PALO ALTO — Like Mountain View before it, Palo Alto has taken the first significant step in imposing a headcount tax on its over 4,000 employers as a means to pay for millions of dollars worth of transportation improvements and assuage housing demand.
Palo Alto council members on Monday voted 4-2 — Liz Kniss and Greg Tanaka dissenting — to begin drafting a new general employee headcount tax that would generate about $10 million a year.
The vote comes amid growing support from Palo Alto residents for a business tax, which the city currently does not have.
Unlike a special business tax, revenues from the headcount tax brought forward by council member Alison Cormack going directly to the city’s general fund mean the council won’t be constrained to use the money on transportation and housing and could prioritize that money for other projects should it want to.
The tax also has no exemptions for small businesses, but like Mountain View’s tax, Palo Alto will implement a flat minimum amount that companies will have to pay for each employee.
The council also indicated it wants staff to conduct annual reporting on the tax and include an escalator clause so that the tax can keep up with the consumer price index.
“It’s not sustainable where we are from a business perspective,” said council member Eric Filseth, who seconded Cormack’s motion. “We’ve seen Silicon Valley’s economic expansion, but we haven’t invested enough of that in housing and transportation to support that expansion. I think nobody wants to do a tax, but as a region we have to.”