment of Tax Rate
(a) Beginning with the 2026-27 fiscal year, and each fiscal year thereafter, the tax rates in
subdivisions (b)(1) and (b)(2) of section 2.37.040 shall be automatically increased by a
percentage equal to the percentage increase in the CPI Index in the previous calendar
year (“the CPI Increase”).
(b) Notwithstanding subdivision (a) of this section, in any year in which the CPI Increase is
more than 5%, the increase in the tax rate will be limited to 5%.
2.37.060 Disposition of Tax Revenue
The tax imposed by this chapter is for the purpose of raising revenue for the general
governmental purposes of the city. All of the proceeds from the tax imposed by this chapter
shall be placed in the city’s general fund.
2.37.070 Exemptions from Tax
(a) The following businesses are exempt from the tax imposed by this chapter:
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(1) Any business exempt from the tax by the laws of the United States or the State
of California;
(2) Grocery stores;
(3) Businesses that occupy or use 10,000 square feet or less in the city; and
(4) Transitory businesses.
(b) If a business operator operates a single integrated business that has two or more parts,
one or more of which could be exempt from the tax imposed by this chapter if operated
as a separate business, the city may, at its discretion, exempt from the tax any part of
the business that would be exempt if operated as a separate business, provided the
business’s square footage can be reasonably allocated between the parts. If the city
determines that the square footage cannot be reasonably allocated between the
different parts of the business, then the entire business shall be taxed, unless to do so
would violate a law of the United States or the State of California.
2.37.080 Business Tax Offsets
(a) A business operator that operates a hotel in the city may deduct from the business tax it
owes for a quarter for the business of operating the hotel an amount equal to the total
transient occupancy tax collected and remitted to the city in the same quarter of the
previous fiscal year from transients staying at the hotel.
(b) The business operator of a business that has discretion to determine the location of the
place of sale, place of use, or principal place of negotiation for sales or use tax purposes
and which exercises that discretion and designates the city as the place of sale, place of
use, or principal place of negotiation for sales or use tax purposes which results in the
city receiving sales or use tax revenues that it would not otherwise have received, but
for the business’s exercise of its discretion to designate the city as the place of sale,
place of use, or principal place of negotiation for sales or use tax purposes
(“Discretionary Sales or Use Tax Sales”) may deduct from the business tax it owes for a
quarter an amount equal to one half of the total sales tax or use tax received by the city
from the Discretionary Sales or Use Tax Sales of that business in the same quarter of the
previous fiscal year. This offset can offset up to, but no more than, 75% of the business’s
quarterly business tax. The city and a business operator may enter into an agreement
implementing this section.
(c) A business claiming an offset under this section must claim the offset with its tax filing
for the quarter for which the offset is claimed.
(1) If the information necessary for a business to claim an offset is not available, the
business may defer claiming an offset for up to one year or for another period of
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time set by written agreement with the city.
(2) The Tax Administrator may require a business claiming an offset to submit
additional information to support the claim of the offset. The request for
additional information must be made in writing and the information must be
provided within thirty (30) days.
(3) If the Tax Administrator determines that an offset claimed by a business is
incorrect, the Tax Administrator may make an Initial Determination of the
amount, if any, of the offset and the amount of tax due under section
2.37.150(a).
2.37.090 Quarterly Tax Payments
(a) The tax imposed by this chapter shall be paid quarterly. The tax for each quarter is due
the first day of the following quarter and is delinquent thirty (30) days later.
(b) For the first quarter in which a business begins operating in the city, the business’s tax
shall be prorated for the number of days that the business was operating in the quarter.
(c) For the last quarter in in which a business operates in the city before closing, the
business’s tax shall be prorated for the number of days that the business was operating
in the quarter.
2.37.100 Business Tax Filing for a New Business
When a business begins operating in the city for the first time, the business operator
must provide the Tax Administrator with the following information, verified by the business
operator as true and correct under penalty of perjury of the laws of the State of California,
before beginning the operation of the business in the city:
(a) The name of the business and the address or addresses at which it will be operating in
the city;
(b) The date on which the business will begin operating;
(c) The nature of the business’s activities;
(d) The square footage in which the business will be operating in the city; and
(e) Any other information required by the Tax Administrator.
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2.37.110 Quarterly Tax Returns
With each quarterly tax payment, a business operator must submit a quarterly tax
return which contains the following information, verified by the business operator as true and
correct under penalty of perjury of the laws of the State of California:
(a) The name of the business and the address or addresses at which it is operating in the
city;
(b) The nature of the business’s activities;
(c) The square footage in which the business is operating in the city;
(d) If the business operator claims an offset under section 2.37.080, sufficient information
and documentation to establish the business’s right to the offset and the amount of the
offset;
(e) Any other information required by the Tax Administrator; and
(f) The amount of tax due based on the square footage of the business.
2.37.120 Agreements for Installment Payments
The Tax Administrator may enter into an agreement with a business operator to allow a
business operator to pay the tax on a more or less frequent basis.
2.37.130 Businesses Operating in the Same Location
(a) Each business operator operating a business in a location where one or more other
business are also operating is obligated to pay business tax measured by the square
footage occupied by that business.
(b) The payment of business tax by a business operator absolves any other business
operator from having to pay business tax measured by the same square footage.
(c) Two or more business operators that are operating businesses in the same square
footage may contractually agree which business will pay the business tax measured by
that square footage.
2.37.140 Delinquent Taxes (Penalties and Interest)
(a) When a tax becomes delinquent, a penalty of 10% of the amount of the delinquent tax
will be added to the amount of tax due. If the tax remains unpaid sixty (60) days after
becoming delinquent, an additional penalty of 25% of the amount of the delinquent tax
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(excluding accrued interest and the initial penalty) will be added to the amount of tax
due.
(b) On the first of each month that a tax is delinquent, interest in the amount of 1.5% of the
delinquent amount, excluding penalties and interest, will be added to the amount of tax
due.
(c) A business operator may apply to the Tax Administrator for a reduction or waiver of any
accrued penalties or interest, and the Tax Administrator may reduce or waive any
accrued penalties or interest upon a finding of good cause.
2.37.150 Administrative Procedure to Assess or Correct Tax
(a) If the Tax Administrator determines that a business operator has incorrectly reported
any information to the city or has not paid all or any of the tax, penalties, or interest
that are due, the Tax Administrator may, using any information available to the Tax
Administrator, issue an Initial Determination stating what the Tax Administrator believes
to be the correct information and, if new or additional tax, penalties, or interest are due,
how much tax, penalties, or interest are due. An Initial Determination must be issued
within five (5) years of the last day of the quarter to which the Initial Determination
applies, except in the case of an audit conducted under section 2.37.200, in which case
it must be issued within ninety (90) days of the completion of the audit and can apply to
any of the quarters that were subject to the audit. The Initial Determination shall be
served on the business operator either personally or by U.S. mail to the most recent
address for the business operator in the Tax Administrator’s records. Service is effective
upon deposit of the Initial Determination in the U.S. Mail.
(b) A business operator affected by an Initial Determination may within fifteen (15) days of
service of an Initial Determination contest the Initial Determination and request a
hearing before the Tax Administrator by filing with the Tax Administrator a written
request for a hearing. The further accrual of penalties and interest shall be tolled upon
the filing of a request for a hearing. If a business operator does not contest an Initial
Determination and request a hearing with the Tax Administrator within fifteen (15) days
of service of the Initial Determination, the Initial Determination shall become final and
cannot be appealed.
(c) If a business operator timely contests an Initial Determination and requests a hearing,
the Tax Administrator shall set a hearing within thirty (30) days of the filing of the
request for a hearing. Notice of the hearing shall be served on the business operator
either personally or by U.S. mail to the most recent address for the business operator in
the Tax Administrator’s records.
(d) At the hearing the business operator may present evidence and argument regarding the
Initial Determination to show why the Initial Determination is incorrect and to show
what the determination of the Tax Administrator should be. Within sixty (60) day after
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the close of the hearing, the Tax Administrator shall serve a Final Determination, setting
forth the Tax Administrator’s determination of the facts and issues that were the subject
of the Initial Determination. The Final Determination shall be served on the business
operator either personally or by U.S. mail to the most recent address for the business
operator in the Tax Administrator’s records. Service is effective upon deposit of the Final
Determination in the U.S. Mail. Unless an appeal of a Final Determination is filed under
section 2.37.170, any penalties or interest tolled under subdivision (b) of this section will
resume accruing ten (10) days after the service of the Final Determination.
2.37.160 General Administrative Remedy
(a) Any person affected by a decision of the Tax Administrator (“the challenger”), except for
decisions under section 2.37.150, may challenge that decision by filing a written
objection to the decision with the Tax Administrator. The objection must be filed within
fifteen (15) days of the issuance of the decision being challenged. If the Tax
Administrator was required to provide notice of the decision, then the time to file an
objection to the decision begins to run from the date of service of the notice of the
decision. The Tax Administrator shall serve a written response to the objection within
thirty (30) days of the filing of the objection, which period can be extended by the Tax
Administrator for an additional thirty (30) days. The Tax Administrator’s response to the
objection shall be served on the challenger either personally or by U.S. mail to the most
recent address for the challenger in the Tax Administrator’s records.
(b) The challenger may request a hearing on the Tax Administrator’s response to the
objection by filing a request for a hearing with the Tax Administrator within fifteen (15)
days of service of the response to the objection. If a timely request for a hearing on a
response to the objection is filed with the Tax Administrator, the Tax Administrator shall
set a hearing within thirty (30) days of the filing of the request for a hearing. Notice of
the hearing shall be served on the challenger either personally or by U.S. mail to the
most recent address for the challenger in the Tax Administrator’s records.
(c) At the hearing the challenger may present evidence and argument regarding the
decision being challenged to show why the decision is incorrect and to show what it
should be. Within sixty (60) days after the close of the hearing, which the Tax
Administrator may extend for an additional sixty (60) days, the Tax Administrator shall
serve a Final Determination on the decision, setting forth the Tax Administrator’s
determination of the decision that was challenged. The Final Determination shall be
served on the challenger either personally or by U.S. mail to the most recent address for
the challenger in the Tax Administrator’s records. Service is effective upon deposit of
the Final Determination in the U.S. mail.
2.37.170 Appeals
(a) A Final Determination of the Tax Administrator under section 2.37.150, subdivision (d),
or section 2.37.160, subdivision (c), can be appealed to the City Manager by filing a
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written notice of appeal with the City Manager within fifteen (15) days of service of the
notice of the Final Determination being appealed.
(b) Only a business operator who files a timely request for a hearing on an Initial
Determination under section 2.37.150 and participates in the hearing or a challenger
who files an objection to a decision and files a request for a hearing on the response to
the objection under section 2.37.160 and participates in the hearing can file an appeal
under this section.
(c) If a timely appeal is filed with the City Manager, the City Manager, or the City Manager’s
designee, shall set a hearing within thirty (30) days of the filing of the appeal, which may
be extended by the City Manager for an additional thirty (30) days. Notice of the hearing
shall be served on the appellant either personally or by U.S. mail to the most recent
address for the challenger in the Tax Administrator’s records. The tolling of the accrual
of penalties or interest under section 2.37.150, subdivision (b), shall continue upon the
timely filing of an appeal under this section.
(d) At the hearing the appellant and the Tax Administrator may present evidence and
argument regarding the decision being appealed to show why the decision is correct or
incorrect and to show what it should be. Within sixty (60) days after the close of the
hearing, which the City Manager or the City Manager’s designee may extend for an
additional sixty (60) days, the City Manager or the City Manager’s designee shall serve a
written decision, setting forth the resolution of the appeal. The decision shall be served
on the appellant either personally or by U.S. mail to the most recent address for the
appellant in the City Manager’s records. Service is effective upon deposit of the decision
in the U.S. Mail. Any penalties and interest that were tolled under section 2.37.150,
subdivision (b), shall resume accruing ten (10) days after the service of the decision.
(e) A decision of the City Manager, or the City Manager’s designee, served under
subdivision (d) of this section is subject to judicial review under sections 1094.5 and
1094.6 of the Code of Civil Procedure with a writ petition filed in the appropriate court
within ninety (90) days of the service of the written decision. Any tax, penalties, or
interest determined by the decision to be owed to the city by the appellant must be
paid to the city as a precondition to filing a writ petition challenging the decision, but a
claim for a refund under section 2.37.190 does not have to be filed before filing a writ
petition.
2.37.180 Constitutional Apportionment
(a) No tax imposed by this chapter shall be applied to a business operator so as to
constitute an undue burden on interstate commerce or intercity commerce or be
violative of the equal protection or due process clauses of the United States or California
constitutions.
(b) A business operator who contends that the application of a tax imposed by this chapter
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on the business operator constitutes an undue burden on interstate commerce or
intercity commerce or violates the equal protection or due process clauses of the United
States or California constitutions may apply to the Tax Administrator for an
apportionment of the tax imposed on the business operator that would remove the
constitutional violation by filing a written request with the Tax Administrator that
explains the factual and legal basis for the claimed constitutional violation and proposes
a method of apportionment that would resolve the alleged constitutional violations.
(c) The Tax Administrator, in consultation with City Attorney, shall review the application
and within sixty (60) days of the filing of the application, which deadline may be
extended for an additional sixty (60) days, issue a decision on the application. The
decision on the application shall be served on the business operator either personally or
by U.S. mail to the most recent address for the challenger in the Tax Administrator’s
records. The decision can be challenged under section 2.37.160.
2.37.190 Refunds
(a) A business operator who believes that any tax, penalty, or interest has been illegally,
erroneously, or mistakenly paid to, collected by, or otherwise received by the city may
file a claim for a refund of the amount of tax, penalty, or interest claimed to have been
improperly received by the city.
(b) The claim must be filed with the Tax Administrator and signed under penalty of perjury
by the business operator. The claim must state:
(1) The legal and factual basis for the refund claim;
(2) The amount of tax, penalty, or interest allegedly improperly received by the city;
(3) The date or dates that the improper payments were made to the city; and
(4) The address of the claimant.
(c) The claim must be filed with the Tax Administrator within one (1) year of the date of the
allegedly improper payment to the city.
(d) The Tax Administrator shall provide a written decision on the claim within thirty (30)
days of the filing of the claim by serving the decision on the claimant either personally
or by U.S. mail to the address provided in the claim. Service is effective upon deposit of
the response in the U.S. Mail.
(e) A claimant may challenge the Tax Administrator’s decision on a refund claim under
section 2.37.160.
(f) This section does not apply to:
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(1) A claim for a refund arising out of a decision of the Tax Administrator, City
Manager, or City Manager’s designee under sections 2.37.150, 2.37.160,
2.37.170, or 2.37.190; or
(2) A claim that could have been asserted by the claimant, but was not, under
sections 2.37.150, 2.37.160, 2.37.170, or 2.37.190.
2.37.200 Audits
(a) The Tax Administrator may conduct an audit of any business operator to ensure proper
compliance with the requirements of this chapter.
(b) To initiate an audit the Tax Administrator shall provide written notice to the business
operator that is the subject of the audit of the initiation of the audit by serving the
notice personally or by U.S. mail to the most recent address for the business operator in
the Tax Administrator’s records. The notice shall state the period of time subject to the
audit.
(c) Notice of the initiation of an audit for a quarter for which either a business tax filing for
a new business or quarterly tax return was submitted under section 2.37.100 or section
2.37.110 must be served within five (5) years of the last day of the quarter to which the
filing or return applied.
(d) Notice of the initiation of an audit for a quarter for which neither a business tax filing for
a new business nor a quarterly tax return was submitted under section 2.37.100 or
section 2.37.110, but for which the business was registered as a business under section
4.60.030, must be served within seven (7) years of the last day of the quarter for which
the filing or return should have been filed.
(e) Notice of the initiation of an audit for a quarter for which neither a business tax filing for
a new business nor a quarterly tax return was submitted under section 2.37.100 or
section 2.37.110, and for which the business was not registered as a business under
section 4.60.030, must be served within ten (10) years of the last day of the quarter for
which the filing or return should have been filed.
(f) Upon completion of an audit, the Tax Administrator may make an Initial Determination
under subdivision (a) of section 2.37.150 of any taxes, penalties, and interest
determined to be owed and not paid for the audit period. The Initial Determination
must be issued within ninety (90) days of the completion of the audit. If a business
operator subject to audit is unable or unwilling to provide sufficient records to enable
the Tax Administrator to verify compliance with this chapter, the Tax Administrator is
authorized to make a reasonable estimate of the amount of tax due and the reasonable
estimate shall be entitled to a rebuttable presumption of correctness.
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2.37.210 Maintenance and Review of Records
(a) Business operators must maintain for six (6) years records of square footage and
information necessary to calculate the tax. If the Tax Administrator serves notice of the
initiation of an audit, the information pertinent for the quarters subject to the audit
must be maintained until the conclusion of the audit.
(b) The Tax Administrator may with reasonable notice inspect the premises and records of
the business operator.
(c) The Tax Administrator may request the city council to issue an administrative subpoena
for records of a business operator or other persons with relevant information.
2.37.220 Confidentiality of Records
All documents submitted to the city by a business operator under this chapter and all
documents of a business operator inspected by the Tax Administrator in the conduct of an audit
are presumed to be confidential and will not be subject to public inspection to the fullest extent
allowed by law and must be maintained so that the contents of the documents will not become
known except to persons charged with the administration of this chapter. Confidential
documents may be shared with consultants retained by the city to aid in the administration of
this chapter, provided the consultants agree to maintain the confidentiality of the documents.
However, nothing in this section precludes the city from aggregating information and releasing
it in a manner that does not identify any particular business or connect any information with a
particular business.
2.37.230 Action to Collect Delinquent Taxes
(a) Any tax, penalty, and interest imposed on a business operator under this chapter is a
debt owed by the business operator to the city, which may be recovered in an action
filed by the city in a court of competent jurisdiction.
(b) An action under this section shall be filed within three (3) years of an Initial
Determination becoming final under subdivision (b) of section 2.37.150, the issuance of
a Final Determination under subdivision (d) of section 2.37.150 that is not appealed, the
issuance of a Final Determination under subdivision (c) of section 2.37.160 that is not
appealed, or the issuance of a decision under subdivision (d) of section 2.37.170.
(c) During the pendency of an action filed under this section, interest will continue to
accrue under subdivision (b) of section 2.37.140 until the entry of judgment.
(d) Before filing an action, the city may serve the business operator either personally or by
U.S. mail at the most recent address for the business operator in the Tax Administrator’s
records with notice of the pending action and give the business operator fifteen (15)
days to pay all of the delinquent taxes, penalties, and fees. If all of the of the delinquent
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taxes, penalties, and fees are not paid within the fifteen-day period, then an additional
penalty of 25% of the amount of the delinquent tax (including accrued penalties and
interest) shall be added to the total delinquency and may be recovered in the action.
2.37.240 Errors Not Binding on the City
No error by the Tax Administrator or any other officer, employee, or agent of the city in
the application of this chapter shall prevent, prejudice, or estop the collection by or for the city
of the full amount of tax owed by any person under this chapter.
2.37.250 Dates
If the last day for the performance of any act under this chapter is a Saturday, Sunday,
or holiday recognized by the city, then the date for the performance of that act is extended to
the next day that is not a Saturday, Sunday, or holiday recognized by the city.
2.37.260 Rules and Regulations
(a) The Tax Administrator may adopt rules and regulations that are not inconsistent with
the provisions of this chapter as may be necessary to aid in the application and
enforcement of this chapter.
(b) The Tax Administrator may adopt rules providing for the service or filing of any notices,
filings, returns, or submittals required by this chapter. These rules may provide
alternative means for serving or filing any notice, filing, return, or submittal, and may
clarify the method of serving or filing any notice, filing, return, or submittal provided for
in this chapter.
2.37.270 City Council Amendments
(a) The city council may amend this chapter in any way it deems necessary without the
approval of the electorate, provided the amendment does not increase the amount of
tax that any person would pay.
(b) Any amendment to this chapter that would reduce the amount of tax any taxpayer
would pay, either temporarily or permanently, must be approved by two-thirds (2/3) of
the members of the city council.
(c) Notwithstanding subdivision (a) of this section, the city council may with the approval of
two-thirds (2/3) of its members and without approval of the electorate reduce, revise,
or eliminate any of the business tax offsets in section 2.37.080.
2.37.280 Severability
If any word, phrase, sentence, part, section, subsection, or other portion of this chapter,
or any application thereof to any person or circumstance is declared void, unconstitutional, or
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invalid for any reason, then such word, phrase, sentence, part, section, subsection, or other
portion, or the prescribed application thereof, shall be severable, and the remaining provisions
of this chapter, and all applications thereof, not having been declared void, unconstitutional or
invalid, shall remain in full force and effect. The People of the City of Palo Alto hereby declare
that they would have passed this ordinance, and each section, subsection, sentence, clause and
phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences,
clauses or phrases had been declared invalid or unconstitutional.
2.37.290 Savings Clause
No section, clause, part, or provision of this chapter shall be construed as requiring the
payment of any tax that would be in violation of the Constitution or laws of the United States of
America or of the Constitution or laws of the State of California.
2.37.300 Sunset
The tax imposed by this Chapter shall cease to be imposed on January 1, 2058.
SECTION 2. Implementation Procedures
1. The new tax imposed by this ordinance will go into effect on January 1, 2023.
2. Notwithstanding sections 2.37.090, 2.37.100, and 2.37.110 of the codified part of this
ordinance, the tax imposed by this ordinance will initially be due on the following schedule:
(a) The initial tax payment for the tax that has accrued since January 1, 2023 will be
due on January 1, 2024, or on a subsequent date established by the Tax Administrator and will
be delinquent 30 days later if not paid.
(b) With its initial tax payment, each business shall provide the following
information:
(1) The name of the business and the address or addresses at which it will be
operating in the city;
(2) The nature of the business’s activities;
(3) The square footage in which the business will be operating in the city;
(4) If the business operator claims an offset under section 2.37.080,
sufficient information and documentation to establish the business’s
right to the offset and the amount of the offset;
(5) Any other information required by the Tax Administrator; and
(6) The amount of tax due based on the square footage of the business.
NOT YET APPROVED
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(c) A business that begins operating for the first time after January 1, 2023, must
submit its initial tax payment and initial information by the date provided in this uncodified
section or by the date provided in codified section 2.37.090, whichever is later.
SECTION 3. General Tax. Proceeds of the tax imposed by this Ordinance shall be
deposited in the general fund of the City and shall be available for any legal purpose.
SECTION 4. Effective Date. This ordinance shall be effective only if approved by a majority
of the voters and shall go into effect immediately after the vote is declared by the City Council.
SECTION 5. Execution. The Mayor is hereby authorized to attest to the adoption of this
Ordinance by the voters of the City by signing where indicated below.
I hereby certify that the foregoing Ordinance was PASSED, APPROVED and ADOPTED by
the People of the City of Palo Alto voting on the 8th day of November, 2022.
ATTEST:
__________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
City Attorney City Manager
___________________________
Director of Administrative Services
NOT YET APPROVED
Resolution No. ____
Resolution of the Council of the City of Palo Alto
Adopting Advisory Spending Guidelines for Proceeds of a Business Tax
to be Submitted to the Voters for Approval in November 2022
R E C I T A L S
A.The City of Palo Alto is a well-run municipality, with a Triple-A bond rating and a
reputation for pro-active fiscal management, strong ongoing investments in public infrastructure,
and conservative financial planning. However, the impacts of COVID-19, the subsequent economic
downturn, and legal challenges to longstanding historic revenue sources have contributed to a
projected budget gap in the City of Palo Alto’s general fund.
B.Unlike most communities in California, the City of Palo Alto does not require local
businesses to contribute to city projects and services through a local business tax. As Palo Alto looks
to the future, City leaders have determined that the time has come to seek voter approval to tax
mid-sized and large businesses operating in the City as neighboring communities do. Diversifying
revenues with contributions from business will ensure that businesses pay a fair share and
contribute to services used by residents, visitors and workers in the community.
C.If a business tax is approved by voters, its proceeds will be placed in the City’s general
fund for use on general government services. Council Members elected by the voters will determine
the uses of those proceeds that best serve the public interest.
D.With this Resolution, the City Council informs voters of its intentions regarding the public
services and programs that would be supported by business tax revenues.
Accordingly the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. This Resolution No. ____ updates and supersedes Resolution No. _____, which is
hereby repealed and shall be of no force or effect.
SECTION 2. Council hereby adopts the above Recitals as findings of the Council.
SECTION 3. It is the Council’s intention to use proceeds of a business tax—a general tax for
general government uses—to fund new and enhanced services and programs that support safety
and quality of life. The Council approves the following advisory spending guidelines:
One-Third for Transportation and Safe Train Crossings. In the coming years, Palo Alto will need
to need to invest substantial local funds in the improvement and safety of train crossings. CalTrain is
electrifying and trains are increasing in number. To maintain traffic flow, bicycle and pedestrian
mobility, and safety, the City’s four at-grade road crossings must be modified and separated from
the train right-of-way. It is estimated that an average investment of $250 million will be needed for
the improvements needed at each crossing. City funds will be used as matching funds to secure
additional county, state, and federal funds for these investments in transportation infrastructure.
Attachment C
NOT YET APPROVED
The Council plans to spend one-third of business tax proceeds on safe and efficient crossings for
vehicles, bicyclists, and pedestrians.
One-Third for Housing Affordability and Services for the Unhoused. A balanced and healthy
community welcomes families and individuals from all walks of life. In Palo Alto, significant
investments are needed to bring housing costs into reach for many moderate earners who work in
the City, such as teachers, public safety employees, and workers in the trades and service
industries. With few affordable local housing options, these workers must travel long distances
between home and work, contributing to green-house gas emissions and traffic congestion. In
addition, longtime residents—especially those who rent—are at risk of losing housing and being
forced to relocate to other communities or become unhoused. Those who are already living in the
City without housing need financial support to transition to stable, safe and clean housing.
Substantial funding is needed to advance these goals. The Council plans to spend one-third of
business tax proceeds on affordable housing and unhoused services.
One-Third for Public Safety. Rising costs and constrained revenues have limited the City’s ability
to provide public safety services—including police, fire, 911, and emergency services—at the level
desired by the community. Stable long-term revenues from a business tax will put these highly-
valued City services on sound footing into the future. The Council plans to spend one-third of
business tax proceeds on public safety.
SECTION 4. The Council finds that adoption of this Resolution is not a project under the
California Environmental Quality Act and, therefore, no environmental impact assessment is
necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST: APPROVED:
__________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM:
__________________________ ____________________________
City Attorney City Manager
Not Yet Approved
Resolution No. ______
Resolution of the Council of the City of Palo Alto Calling an Election for
November 8, 2022 for Submittal to the Qualified Electors of the City a Measure
Affirming the City’s Natural Gas Utility General Fund Transfer
R E C I T A L S
A.Pursuant to the City of Palo Alto Charter, Article VII, Section 2 (Public Utilities
Revenue) the City of Palo Alto has had a decades-long practice of annually transferring funds
from the natural gas utility to the general fund to fund general city services.
B.In 2021, in the case of Green v. City of Palo Alto, Santa Clara County Superior Court
No. 16CV300760, the Superior Court determined that voter approval is required with respect to
a portion of the transferred funds that are generated from retail natural gas rates.
C.The natural gas utility transfer is an important part of funding for basic City
services such as roads, parks, libraries, climate change reduction, and police, fire, emergency
medical, and 9-1-1 response. Affirming the continuation of the City’s long-standing transfer
practice does not raise natural gas rates above current levels.
D.A proposed ordinance attached hereto and incorporated herein by reference as
Attachment “A” (the “Ordinance”) would amend the Palo Alto Municipal Code to affirm Palo
Alto’s existing and decades-old practice of annually transferring up to 18% of the gross revenues
of the gas utility (generated by retail natural gas rates) to the general fund to support general
city services.
E. By its Resolution No. 10045 the City Council called a general municipal election for
November 8, 2022 (“Election”).
F.Pursuant to Government Code Section 53724 and Elections Code Section 9222,
the City Council desires to submit the Ordinance to the voters of the City.
The City Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Findings. The City Council finds and determines that each of the findings
set forth above are true and correct.
SECTION 2. General Tax Election. The City Council proposes to impose the general tax
set forth in the Ordinance and to present this proposal to the voters on November 8,
2022.
SECTION 3. Measure. Pursuant to Elections Code Section 9222, the City Council hereby
submits the Ordinance to the voters at the Election and orders the following question to be
submitted to the voters at the Election:
Attachment D
NOT YET APPROVED
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Shall the measure affirming the City of Palo Alto’s existing
and decades-old practice of annually transferring no more
than 18% of the gross revenues from the City’s natural gas
utility (generated by the City’s retail natural gas rates) to its
general fund to support general city services such as roads;
parks; libraries; climate change reduction; police, fire,
emergency medical, and 9-1-1 response; providing
approximately $7 million annually in existing revenues until
ended by voters, be adopted?
YES
NO
This question requires the approval of a majority of those casting votes.
SECTION 4. Adoption of Measure. The measure to be submitted to the voters is
attached to this Resolution as Attachment A and incorporated herein by this reference.
SECTION 5. Notice of Election. Notice of the time and place of holding the Election is
hereby given, and the City Clerk is authorized, instructed and directed to give further or additional
notice of the Election, in time, form and manner as required by law.
SECTION 6. Impartial Analysis. Pursuant to Elections Code Section 9280, the City
Council hereby directs the City Clerk to transmit a copy of the measure to the City Attorney. The
City Attorney shall prepare an impartial analysis of the measure, not to exceed 500 words in
length, showing the effect of the measure on the existing law and the operation of the measure,
and transmit such impartial analysis to the City Clerk on or before August 23, 2022.
SECTION 7. Ballot Arguments. Pursuant to Elections Code Section 9286 et. seq.,
August 16, 2022 at 5:00 p.m. shall be the deadline for submission of arguments in favor of, and
arguments against, any local measures on the ballot. If more than one argument for and/or
against is received, the priorities established by Elections Code Section 9287 shall control.
SECTION 8. Rebuttal Arguments. The provisions of Elections Code Section 9285 shall
control the submission of any rebuttal arguments. The deadline for filing rebuttal arguments shall
be August 23, 2022 at 5:00 p.m.
SECTION 9. Consolidation Request. The Council of the City of Palo Alto requests the
governing body of any other political subdivision, or any officers otherwise authorized by law, to
partially or completely consolidate such elections and the City Council consents to such
consolidation. The Council requests the Board of Supervisors of Santa Clara County to include on
the ballots and sample ballots, all qualified measures submitted by the City Council to be ratified
by the qualified electors of the City of Palo Alto. The Council acknowledges that the Election will
be held and conducted according to procedures in the Elections Code, including Section 10418.
SECTION 10. Request for County Services. Pursuant to Section 10002 of the Elections
Code, the Council of the City of Palo Alto hereby requests the Board of Supervisors of Santa Clara
County to permit the Registrar of Voters to render services to the City of Palo Alto relating to the
NOT YET APPROVED
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conduct of Palo Alto’s General Municipal and Special Elections which are called to be held on
Tuesday, November 8, 2022. The services shall be of the type normally performed by the
Registrar of Voters in assisting the clerks of municipalities in the conduct of elections including,
but not limited to, checking registrations, mailing ballots, hiring election officers and arranging
for polling places, receiving absentee voter ballot applications, mailing and receiving absent voter
ballots and opening and counting same, providing and distributing election supplies, and
furnishing voting machines.
SECTION 11. Transmittal of Resolution. The City Clerk is hereby directed to submit
forthwith a certified copy of this resolution to the Santa Clara County Board of Supervisors and
to the Registrar of Voters.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSENTIONS:
ATTEST: APPROVED:
_____________________________ ______________________________
City Clerk Mayor
______________________________
APPROVED AS TO FORM: City Manager
_____________________________ ______________________________
City Attorney Director of Administrative Services
NOT YET APPROVED
4
Attachment A
Ordinance No. _____
Ordinance of the Council of the City of Palo Alto Amending Chapter 2.28 (Fiscal
Procedures) of Title 2 of the Palo Alto Municipal Code to Authorize the City
Council to Continue to Annually Transfer from the Natural Gas Utility to the
General Fund an Amount Equal to 18% of the Gross Revenues of the Natural Gas
Utility, Generated by the City’s Retail Natural Gas Rates
The People of the City of Palo Alto do ordain as follows:
SECTION 1. Chapter 2.28 of the Palo Alto Municipal Code is hereby amended by adding
Section 2.28.185 as follows:
Chapter 2.28
FISCAL PROCEDURES
2.28.185 Natural Gas Utility Transfer
Each fiscal year the City Council may transfer from the natural gas utility to the general fund an
amount equal to 18% of the gross revenues of the gas utility received during the fiscal year two
fiscal years before the fiscal year of the transfer. At its discretion, the City Council may decide to
transfer a lesser amount. The projected cost of the transfer shall be included in the City’s retail
natural gas rates as part of the cost of providing gas service.
SECTION 2. General Tax. Proceeds of the tax imposed by this Ordinance shall be
deposited in the general fund of the City and shall be available for any legal purpose.
SECTION 3. Amendment or Repeal. The City Council may repeal Section 2.28.185 of the
Palo Alto Municipal Code or amend that Section without a vote of the people except that any
amendment to Section 2.28.185 that increases the amount or rate of tax due from any person
beyond the amounts and rates authorized by this Ordinance may not take effect unless approved
by a vote of the people.
SECTION 4. Severability. If any section, subsection, sentence, clause, phrase, or portion
of this Ordinance is for any reason held to be invalid or unenforceable by a court of competent
jurisdiction, the remaining portions of this Ordinance shall nonetheless remain in full force and
effect. The people hereby declare that they would have adopted each section, subsection,
sentence, clause, phrase, or portion of this Ordinance, irrespective of the fact that any one or
more sections, subsections, sentences, clauses, phrases, or portions of this Ordinance be
declared invalid or unenforceable.
SECTION 5. Effective Date. This ordinance shall be effective only if approved by a majority
of the voters and shall go into effect immediately after the vote is declared by the City Council.
NOT YET APPROVED
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Attachment A
SECTION 6. Execution. The Mayor is hereby authorized to attest to the adoption of this
Ordinance by the voters of the City by signing where indicated below.
I hereby certify that the foregoing Ordinance was PASSED, APPROVED and ADOPTED by
the People of the City of Palo Alto voting on the 8th day of November, 2022.
ATTEST:
__________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
City Attorney City Manager
___________________________
Director of Administrative Services