Legislative Update

Legislative Update: Legislator Proposes Tax on Businesses Based on Number of Employees

employees feature

Assembly Member Kansen Chu this week introduced AB 2843, which would require local governments to impose an additional annual business license tax based on the number of employees – businesses with more workers would be penalized with higher taxes.

This is the first proposal for a statewide “headcount tax,” expanding upon an idea that has been gaining traction at the local level.

Although Chu, a Democrat who represents a district in Milpitas, describes the charge as a “fee,” the legislative counsel correctly keyed the bill as a tax increase that needs two-thirds supermajority approval by the Legislature to reach Governor Gavin Newsom’s desk.

“California’s high costs already are chasing employers out of the state, and this bill would intensify the problem,” CalTax President Robert Gutierrez said. “We should be trying to encourage employment in California, not punishing businesses that employ more workers here.”

Under the legislation, a city or county (including San Francisco, the state’s only combined city/county) would be required to collect the additional tax from any applicant for a local business license. Revenue would be deposited in the newly created Affordable Housing Assistance Fund, to be used for first-time homebuyer programs, rental assistance, vouchers to homeless individuals, and subsidized housing that is “100 percent affordable to persons and families of low or moderate income.”

Businesses with fewer than 50 employees would not be subject to the tax, thus creating an incentive for employers with 49 employees to curtail hiring. Businesses with 200 to 999 employees would pay $75 per employee, and businesses with more than 999 employees would pay $150 per employee.