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Some Richmond businesses may leave the city because of huge Measure U tax bill

Richmond businesses bracing for big tax bill in July due to voter-approved Measure U
Richmond businesses bracing for big tax bill in July due to voter-approved Measure U 03:12

RICHMOND (KPIX) -- During the height of the pandemic in 2020, Richmond voters overwhelmingly approved Measure U, which raised taxes for some businesses more than 100-fold.  Now the first tax bill is coming due and there are those who are looking to leave.  

Supply chain problems and microchip shortages have left the car lot at Hilltop Ford in Richmond looking pretty bare these days.

"As you can look at our lot, we have very, very few vehicles to sell," said GM Leon Thomas, "but we have a huge tax bill that has to paid in the next couple days."

That tax bill is the result of Measure U, put on the ballot in 2020 by the Richmond City Council.  Measure U changed the way business license fees are levied, from just a few hundred dollars, based on the number of employees, to a tax on the total amount of sales, called a "gross receipts" tax.  It is having a profound effect at Hilltop Ford.

"For us it's about a 7,000 percent increase over the previous year," said Thomas. "I got it right, a 7,000 percent increase!"  

Thomas only paid about $3,000 for his business license fee last year, but on July 1, he will owe more than $210,000. The problem is, even though a car may sell for $40,000, Thomas will make less than $1,000 on the deal, but he's taxed on the total sales price, so he said Richmond will be taking about 40 percent of his profit.  And down the road at Hilltop Toyota, the bite is even deeper. They're seeing a 12,000 percent increase in their tax, which owner Don Lee says is unsustainable.

"The choice is either, we're going to have to start laying off people, our employees, to reduce our expenses, or we may have to consider moving," said Lee. "Well, I guess a third option would be closing down."

Other cities, like Fairfield and Walnut Creek tax gross receipts as well, but at only a small fraction of the rate Measure U is imposing. Lee said they charge from 4 to 30 cents per $1,000 in sales. In contrast, Richmond is changing more than $4 per $1,000 in sales.  

The auto dealers are pleading with the city to lower the rates, which they can legally do, but so far, the council members aligned with the Richmond Progressive Alliance are refusing to budge.  

In a written statement, Councilmember Claudia Jimenez said, "As a councilmember I am respecting the will of the vast majority of Richmond residents, and I hope that large corporations will choose to contribute to their community."

But James Lee, the CEO of the Chamber of Commerce, said Measure U, in its current form, is killing business development in Richmond.

"The businesses I talk to say, 'James, it's easy for me to pack up my bags and go to the next city,'" he said. "And then we lose revenue, period. And so, I really feel like some on the City Council are shortsighted of how much this will affect our city."

Collection of the tax had been postponed for six months, but on July 1 the bill comes due.  The auto dealers are proposing a lowering of the tax to 25 cents per $1,000 in sales, about 1/16th of the current rate.  A lawsuit is already being drafted if things stay the way they are.  

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