Licensed professionals would see higher taxes if Sacramento ballot measure passes

Attorney Tiffany Clark makes less than $10,000 a year at her part-time Sacramento law practice, so paying the city $684 in professional business tax fees feels too steep.

The North Natomas resident is one of close to 2,000 professional license holders in Sacramento whose business taxes will more than double if voters approve Measure C on March 5, the same day the city’s primary election is held.

The measure follows the City Council’s approval on Nov. 15 of a proposed ballot item to raise the city’s business operating tax. If voters approve, this would be the first increase in more than 30 years.

No Sacramento business currently pays more than $5,000 a year in taxes.

The proposed tax increases would raise the maximum rate by as much as 400% or up to $125,000 a year.

But part of the business tax increase also includes tax hikes on Sacramento professionals who hold state licenses. In addition to state licensing fees, some Sacramento professional license holders must pay a city tax to operate their business or professional practice.

License holders required to pay a local tax include lawyers, psychologists, medical doctors, podiatrists, audiologists, engineers, morticians, veterinarians, contractors, engineers, insurance brokers, accountants, architects and contractors.

Taxes now start at $75 for the first three years a professional holds a State of California professional license. They go up to $150 for years three to seven and jump to $300 after year seven.

Under Measure C, they will go up to a flat yearly tax fee of $684 in July, an 812% increase for those who now pay $75. The license holders will also see their taxes for each of their employees they maintain on staff rise to $68 from $30 annually.

City Councilwoman Katie Valenzuela, who chairs the law and legislation committee that initiated the tax increase legislation, said the measure was long overdue.

“I know the increases are a big change, mostly because the taxes haven’t been updated since 1991, she said. “But we were just simply trying to adjust for inflation so that we can better cover our cost as a city since we are in a structural deficit.”

She said the city faces a $50 million budget deficit in the budget year that begins July 1.

“It’s an ongoing deficit that will grow in future years if we don’t address the issue now,” she said.

The business tax increase is expected to add $6 million to the city budget yearly beyond the approximate $22 million that is already collected.

Lawyers express concern

Clark pays the current maximum city fee of $300 for practitioners who have worked for more than seven years.

She said she has worked part-time because of medical issues and family obligations.

“Attorneys work part-time for a number of reasons,” she said. “They’re partly retired. They have family responsibilities, kids, young kids. They have elderly parents.”

Clark said she only learned of the planned tax increase on professionals after reading a story in The Sacramento Bee.

She is not the only one.

Terri Shettle, executive director of the Sacramento County Bar Association, said her group was not aware of the license increase until after being contacted by The Bee.

“While many of Sacramento’s established firms may be able to adjust to the increased tax, this is absolutely a matter of significant concern for many of our members, particularly those who are semi-retired, brand new, or simply engaged in part-time legal practice,” she said in a statement.

Shettle said it is “crucial for the group’s members and other professional groups to be informed of tax increases by the city.

“While we understand the need for funding and infrastructure improvements, we are disappointed by a lack of transparency and would urge Sacramento’s voters to consider the potential economic effect on individuals within these professions,” she said.

Shettle said she hoped the City Council would work more closely in the future with those affected by a tax increase to “strike a balance between revenue generation for the city and diverse group of individuals who make up the city businesses.”

Valenzuela said the professional groups could have educated themselves about the tax increases.

“I appreciate that not everybody follows all of our agendas, but we’ve discussed this a number of times,” she said. “I know I put that out on social media at least once, if not more.”

A spokesperson for Sacramento Mayor Darrell Steinberg did not respond to an email seeking comment.

Jennifer Singer, a spokeswoman for the city of Sacramento, said in a statement that a variety of business groups were contacted by the city to let them know about the ongoing business tax increase discussions.

She did not say if that included the professional groups that represented the affected license holders.

Psychologists also affected

Psychologist Corrine Sako, who was president of the Sacramento Valley Psychological Association until the end of December 2023, said her group was never notified.

She said the city tax increase was on top of increases in the state licensing fee for psychologists. The fees went from $400 to $825 at the beginning of this year.

While psychologists with full-time practices are better positioned to absorb the increases, she said they present a burden to those who work part-time.

“Combined with what’s happening at the state level, this will absolutely be a big hit for some folks,” she said. “You will see some psychologists leave private practice or direct service delivery altogether. This is going to deplete the already reduced workforce for psychologists.”

Sako said the fee increases come at a time when there is a mental health crisis and not enough therapists to see everyone who wants help.

Sako, who is in private practice in Sacramento, said she is still paying off student loans that total more than the mortgage payments on the house she purchased nine years ago.

“So, it may seem like I charge a lot of money per hour, but with the amount of money I pay each month on my student loan, I am barely breaking even,” she said.

Sako said many Sacramento psychologists face similar financial situations.

Medical professionals weigh in on increases

The Chief Executive Officer of the Sierra Valley Sacramento Medical Society Aileen Wetzel said in a statement that the tax increase was wrong.

“I don’t know anyone that doesn’t continue to grapple with the enduring challenges of the pandemic,” she said. “Proposing to more than double the license and pre-employment fees on health care workers who have been on the frontlines protecting our community during crisis, feels like a direct affront to their dedication and sacrifices.”

Sacramento Podiatrist Le Phong, the incoming president of the California Podiatric Medical Association, said the tax increase will be hard on new podiatrists.

“I guess somewhat established practices should be able to absorb the cost, but for some of the new people coming in it’s rough,” he said.

He said podiatrists already pay thousands of dollars yearly in various fees, taxes, and charges, from maintaining their state license to fees associated with operating X-ray machines and other radiological equipment.

Phong said that is in addition to malpractice insurance and paying off student loans.

Attorney Clark said the Sacramento tax increase plan would be more plausible if it included reduced taxes for part-time workers.

She noted that the State Bar Association of California offers a license fee reduction for attorneys whose income is limited.

Bar rules show that a 25% reduction is available for attorneys who make less than $60,478, and a 50% reduction for those making under $20,000.

Even without the fee reduction, the annual state bar licensing fee is $510, less than the $684 that would be charged to lawyers in Sacramento if voters approve Measure C.

Is the tax increase overdue?

A city of Sacramento staff report found that the overall business tax increase is in line with other cities such as San Francisco, Oakland, Fresno, Folsom, San Jose and Long Beach. However, that report did not look at tax fees for professionals in those other cities.

However, Clark did her own research and found that in San Francisco and San Jose taxes are waived for lawyers with her income level. The taxes are also limited to $25 in Bakersfield, $40 in Folsom, $60 in Oakland and $272 in Long Beach.

If Measure C does pass, one group of professional license holders will be getting a break.

Erin Teague, the government affairs director for the Sacramento Association of Realtors was following the tax increase legislation before the City Council.

She successfully argued before the council last fall that raising the yearly $100 tax fee for brokers to $684 in one move on July 1 was not right.

“Catching up on 30 years of inflation in less than a year is completely unfair to small businesses,” she said.

Mayor Steinberg said he wanted the real estate communities’ support for the referendum and led a successful effort among council members to lower the fees.

If Measure C is passed, real estate brokers will pay $150 on July 1, $200 in 2025 and $228 in 2026.

Unlike what Steinberg wanted, the real estate association has not endorsed the fee increase. Teague had said the group was remaining neutral.

Valenzuela said she appreciates the concern among professional license holders over the potential tax increase but notes that the city is not talking about thousands of dollars in increases on any one individual.

“We’re talking about hundreds of dollars and it’s a 30-year inflation adjustment,” she said. ”I think staff was pretty modest in how we did this because we are trying not to shock the system too much.”