City Council - Special Meeting

OK, it is 533. I will call the special meeting of the Milpita City Council of August 3rd, 2026 to order. This meeting is being broadcast via Zoom. Members of the public are invited to provide public comment either in person or remotely via Zoom. So the meeting is also available with live translation in more than 60 languages through the app called Wordly. Translation is accessible by mobile phone, computer, or the video displays in the console chambers by scanning the QR code located on the upper right-hand corner of the agenda of the title page. So city staff, please verify that virtual participation is available and operating.

It is available, Mayor.

Okay, with that, we'll move on to today's business. City Clerk Guzzetta, please take the role.

Vice Mayor Barbadio. Council Member Chua.

Here.

Council Member Lam. Here. Council Member Lien.

Here.

Mayor Montano. And I'm here.

Okay, now we'll rise for the Pledge of Allegiance. Are you ready? I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation under God, indivisible, with liberty and justice for all. Thank you, everyone. So we will now open the public forum. This is the opportunity for members of the public to address the city council on the agenda items listed for this special meeting. Public comment may be provided either in person or remotely via Zoom. Individual speakers will have two minutes to address the city council. Are there any speaker cards?

Mayor, I have one speaker card. That is from Rob Means. OK, welcome.

Just before I start, I wanted to clarify that during the public forum in a special session, one can only talk about what is actually on the agenda rather than how it's normally handled where you can talk about anything that's not on the agenda. Have I got this?

Is that correct, city attorney?

That's correct. OK. So as a local business, Loopworks is impacted by the business tax that goes into the general fund. And I'm hoping that you don't mismanage that tax fund as the VTA has been accused of doing. Specifically, the civil grand jury report entitled VTA's Management and Oversight of BART Silicon Valley Phase II called out VTA for mismanaging the $12 billion megaproject. As stated in the report summary, despite significantly reduced ridership projections and uncertainty about funding sources for both capital and operating expenses, VTA has awarded major construction contracts. An independent peer review of the project urged VTA to move quickly to build as, and this is in quotes from their advice, build as much as you can as fast as you can. Such an approach, continuing what the grand jury said, such an approach assumes that there will be political will and taxpayer support to support, to finish an incomplete project regardless of cost increases, delays, or reduced ridership. Now we know, historically, this mega project, $12 billion BART borough, has had cost increases, where it's tripled its price, delays of 10 years and more, and reduced ridership based on real world numbers. In other words, I want you to avoid doing what the VTA is doing with our money, our tax money. Thank you.

Okay, thank you. Is there anyone else? We have no additional public speaker cards, and I will now ask for any speakers that we might have on Zoom. Speakers would be called by name. If you're participating via Zoom and wish to address the City Council, please click the raise hand button, or if you are participating by telephone, dial star nine to raise your hand.

have no hands raised on zoom mayor okay thank you uh is there anyone from the audience that would like to come and speak on any item that is not on the agenda right now is the time okay we have mr montemayor just a small clarification mayor since it is a special meeting it should be limited to items that are on the agenda okay so it has to be limited to items that are on the agenda

Yeah, go FD.

Oh, yeah. Is this similar to the, I think it's not two-thirds vote, but four-fifths. I think it may end up in a majority vote. Thank you.

Yeah, thank you. Is there anyone else that would like to? to speak on this, to speak on the item that is on the agenda. So I know we have some new, I met you outside when I went to go get my glasses, the one with the young children. Did you have anything to say? This is the public forum? Okay. All right, thank you. So moving on to the announcements of conflict of interest and campaign contributions, we have our city attorney, Christian Curtis.

uh thank you mayor at this time i would ask the mayor and each member of the city council whether he or she has any financial or personal conflict of interest related to any of the items on tonight's agenda vice mayor barbadio i have none council member chua none council member lamb none council member lian none mayor montano none i would ask that the record report no conflict At this time I would also ask the Mayor and the members of the Milpita City Council to please disclose any campaign contributions of $100 or more received within the last 12 months from any of the parties entering into contracts with the City on tonight's agenda or contributions received from the development project applicant for development projects on tonight's agenda.

Vice Mayor Barbadio?

None.

Council Member Chua? None. Council Member Lamb?

None.

Council Member Leigh-Anne? None. Mayor Montano? None.

I would again ask the record report no conflicts.

Okay. Thank you for that. So now we'll read the city code of conduct. Is there anyone that would like to volunteer to read it? Council Member Chua, would you like to read it?

Thank you, Mayor. Movita City Code of Conduct. Be respectful and courteous. Words, tone, and body language is important. Model civility. Avoid surprises. Praise publicly and criticize privately. Focus on the issue, not the person. Use electronic devices appropriately while on the dais. Disclose conflict of interest and affiliation related to agenda items. Separate governing from campaigning. The council speaks with one voice after making policy on issues. Respect the line between policy and administration. Council will hold one another accountable to comply with this code of conduct. Thank you, Mayor.

Thank you for that. Okay, now moving on to the approval of the agenda. Is there anyone that would like to make any changes? Okay, seeing none, so moved. So it was a motion by Council Member Chua. Is there a second? And it was seconded by Council Member Lien. So let's call for the vote.

Vice Mayor Barbadio?

Aye.

Council Member Chua? Aye. Council Member Lam?

Aye.

Council Member Lien? Aye. Mayor Montano?

Aye. Okay, so now we're moving on to the agenda items. City Manager? Aye. Willie Thomas. I was going to say Willie Thomas. I had a friend, his name was Willie Thomas from Milpitas High School. He just passed away a couple weeks ago. But anyway, Willie Hopkins, city manager.

Madam Mayor, agenda item number one is to adopt a resolution submitting to the city of Milpitas business tax modernization measure to the voters at the November 3rd, 2026 general election and reiterating request that the election be consolidated with other elections held on that date and taking certain related actions so again madam mayor and council what we have for you tonight is a proposed local funding measure this proposed business tax update is a result of more than a year of review analysis and collaboration by multiple city departments and offices your finance department, the Office of Economic Development, city attorney's office, and the city manager's office. We're bringing this forward primarily because the Milpitas business tax rate has remained the same since 1976, which, as we all know, that is half a century. Businesses are paying the same rate established more than 50 years ago, even though the economy, business models, and the cost of city services have changed significantly. The city review, the city's review identified opportunities to create a fair and more balanced system. Under the current structure, some smaller businesses pay significantly more in taxes per employee than larger businesses. The proposed gross receipt base structure is designed to better align business taxes with the level of economic activity generated in Milpitas. This proposed measure was a collective developed through extensive community engagement. Over six months, the city met with business owners, employers, stakeholders and residents through small business roundtable discussion, business meetings, virtual forums and ongoing communication. Staff also incorporated feedback received from the community through that process. The proposed measure is intended to provide a more stable revenue source to maintain city services without increasing taxes on residents. The tax would apply only to businesses operating in Milpitas and all revenue generated would remain dedicated to servicing the Milpitas community with public transparency regarding how the funds are spent. We have Mr. Eric Myers with HDL Companies on standby virtually to answer questions on the business tax structure. Tonight action is for your council to consider whether to place the proposed measure before voters. Staff will provide an overview of the proposed ordinance, the analysis supporting the recommendation, and the next steps if council chooses to move forward. Our Senior Special Projects Associate, Ms. Jeannie Young will now begin the presentation, short of any questions of your mayor and council. Ms. Young.

Thank you, city manager. We'll go to the next slide. Good evening. Happy Monday, mayor and city council members. My name is Jeannie Young. I'm a senior special projects associate in the city manager's office, and I'll lead the presentation. The purpose of today is for staff to present the proposed business tax update measure, which would modernize the city's 50-year-old business tax and request council consideration of placing the measure on the November 3rd, 2026 general municipal election ballot for voter consideration. Because it is a proposed general tax measure, state law requires approval by two-thirds vote of the city council to place the measure on the ballot. For Milpitas five member council, this means at least four council members must vote in favor of placing the proposed measure on the ballot this November. Next slide. So here we're gonna talk about the background and why the update of the business tax. last year in january the city council directed staff during the council prioritization of additional work plans to evaluate potential update to the city's business license tax while minimizing impacts on small businesses there's three issues the first one is the outdated business tax structure the current the city's current business tax structure was adopted more than 50 years ago as our city manager said and has not been comprehensively updated for decades, including numerous, it includes numerous business categories and relies primarily on employee counts along with a mix of flat fees and other charges. The existing business license tax system reflects Milpitas's 1970s economy when manufacturing industrial businesses were more closely tied to employee counts. Today's economy is more diverse with technology, logistics, professional services, and other industries that can generate significant economic activity with relatively few employees. As a result, relying primarily on employee counts combined with multiple business classifications and calculation methods may no longer accurately reflect modern business operations. Now, the second issue is the impacts on our small businesses. Currently, our smaller businesses are paying more per employee proportionately than larger businesses. A fair system would allow a business tax with economic activity, allowing larger businesses to contribute more. And last, our third issue is the need to maintain city services. Milpitas' current business tax rates are among the lows compared to similar cities in the region. Moreover, Milpitas ranks last in business tax revenue per resident and revenue per business among comparable cities. This indicates that the city has an opportunity to update the business tax structure while remaining competitive with peer cities, which will be shown in a later slide. Updating the business tax structure would provide a more sustainable revenue source to help maintain city services for the residents and businesses. And the last item on this slide is to support this review, the city has retained HDL companies, a firm operating since 1983, specializing in public agency business license and tax programs to evaluate the existing structure and develop recommendations for an updated business tax system. Next slide. So the goal is our commitment to small businesses. When staff evaluated the potential business tax update was based on the five principles, which I believe all of you are familiar with. The five are to support our small businesses, that's the key. The second one is simple to understand, is to create a simpler and more transparent tax structure. Third is to adapt to emerging economies to better reflect today's industry and business environment. Fourth is to maintain competitive with our comparable cities. And the fifth one is to generate a sustainable revenue source to maintain city services. These objectives guided the analysis and development of the proposed structure before council today. At this time, city staff of the business tax project team will join me to present key components of the proposed measure, including community outreach efforts, the proposed business tax structure, the ordinance framework implementation and next steps that I'll hand it over to Madison.

Thank you, Jeannie. Good evening, Mayor, Vice Mayor, members of the City Council. My name is Madison Nguyen. I'm the Interim Economic Development Director. For the next few slides, I'm going to be sharing with the Council the community engagement input and voter survey results. For the past six months, city staff conducted, I'm sorry, yeah. Next slide, please. Over the past six months, city staff conducted extensive outreach with businesses of all sizes, residents, and community stakeholders to inform the public, gather feedback, and better understand local priorities, concerns, and voters' perspectives. This input enabled staff to evaluate potential impacts and develop a balanced proposal that supports a strong business climate while providing sustainable funding to maintain essential city services. Our outreach and engagement efforts included hosting four City Manager Small Business Roundtables with invited small business owners and representatives, holding virtual business forums and virtual and in-person drop-in office hours with invitations emailed to approximately 2,400 licensed businesses, Meeting in person and virtually with major employers and business organizations throughout our city, including the Milpitas Chamber of Commerce, Milpitas Rotary Club, and community events. Presenting at city commissions meetings and engaging with additional community stakeholders. Conducting citywide public outreach throughout the city website, direct mail, newsletter, utility inserts, sorry, utility bill inserts, social media, and other city communication channels. And lastly, inviting community feedback through the city's community priority survey, which received responses from more than 700 community members. Next slide, please. To supplement the city's community engagement efforts, the city retained Fairbank, Moslin, Mullen, Metz, and Associates, also known as FM3 Research, a leading independent public opinion research firm with over 40 decades in ballot measure surveying and development, to conduct voter surveys on potential business tax update options. The surveys were designed to assess voter awareness, preferences, and support for different approaches to updating the city's business tax structure. The survey results are statistically reliable data, meaning the 400-plus sample was designed to represent the city's voting population within an established margin of error. As a result, the findings can be reasonably generalized to the broader voters, providing a reliable basis for understanding voter attitude. The first survey, conducted in December 2025, included 623 likely registered voters and evaluated two potential tax structures, an employee-based model and a gross receipt-based model. While both approaches were generally viable, voters responded more favorably to the gross receipts-based structure because it was easier to understand. Overall, 73% of respondents expressed support for a potential business tax modernization measure. A follow-up survey conducted in June 2026 included 409 likely registered voters and focused specifically on the proposed gross receipts-based structure. The results show 76% support among likely voters. Taken together, the survey findings provided staff with valuable insights into voter understanding and demonstrated strong support for updating the city's business tax structure through a gross receipts-based approach. At this time, Cal from my team will continue with the presentation. Next slide, please.

Good evening, Mayor and Council. My name is Cal Zuber from the Office of Economic Development, and I'm going to be presenting the structure of the gross receipts business tax model. The proposed measure would replace the city's current employee-based business tax with a tax based on gross receipts. In other words, on the actual economic activity that a business generates here in Milpitas. Smaller businesses would pay a flat annual tax ranging from $25 to $400 depending on annual gross receipts and up to a threshold of $700,000 in gross receipts. Businesses with gross receipts above $700,000 would pay that same flat tax plus a tiered rate applied to the receipts they generate in Milpitas. That rate ranges from $0.25 to $0.35 per $1,000 of gross receipts, depending on the tier, or 0.025% to 0.035%. This structure is a graduated model. A higher rate only applies to the portion of receipts that falls within the higher tier. Crossing a threshold does not apply the higher rate to all of a business's receipts. For example, a business with more than $10 million in gross receipts would pay the lower rate, 0.25 cents per $1,000 on amounts between 700,000 and $10 million. Only the receipts above $10 million would be taxed at a higher rate than that. This allows a business's tax to rise gradually as the business grows. And as Jeannie previously mentioned, this model was developed under the following principles. supporting small business, simplicity, predictability, and competitiveness with nearby cities. Next slide, please. The structure is designed so that its impact tracks a business's level of economic activity in Milpitas. The city has approximately 5,400 registered businesses. About 85% of them, roughly 4,600 businesses, would either pay only the flat tax or remain fully exempt. The remaining 15%, roughly 800 businesses, would pay the flat tax plus a rate on gross receipts. For a business operating more than one location in the city, staff would combine its gross receipts to determine the applicable tier. That keeps the tax tied to a business's total economic activity rather than to how many storefronts that it happens to operate in the city. Next slide, please. To understand how these rates compare, staff and HDL tested several business scenarios against comparable peer cities. Across these scenarios, the proposed Milpitas rate lands at or near the lower end of the range. Take a restaurant with $2.2 million in annual gross receipts. In Milpitas, that business would pay $775. In the peer cities we reviewed, the same business would pay somewhere between roughly $660 and $1,300. That places Milpitas about 29% below the average of the peer cities evaluated. Next slide, please. And just as a reminder, Milpitas has not adjusted its business tax rates for inflation in more than 50 years. That matters because if we simply took the 1976 rates and adjusted them into today's dollars, many small businesses would pay more than they would under the proposed flat rate structure. Staff designed the lower gross receipts tiers deliberately to protect the smallest businesses while still modernizing the system. An example on this slide, I should say, is a hypothetical small WAC Center with two employees and approximately $220,000 in annual gross receipts. Today, that business pays about $45 under our employee-based structure. Under this proposed structure, it would pay about $250. And if we had simply indexed the 1976 rate, meaning the rate that they are currently paying to inflation, it would amount to $284. So the proposed structure asks smaller businesses to contribute more than they do today, but still keeps them below what an inflation adjusted rate would require. Next slide, please. Across every scenario that we modeled, the proposed business tax comes out to a fraction of 1% of a business's gross receipts. The tax scales with economic activity while keeping the overall impact modest at every business size. Consider a mid-sized business generating about $3 million in annual gross receipts. Its estimated tax would be $975. That works out to roughly three one-hundredths of 1% of its gross receipts, about 33 cents for every $1,000 the business takes in. At that level, businesses can contribute toward maintaining city services without experiencing a meaningful detrimental impact to their operations. And in summary, the proposed structure modernizes our revenue base and puts it on a more sustainable footing, while also keeping Milpitas competitive with the cities that we compete against for investment. And for the next slide, City Attorney Curtis is going to take it.

Thank you, Honorable Mayor, members of the City Council. I just want to cover a few highlights on the proposed ordinance that's in front of you tonight. The first, and I think really the headline here, is that this would replace the city's existing per-employee business tax structure with the gross receipts model for the reasons that you've heard here today. The proposed ordinance also contains a number of exemptions. These are consisting of a few that are required by state or federal law. I do want to note on that front, this is not an exhaustive list of the exemptions that are under state or federal law. It's simply the ones that we thought would be most common and thus worth including in the ordinance. There's also a few that are specific to this ordinance, and those include the topics such as businesses with minimal contacts within the city of Milpitas, businesses whose only business within Milpitas is participation in a city sponsored event, businesses where the treatment of the tax is covered by a franchise agreement or a tax sharing agreement with the city that's adopted by the city council, as well as a family caregiver exemption. The city council would have the ability to add more exemptions after this was adopted by the voters. but the ones that are in there currently would not be able to be removed without another vote of the people. The ordinance covers a few different topics related to the administration of the tax program. This includes reporting requirements, an audit process, enforcement, and an appeals process for businesses that believe that their taxes have been calculated improperly. It also authorizes the director to create a number of rules related to the administration of the ordinance, and in particular what I would refer to as largely accounting type of rules. Things like how to handle the calculation of the tax when it applies to a partial year, when a business switches between a fiscal and a calendar year reporting basis, or the allocation of the tax revenue consistent with state law and case law when the gross receipts appear to be derived from activity in multiple jurisdictions. The flat tax portion of the business tax has an inflation escalator so that it will keep up with CPI. And then the ordinance itself is also structured such that there will be voter control. So the city council has the ability to lower the taxes or to create new exemptions, but doesn't have the ability to raise the taxes beyond the limits here without going back to the voters. If approved by this council and adopted by the voters, this ordinance would go into effect, operative January 1st, 2028. That would allow time for a clean rollout, which I believe will be handled later in the presentation. At this point, I will hand it over to your finance director, Confressi Howe, to take the next slide.

Good evening, Mayor Montano, Vice Mayor Barbadillo, Council Members Chua, Leanne, and Lamb, Louis Crefressi-Howe, Finance Director for the City of Milpitas. If the voters approve this measure in November, the City is ready to administer it. We have built the implementation plan around three commitments, that the tax is fair, that it is simple, and that it is accountable. The taxes applied in graduated tiers has been demonstrated before in this presentation. So what a business owes will scale with its economic activity attributable to the city of Milpitas. There is a single classification, no industry categories to interpret, and no disputes about into which category of business falls. And we are proposing an amnesty program so businesses not currently registered may come into compliance without penalty. Businesses will have one point of contact for both the business tax and their business license, so there is a single place to call. We will have dedicated staff supporting the transition and under the guidance of the City Manager's Office and in collaboration with the Office of Economic Development, be reaching out to Amilpidas businesses through the transition phase with collateral materials, webinars, consultations, and teachings to help businesses understand their tax liability. Applications, renewals, and payments will all run through an online portal. The rates you have seen on the schedule are the maximums, as is stated by the city attorney. The council may set rates below them, but the council cannot go above them without returning to the voters. The revenue stays here in Milpitas, and it is captured in the city's comprehensive annual audit, the same audit that covers every other fund in the city. The principle underneath all of this and this transition for business is that the proposed and this business tax itself is that the proposed business tax is built on gross receipts, which businesses already report through their state and federal tax returns. We are not asking any business to start tracking something new. Next slide, please. This slide shows how we get from tonight's vote. to go live on January 1st in 2028 fourth phases should the staff recommendation be approved by Council this evening and the subsequent November 3rd, 2026 voter measure be successful with the voters. The first phase pre-election preparation is essentially complete. The City Council has received several briefings since the spring and the draft ordinance and requisite resolution are part of the adoption item and its packet in front of you this evening. A four-fifths vote to approve tonight will allow staff to file the ballot measure with the Santa Clara County Registrar of Voters by the deadline of Friday, August 7th. The second phase runs from November 2026 through March 2027. It opens with the certification of the vote. Assuming the measure passes and is certified, we move directly into procurement issuing a request for proposals for a tax administration system and support services, selecting a vendor, executing a contract, and beginning configuration of that same system. I want to be explicit that we are not issuing that RFP before election day. We are not spending any money on implementing a tax the voters have not yet approved. The third phase, April through December of 2027, is the actual transition period that will be active out in the public and is a phase that matters most to businesses. Business education, the amnesty program, onboarding staff, an integration scan with Tyler, the city financial system of record, migrating existing license records into the new system, and identifying businesses operating in Milpitas that are not on our rolls today. These are all activities that will take place during this period. The fourth phase is, of course, go live on January 1st, 2028, the first day the new tax applies, followed by the first billing cycle and ongoing support and compliance. The reason that we have built in roughly 14, so much time between election day and go live is straightforward. We want every business in Lopitas to know what is coming well before they owe anything and how they can do their reporting. Next slide, please. This is the fiscal picture in its simplicity. I want to be precise both about what these numbers are and about what they are not. If the vote is approved, once again, if Council approves the measures this evening, and if the vote is approved the measure on November 3rd, 2026, staff estimates the business tax would generate approximately $3 million annually starting in FY202728, which is a fiscal year that includes January 1, 2028, where this tax starts. Under the current structure, the existing business license tax generates approximately $360,000 a year. The difference, approximately $2.64 million, is the incremental gain in business tax revenue under the proposed structure. I want to make three points about the context of this. First, these are estimates. They are built on gross receipts modeling that HDL companies performed using the City's current business license tax data. Actual collections will move with the economy and business activity in the City of Milpitas. Second, the $3.0 million figure is the gross amount before the cost of administering the tax. That gross figure is also the number that appears in the ballot question, as the California Elections Code requires the gross amount to be stated in that same ballot measure. Third and most important, this additional business tax revenue is not in the operating budget that Council adopted on June 9, 2025. It is not in any forecast that has been presented to you and will not be until and unless the voters approve the measure in November. If they do, It is general purpose revenue deposited in the general fund and available for city services to address your council priorities which fulfill reflect Lupita's community needs. And with that I'll transition to Jeannie.

Thank you, Director Confessy-Howe. So we have a couple more slides. So in this one here talks about the benefits of a gross receipts tax structure. There's five benefits. The first one is our small business protection. Approximately 85% of businesses would either remain exempt or pay a flat annual tax. meaning that most small businesses would not be subject to the gross receipts-based tax. This provides greater predictability and helps ensure that smaller businesses are not disproportionately impacted as they operate and grow. Second is that it creates a balanced system. Using the gross receipts better reflects the level of business activity when determining the tax amount while avoiding the differences that can occur when taxes are based only on the number of employees. Employee counts do not always reflect the size of a business or the amount of revenue it generates. Next item is administrative clarity. The updated structure reduces the number of business specific formulas and create a more consistent and straightforward approach for businesses to understand and comply with. A simple structure can reduce confusion, make tax calculations easy to follow, and support more efficient administration by the city. Fourth is our future readiness. The updated tax structure is designed to be future ready. As businesses increasingly use technology, automation, and artificial intelligence, the number of employees may not always reflect the size or level of economic activity of a business. Using gross receipts provides a measure that can better adapt as the economy changes. And last is our revenue sustainability. The tiered structure allows what the tiered structure plus the flat amounts for smaller businesses allow city revenues to grow alongside the local economy by capturing the change in business activity and growth over time. Unlike a structure based primarily on employee counts, which may remain relatively unchanged as businesses adopt technology automation or new operating models, a gross receipts based approach adjust as business grows and generate additional revenue. This provides a more stable and sustainable source of revenue for the city to maintain services.

Next slide.

Key deadlines. This Friday, August 7th is the deadline to submit the measure to the county register of voters. If the council wants the measure to be decided by the voters through a simple majority vote, 50 plus 1%. The actions by Council today allow staff city staff sufficient time to obtain the necessary signatures verify all requirement documents and ensure materials are completed and accurate and accurate before the August 7 filing deadline to avoid the risk of missing the November 3 election.

And our last and final slide.

So on the recommendation, staff appreciates the opportunity to work with the city council on this important effort. Throughout the process, staff have provided updates through the council briefings to keep council members informed on the business tax update analysis, outreach efforts, and proposed approach. In summary, the proposed measure updates a 50-year-old tax structure, creates a more balanced approach among businesses, protects smaller businesses, and provides a more sustainable revenue source to maintain city services. However, the decision to place the measure on the ballot is ultimately at the discretion of the city council. Staff is requesting that council by at least four affirmative votes approve the resolution as seen up on the screen. If council places the measure on the ballot, the final decision on whether to approve the proposed business tax update will be made by the Milpitas voters. And this concludes the staff presentation. Thank you all. And staff is available now to answer your questions. Thank you.

Thank you very much for that presentation. I know we had like I think two briefings on this. Kind of really know a lot. We came out experts. So I wanted to get some questions, any feedback from our console. Do I need to ask for a public? Okay. All right.

Go ahead. Anybody from the console has any feedback on this?

So I'll start off. So I did have a couple of questions. finance director, you answered it. One of my questions was, is it all going to go to the general fund? And you said, yes, it's going to go to the general funds, which is good. The other question I had, so the oversight, if this passes the oversight, how much is that going to be, how much will it cost us to hire somebody to do the oversight and the administrative piece of it, more or less?

Thank you for the question, Mayor. This would be going out for an RFP, a request for proposals, and it is a hybrid effort to implement this and maintain this on an ongoing basis. So we would have in-house staff, for lack of a better name, it would be a business tax administrator who provide the necessary support and essentially be the face to businesses. And then we would have a back office function would be provided by the third party administrator, as well as they would be bringing along with them a business tax system that could handle gross receipts. This is a rough estimate and is about $500,000 in total. And I don't want to get more specific about that because I don't like to give out the budget for the RFP. But in general, that includes the implementation of a tax system. the hiring of a vendor to manage that tax system, the hiring of that same vendor to provide us with materials, collateral materials, publication materials, online support, business outreach, help us in that support, essentially putting together the program for us, helping us run the amnesty program. And then what additional information would come back to the administrator when any sort of enforcement actions or interventions or assistance or particular assistance that would be escalated up to the administrator. And then, of course, it would go through the hierarchy and finance in the city. So roughly around $500,000.

Okay, that's good to know. I like the fact that after, you know, when you hire someone, they'll be connected to the businesses. It's not just going to be, oh, we're going to tax you, and that's it, and then just forget about them, but that you're still keeping it. They'll be hands-on. So that's great. And then I also like the fact that, you know, it's been 50 years. So it's way overdue. So I really feel that this is necessary. So anyone else have any comments? We have a council member.

Thank you, Mayor. I'm really impressed with, oh, you can sit down, Director Lewis. I'm really impressed and really commend the implementation team, the business tax update implementation team, you know, from Jenny to Director Madison to Cal to city manager, I mean, and also city attorney. When I thought about introducing this initiative to update the business tax, I heard it from several cities when I go to conferences. So I looked and researched and I said, hey, when's the last time we did an upgrade to our tax? And I found out it hasn't been done for the last 50 years. So I talked to several elected officials and they said like, well, you guys are late. It's about time you do something. So I would like to acknowledge my colleague for supporting this initiative from day one. And here we are today. So thank you so much. And I'm also commend the implementation team for the outreach, the extensive outreach that you did for the residents and the businesses. Thank you for that. And also the survey is really important because it gives you the pulse of the city. So that was a good measure on how we should proceed with this initiative. I like the fact that there is a grace period that businesses have until 1-1-2028, right? Like Director Luz said, it's fair. The proposed business tax upgrade is fair, simple, and very easy to understand. And I like the plan because you have a detailed plan on how to implement and also post-implementation, which is very important in any initiative. One of the things that I think made this very successful is the fact that you continue to update the rest of the council. So we know exactly where we're at at any given time. Most importantly, when I spoke to several small businesses and they And I said, we might have to upgrade our business tax. They said, as long as you don't punish us or do something really outrageous. So you kept that. You made sure that we don't impact our small businesses that much. And I think they'll be happy with this based on the survey. And I want to say thank you. Well done, and I'm so proud of this initiative. Thank you all.

Thank you, Council Member Chua. And I want to piggyback on that. You know, you're absolutely right. There's going to be follow-up. It's not just we're going to just tax them, just let them go. I really like that. And also the fact that the survey, it increased, 73 to 76. So that tells me that you really have the pulse of the community. So that is awesome.

Anyone else have any questions? Can we have Council Member William Lamb?

Did you have your hand?

Thank you, Mayor. I'd also like to thank the staff for putting so much time and effort into this measure. It's better than what we have, I agree. And also I have a couple of questions to ask. Just for my own knowledge, how many billion dollar companies are there in Moorpiers?

So the grocery seats are estimates. I would have Eric Myers of our HDL, who is our consultant. He's on virtually. See if he can respond to your question of how many businesses will fall into the billion dollars. Madam City Clerk, can you see if you can put him on? He's already been promoted.

Yes, I'm here. Can you hear me? Yes. Well, I'm not at liberty to give away specifics of businesses. And I would say that the model itself does not estimate anyone at a billion because it has some conservative assumptions built in, but there could be a handful of those businesses. It would be a fairly small number, however, in the city right now.

It's greater than zero. I assume it's more than zero.

Is that right? I'll have to double check the model here if you'll give me a moment. But again, I do not believe that in the model there were that many. I think it was an illustration in the staff presentation, but there is at least

non-zero yes that could make that when you deal with uh the gross receipts from some of the larger companies okay thank you um another question i have um some business i might ask this question in the past i'd like to ask again um some business might uh might not have gross receipts but they are big company for example banks they might not have gross receipts the people deposit money into the bank and they might not produce any gross receipt how do we collect um if i'm understanding your question you're talking about financial institutions like banks yes okay

May I defer to our city attorney?

Yeah. So banks are actually one of those entities that's going to be exempt under state and federal law, as I was referring to before. So they're not really the best example for the no gross receipts business. The only business that truly should have no gross receipts would be one that's in a startup phase because it's making $0. And if that's the case, they'd be falling into the low tier based on the zero dollar gross receipts, which would be that bottom end on your scale there. Once they started making gross receipts, once they were past the pure startup phase, then you would be taxing on the revenue that was coming in at that time.

So banks are exempt?

Yeah, there's a handful of industries that were specifically preempted. As I said, we didn't list them all within the

uh uh the ordinance itself um we're relying on state law on that front interesting okay yeah that's all i have thank you okay thank you council member lamb anyone else we have anyone else that would like to make any comments we have uh vice mayor

While I post my first question, can we put page 48 up on the screen, please?

What page are you looking for?

Page 48 of the agenda. Page 48.

That will take just a moment.

Yes, please.

Vice Mayor, are you referencing the HDL report?

Yes, ma'am. Okay. The update of the HDL report.

Can you refer to me what section while the city clerk looks for the page?

That would be on the agenda, it's page 48, and it's number three, it's peer jurisdiction comparison. So if you look at this table and it has been repeatedly concluded that we have the oldest if not one of them, all this tax ordinance because the last revision was 1976. And later on in my question, it is recommended that we base this ordinance on gross receipts. And as an information, if we look, in this table, there's nine cities' jurisdiction. And it is apparent that out of nine, there's only three jurisdiction that does gross receipts for purposes of business tax. And if you look at the column where it says ordinance last modified, most of these per employee where we are now were also updated earlier, I mean, later than when we are trying to update the 1976. So the question is, and I'll have a question with HDL on this one. So knowing our peer jurisdiction comparison that, you know, Some cities still use per employee gauge for purposes of business tax. I want to focus our attention on the report. It will be on page 47, just a few pages prior to that. When there was an evaluation of the current tax structure, It's page 47, and it gives reason why gross receipts was recommended as the basis of our tax revenue ordinance. So here's the question. So it says here that there is a finding of a mismatch between our largest employers with regards to their share and contribution to our current business tax revenue. And that's the only reason why I found, at least what I understood on the report. And going back to page 45 of the report, it will tell us the breakdown of the 5,638 businesses in the city. And you can also look at page 51 of that, which reflects what kind of businesses we have in the city, page 51. So in relation to this, we have information that the businesses that will be greatly affected by our recommended business tax modernization will be those of businesses that have employees. If you look at a table page 45, exhibit 2.3. So I think that's the demographic of our businesses in Milpitas, right? Retail, contractor, home occupation, no fixed location. The biggest of them is 1,583 on retail, contractors at 1,530, right? And then now you go to the recommended business tax structure on page 51, exhibit 5.2. Then now we have the range, zero to 24,000 is a flat fee, 25 to 99, and so forth. Do we have information as to the first table, what is the category of those two main businesses in Milpitas fits in on this gross receipts tier?

Vice Mayor, if I'm understanding your question, I may repeat it so I understand it then. Are you asking what type of business or the business names or the industries for those businesses that would pay a percent of gross receipts? Like, for example, those who may make over $25 million, there's 31 businesses. Are you asking do we know those businesses?

Yes, but what I'm trying to ask is, what businesses, based on the first table, on the breakdown of businesses in Milpitas, falls on the mid-tier where 700,000 below and more than 250,000. I'm asking that because I would like to see which segment of the categories of businesses in Milpitas

is going to pay this certain tier i think it's slide seven it will take just a moment for me to pull that slide up

I may have asked Mr. Myers from HDL when his staff was reviewing the existing business licenses in terms of looking at those categories, the original categories of what they, where they fall into now, and then in terms of the methodology they use to estimate gross receipts. Maybe that would help answer your question.

Yes. So what I'm trying to correlate is what kind of business in Milpitas is the most, and we have the data, and how was it recommended that the tier, which those two kinds of business in Milpitas falls under the 700,000 below. And if we have, yes, and if we have an answer on that, then the question becomes, is the comparison between a gross receipt

and employee base still justify the proposal um eric myers from hdl if you could um answer or respond to our vice mayor i know that hdl had because there's There is no gross receipts number for many of our businesses. So HDL did a number of assumptions based on the employee count and the type of industry that these businesses are in. HDL does have provided information on actuals for our larger businesses, which we use to compare with our other comparable cities to see these larger businesses, these proposed tax rates, how they would compare. and in line with our comparable cities, because we don't want to be way out of line with our comparable cities. So I may have Mr. Myers, if you could respond.

Yes. So a couple of things to note. As you pointed out, Ms. Young, we did use actuals where we could get them for the retailers that have sales tax data. Otherwise, we estimated using both the number of employees and essentially an average gross receipts for that type of business based on typically their NAICS, but number of pieces of data. So number one, we are estimating the gross receipts that certain businesses would report. Number two, the model itself is based on the tiers as shown. And as you referenced, Mr. Vice Mayor, in the report itself, we have a count of the businesses that fall into those tiers. And because the tax does not take into account what kind of business it is, there's no dependency between the kind of business and the size of the business per se. So I think on both of those counts, again, gross receipts are built from estimates for the most part. And then the new tax structure is built on the size of the business as measured by gross receipts, not by the kind of business that it's engaged in. But I may I don't know if that answers the question or not.

It did a little bit, but it created another question. So if you tell me that there is no data as to correlate the top number of businesses as to the tier between 250 and 700,000, so how is it suggested then? that we go by tier. What I heard is, you know, yes, we do have information with regards to businesses that are existing in Milpitas with employees, but we do not have data as regards, other than estimates, as regards to their income to see where they fit now on, you know, what we're proposing as the modernized tax based on tier. Because if you look at the breakdown, it says it's about 3,000 of the businesses out of all 5,600 are retails and contractors. And obviously they do have employees. And most likely they fit under the 700,000 based on the number of employee model. how could we justify now or how could we correlate now transitioning these kinds of businesses in a tier model if we do not know information on how much they make. It's just based on estimates. So we estimated you have five employees, you know, a return of an employee service is this amount by some formula. And this is how we estimate the gross receipts. Hence, we recommend a gross receipt tier. to modernize our tax. So where is the correlation? We cannot just get out of a system that we had without looking at the demographics of what businesses would now fit on this new tier model that we're proposing. So where will this about 3,000 businesses fit on the tier? And if you tell me they are on the flat rate between 250,000 and 700,000, What's our data to support that? What happens if they are not on that bracket?

So the data to support where a business will fall on the tier comes from the model. The model itself uses sales tax where it's available. And then where it's not available, since the city didn't always have gross receipts being reported, it was our undertaking to come up with a conservative estimate for the gross receipts that a business of that size and that type would generate. So we used the NAICS, the North American Industry Classification System, to say, for example, this is an electrical contractor. In our data, we have access to data for over about 150 jurisdictions in the state. So in our data, the typical electrical contractor, let's say, is bringing in 250,000 a year. We looked at, okay, well, how much is that per employee on average? And then we multiplied that against the number of employees reported to the city to try to get a good estimate for how much the business is reporting. or would report in the future under a gross receipts. That is the challenge. Whenever you switch from a per employee to a gross receipts, one of the challenges is to get a workable estimate of what the gross receipts might look like for those businesses. The additional, I guess I would say an additional item to consider is, along those lines is we didn't sort of estimate the gross receipts and then say, well, you should tax them on gross receipts. The gross receipts has a number of reasons why it might be useful and is really the more modern and is becoming the majority approach. for taxation, it's much more future proof than a per employee tax. So building out the model and trying to determine what kind of structure was needed were part and parcel of the tax study itself.

Vice Mayor, I also wanted to add, if I may, so this proposed tax structure that you see in front of you, we did bring this to our small business roundtable. Initially, staff had proposed a flat rate for businesses under half a million dollars, so under $500,000. We received some feedback from our small businesses who had concerns about them making small their profit margins are smaller. So we went back and talked to HDL and we've increased and bumped up the flat tax for gross receipts to $700,000. And that was presented to our small business round table, the small business owners and their representatives. And they were positive feedback on us hearing their input and us making some adjustments to the tax rate structure.

Councilor Urchua.

All right, Suzanne, can I have slide 10, please? One of the objectives of this upgrade is to make sure that we don't really impact the revenue of the businesses. And I think this slide shows that. that we try to limit the tax within 1% most of the time, which is very important to all small businesses. You know, that's the feedback that I got from them. And this shows like current, like the first one, current rate is 35. with inflation, it should be 221. But when the proposed upgrade is 115. So what I'm trying to say is when I did my research on this, there are actually three ways you can upgrade either the number of employees, gross receipt, or the square footage of of the business. And this is the most difficult question for the team and the consultant, because we don't know how we're going to go. We're going to go square footage, number of employees, or gross receipt. I think with the gross receipt, it addresses the, this slide addresses our commitment to not impact them as much.

If I may. Thank you, Mayor. If I may add just one quick sentence. It's important to note that the business tax that these businesses will pay under the proposed tax structure is on what they have reported, not what is estimated. So we are using what they report. We're starting at the point of what they're reporting on their state and federal tax. And then there is a series of exemptions that are in the ordinance that are applied. So the model is an estimate and a forecast of what we would see given the information that we have. And so it is an estimate because that's the best we do. We do not capture gross receipts. And the employee count for our businesses is self-reporting. And so we don't have a way of validating that. So the model is an estimation tool. But at the end of the day, the business tax itself will be applied to actual documentable evidence that the particular business has provided us.

No, I agree with standard estimates, since I'm trying to find a connection between the reality, those standard estimates as we apply it to Milpitas. Because for example, retail, we have data and information about sales tax. We have that. And maybe on a reverse mathematical formula, here's my math again. then we can see the base. of that sales tax generated by that particular business. And maybe we can augment that with what are standard estimates, and now we can figure out which of these businesses will be impacted more on the recommended gross receipts model. If you look at page 51, the majority of the businesses in Milpitas out of 5,300, they are on the category from 25,000 all the way to 700,000 estimated gross receipts. So if we have this presentation, And it's claimed that it's based on estimates on some studies. Why haven't we based it on the reverse formula on how much sales taxes they generate each year to find their base? If you follow my thoughts, sorry, it's a little bit thing, but what I'm saying is aside from basing it on estimates and some studies with regards to how much this particular industry of contracting generates, we have it in front of us. It's what they generate.

So if I may start, and then I'll have Eric Myers of HDL or the rest of my colleagues respond. So one of the tables that we have showed here is how these proposed, TAX STRUCTURE AND LOOKING AT OUR PEER CITIES AND DOING BUSINESS SCENARIOS TO SEE HOW OUR PROPOSED TAX STRUCTURE FITS IN WITH OUR CITIES. WE ASKED HDL TO LOOK AT SEVEN CITIES. SO OUR PROPOSED STRUCTURE IS IN LINE OR in line or less than our proposed, our comparable cities. And so that was one of the, looking at the percentages of the gross receipts, we saw that it's within alignment. It's not out of, above and beyond what our comparable cities are charging.

Right, but the comparable cities, as I pointed out, we have nine. Nine, eight, excluding Milpitas, and out of that nine, only three uses gross receipts. I mean, yeah. So if you tell me that they have this trend on modernizing business taxes now trending towards gross receipts, the other cities as late as 2016, I forgot which city was that, is still on per employee. So I don't believe that the gauge is, you know, it is the trend going gross receipts when the comparables that we look into, six of them still uses per employee. So modernizing it, I agree, right? It's just it's the proper basis of modernizing it because, you know, I do not see that per employees equated model for business taxing because our own comparables, our own peers, most of them still have a per employee. So there must be a reason why we believe that gross receipts as compared to the number of employee basis that we used to have and also our comparable peers still have is better for our own what really what i would like to hear and probably the community is you know specifics specifics as you know we have data what kind of businesses we have been repeat us we have numbers you know we we are sorted out the 5 300 something businesses and to focus a tier we should have that particular specific situation of the city, not mainly based on estimates. Because now if you look, even if you make a survey or study now, we have to ask those particular businesses, we have data, that are within the range of the tax base that will be impacted most. So that's one, I'll leave it at that. And secondly, I do understand that we have overwhelming support based on our survey. And a question I pose on that is, did we ask the right respondent? Because we have asked, and I look at, this is my question during my briefing, I ask what is the purpose and the mandate of the study that we had, right? And I look, it's modernizing, it's upgrading it. So the question becomes, is there, could there have been a choice? Again, I'm just throwing this up. I know that we have painstakingly discussed this over the months, but would there be an alternative to gross receipts? I mean, a model that is not so much of a jump of what we have as the basis, the number of employees. Was there an in-between? Was there a compromise?

MR. If you don't mind, Jeannie, I'm going to answer. Vice Mayor, thank you so much for your comments. We, as staff, as well as HDL, explored probably most iterations of any model you can possibly think of, guided, of course, by a combination of actuals as well as estimates. What we found is that gross receipts are a better indicator of economic activity than per employee counts could tell us. So for example, a grocery store. A grocery store will generate far less gross receipts per employee than, say, a large tech company may. When you were referencing the trend, right, it is true in the table that had three businesses that were in, sorry, three city governments that were using gross receipts as opposed to per employee. I do want to call into account that the date of the most recent change was in 2022. Even though it sounds like only a few years ago, The world has changed tremendously in the last four years in that there's AI first companies that are now coming out, that there's data centers, et cetera, et cetera, that are being proliferated throughout all of our communities. And a per employee model would not properly account for the services that those types of businesses use, whereas a gross receipts model would capture that activity. I hope that's helpful.

Thank you for that, Cal. Yeah, you know, when this first came up, and I'm glad that you brought it up, Councilmember, at that time you were the Vice Mayor, Chua, you know, because I hate taxes. I hate, and especially taxing our small business. I think I voted against it, but then I got outnumbered. But as it came before us with the staff doing the research, and then I realized, well, you know, it's been 50 years. And I really feel that you guys looked at the employees, you looked at the square footage, you looked at the grocery seats, and we came up with a plan that would work for everyone. I mean, look, even the survey, It tells you that not only the community, but the business community, they are for this. And it's simple, especially like slide number seven, the grocery business task structure. It's a good structure. I think it's fair. We don't want to overtax our businesses. I think that's the wrong direction. I think that this plan here is good and it's fair for everyone. So we have Council Member Chua.

I would like to, yeah, I agree with Cal's statements. One of the objectives of this business upgrade is what you guys said, future readiness. It is future readiness because we are looking at AI. And if we based our taxes on number of employees, it might not be the right direction to go. So gross receipt is is the way to go. So I agree.

Thank you. Thank you, Mayor. Thank you. Is anyone anyone else make any more comments? If not, is there a motion?

Hold on. Let me say sorry. There you go. Thank you, Mayor. I would like to make a motion. And based on the recommendation of the implementation team, adopt a resolution submitting the city of Milpitas tax modernization measure to the voters at the November 3rd, 2026 general election and reiterating the request that the election be consolidated with other elections held on the date and taking certain and relative actions Um, that's it, right? Okay. I said, I second that this is a resolution. Is there a motion? Do you have to?

The ordinance is an attachment to the resolution because the ordinance is being submitted to the voters.

Okay, so there's no need to. Okay, got it.

That is okay. Okay, so we do. So I second it. And now let's call for the vote.

Vice Mayor Barbadio.

Can I pass for the round? Otherwise, I'm going to just spit out my vote.

Yeah, go ahead. Council Member Chua? Aye. Council Member Lam?

Aye.

Council Member Lien?

Aye.

Mayor Montano? Aye. Vice Mayor Barbadio?

Aye.

OK, so it has passed unanimously. Thank you, everyone. So now, anything else? If not, I'm going to adjourn this meeting. We have Council Member Chua wants to make...

I just want to thank our Lopita's... police department, especially assistant chief. Because on August 17 is the launching of my other initiative, which is the doorbell camera. And they're expected to have at least 200 to distribute, right? The first one. Thank you so much. I'm really excited. And I know a lot of people are very excited because I've You have gotten those emails and texts as well. Thank you very much.

Thank you.

Thank you for my colleagues for supporting that initiative as well. Thank you all.

Well, thank you for looking into this, the revising of the tax structure, because it was way overdue. And everyone, National Night Out is tomorrow. Chief, would you like to come up and say something about that before we adjourn? Just to remind folks.

Thank you, Mayor, for bringing me up here, and good evening, council members. Yes, Tuesday, August 4th, is National Night Out. I think our earliest parties start at about 4.30. If you follow us on social media for those community members that are watching this council meeting, there's about 27 community parties this year, so we hope to see you out there.

All right. Thank you. We hope to see you there. Take care. All right. This meeting is adjourned. Good night, everyone.

Thank you, guys. Thank you, team.