Business Tax Implementation

With the passage of Measure K in November 2022, the City will soon be implementing a business tax. The tax is structured so that each quarter tax is due the first day of the following quarter. While the tax began January 1, 2023, the first payment will not be due until January 2024 and will be paid on a quarterly basis.  

What You Need to Know 

January 2023   Tax assessment period begins

 April   2023

  Calendar of engagement opportunities released
 May         2023 Selection of vendor for the administration of the Business Tax (BT) and Business Registry Certificate Program (BRC) and recommendation to Council for approval 
Summer 2023

Community engagement opportunities, including information sessions and focus group sessions

Web payment portal development and testing 
Fall          2023 Information regarding necessary paperwork and payment instructions distributed; payment portal launches on this webpage
January 2024  Tax collection begins

Information about the administration of the tax, instructions, and necessary paperwork for filing and payment will be shared in this newsletter and posted on this webpage as it becomes available.  

Tax Characteristics 

The Business Tax is imposed on each square foot occupied by the business, with exemptions for certain business types and tax credits for remitted hotel tax, certain sales tax paid by a business, and vacant space. Please refer to the below chart for details of rate, timing, exemptions, and credits: 

Rate & Timing

  • Monthly rate of $0.075/square foot for all non-exempt businesses

  • A $500,000 annual tax cap, adjusted by CPI.

  • Flat 2.5% increase annually applied to both the month rate and tax cap, beginning fiscal year 2026-2027

  • Continue existing BRC Program for all eligible businesses.

  • Tax to be imposed Jan 2023. Quarterly collections beginning Jan 2024

  • 50% of monthly rates for first 24 months; full tax rate Jan 2025

  • 35-year sunset, ending 2058

Exemptions & Credits

  • Small businesses (first 10,000 square feet of all businesses)

  • Grocery or Supermarket stores

  • Seasonal businesses operating less than 90 days.

  • Residential space

  • Tax Credits: 1) hotel tax, 2) certain sales tax paid by a business (2:1, up to 75%), 3) vacant space.

Please note the requirement to pay the business tax is in addition to the business registration certificate (BRC).  Please refer to the City’s Business Registry Certificate Program (BRC) page for more information: www.cityofpaloalto.org/businessregistry  

The City’s Administrative Services Department is preparing additional information about the administration of the tax, including necessary paperwork for filling of the tax, payment instructions as well as exempt and non-exempt examples. This additional information will be available soon. 

Background Information 

Background information, along with community conversations on the fiscal health of the City and prior work on ballot measures can be found on the City’s Fiscal Sustainability: A Community Conversation webpage and City Council meeting materials for the Business Tax ordinance: 

Use of tax proceeds will be considered by the Council during the FY 2024 budget process. For the proposed FY 2024 budget process, go to www.cityofpaloalto.org/budget 

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