presents
Shall the City eliminate the payroll expense tax; permanently increase the registration fee for some businesses by $230–460, decreasing it for others; permanently increase gross receipts tax rates to 0.105–1.040%, exempting more small businesses; permanently increase the administrative office tax rate to 1.61%; if the City loses certain lawsuits, increase gross receipts tax rates on some businesses by 0.175–0.690% and the administrative office tax rate by 1.5%, and place a new 1% or 3.5% tax on gross receipts from commercial leases, for 20 years; and make other business tax changes; for estimated annual revenue of $97 million?
Shall the City overhaul business taxes by eliminating the payroll tax, increasing gross receipts and administrative office taxes, reducing taxes for some small businesses, and further increasing business taxes if the City loses either of the lawsuits filed against the Early Care and Education Commercial Rents Tax and the Homelessness Gross Receipts Tax?
Note: This Pro/Con information is also available in Chinese and Spanish.
The City collects taxes from San Francisco businesses, including:
◼ The payroll expense tax;
◼ The gross receipts tax;
◼ The administrative office tax;
◼ The annual business registration fee;
◼ The early care and education commercial rents tax (Child Care Tax); and
◼ The homelessness gross receipts tax (Homelessness Tax).
Before 1999, San Francisco taxed companies based on either payroll or gross receipts. In 1999, the City was sued to eliminate the gross receipts tax. The City decided to scrap the gross receipts tax and lost a large amount of money as a result. In 2012, the gross receipts tax was reintroduced, but this change did not bring in enough new revenue.
In 2018, San Francisco voters approved measures to impose the Child Care Tax and the Homelessness Tax. The Child Care and Homelessness Taxes have been challenged in court in separate lawsuits, and the money collected through these taxes has been impounded pending settlement.
State law limits the amount of revenue, including tax revenue, the City can spend each year. State law authorizes San Francisco voters to approve increases to this limit to last for four years.
Proposition F proposes several changes to the taxes the City collects from San Francisco businesses, including:
◼ Eliminating the payroll expense tax beginning in the 2021 tax year;
◼ Increasing the gross receipts tax rate in phases;
◼ Expanding the small business tax exemption from the gross receipts tax to $2 million and eliminating the credit for businesses that pay a similar tax elsewhere;
◼ Increasing the administrative office tax rate in phases; and
◼ Reducing the annual business registration fee for businesses with less than $1 million in gross receipts.
Other changes would only occur if certain conditions are met:
◼ If the City loses the Child Care Tax lawsuit the City would be required to collect a new tax on gross receipts from the lease of certain commercial spaces.
◼ If the City loses the Homelessness Tax lawsuit, gross receipts and administrative office tax rates would increase for some businesses.
◼ If the City loses either lawsuit, the City Charter would be amended to change how baseline funding is calculated. Baseline funding is where the Charter sets a base amount of funding for a particular purpose (for example, the Public Education Enrichment Fund). The Board of Supervisors and the Mayor have no discretion to change these Charter-mandated baselines.
Proposition F would increase the City’s spending limit for four years from November 3, 2020.
Tax increases would be generally phased in over three years beginning in tax year 2022, resulting in additional annual revenue to the City of approximately $97 million once fully implemented, according to the Controller. The proceeds would be deposited in the City’s General Fund. Temporary rate reductions for tax years 2021, 2022, and 2023 are proposed for industries heavily impacted by current economic conditions, including those paid by the hospitality, restaurant, and retail sectors.
A “YES” Vote Means: If you vote “yes,” you want to: eliminate the City’s payroll expense tax but Increase gross receipts and administrative office tax rates in phases, reduce business taxes for some small businesses, and further increase the City’s business taxes if the City loses either of the lawsuits regarding the Early Care and Education Commercial Rents Tax or the Homelessness Gross Receipts Tax, but exclude money collected from these increases when determining baseline funding.
A “NO” Vote Means: If you vote “no,” you do not want to make these changes to the business tax system.
◼ Provides tax relief for sectors most impacted by COVID-19 pandemic including retail, restaurants, and hospitality.
◼ Raises the ceiling for exemption from the gross receipts tax for small businesses.
◼ Generates new revenue to protect and maintain critical City services stymied by pending lawsuits against the Child Care and Homelessness Taxes.
◼ Creates an estimated 5,500 jobs by eliminating the payroll tax and transitioning to a more equitable business tax system which encourages businesses to hire again.
◼ We don’t know what types of businesses will be here in the future. Implementing a new tax system will create even more uncertainty when we should be fostering predictability and stability.
◼ It is a massive tax increase of $97 million annually that will discourage new businesses from starting up and closed businesses from reopening.
◼ It is a lengthy and complicated overhaul of City business taxes, making it difficult to understand its impact on businesses and the City as a whole.
◼ It should have been two separate measures not a combined Charter amendment and ordinance.
A "YES" Vote Means: If you vote "yes," you want to:
• Eliminate the City’s payroll expense tax;
• Increase gross receipts and administrative office tax rates in phases;
• Reduce business taxes for some small businesses; and
• Further increase the City’s business taxes if the City loses either of the lawsuits regarding the Early Care and Education Commercial Rents Tax or the Homelessness Gross Receipts Tax, but exclude money collected from these increases when determining baseline funding.
A "NO" Vote Means: If you vote "no," you do not want to make these changes.
The Way It Is Now: The City collects taxes from San Francisco businesses, including:
• The payroll expense tax;
• The gross receipts tax;
• The administrative office tax;
• The annual business registration fee;
• The early care and education commercial rents tax (Child Care Tax); and
• The homelessness gross receipts tax (Homelessness Tax).
The Child Care and Homelessness Taxes have been challenged in court, and the money collected through these taxes has not been spent by the City.
State law limits the amount of revenue, including tax revenue, the City can spend each year. State law authorizes San Francisco voters to approve increases to this limit to last for four years.
The Proposal: Proposition F would change certain taxes the City collects from San Francisco businesses, including:
• Eliminate the payroll expense tax;
• Increase the gross receipts tax rate in phases, expand the small business exemption and eliminate the credit for businesses that pay a similar tax elsewhere;
• Increase the administrative office tax rate in phases; and
• Change the business registration fee.
Some of the changes to the gross receipts and administrative office tax rates would be delayed if a minimum of total San Francisco gross receipts are not met.
Under Proposition F other changes would take effect only if certain conditions are met:
• If the City loses the Child Care Tax lawsuit, the City would be required to collect a new tax on gross receipts from the lease of certain commercial spaces;
• If the City loses the Homelessness Tax lawsuit, gross receipts and administrative office tax rates would increase for certain businesses; and
• If the City loses either lawsuit, the City Charter would be amended to change how baseline funding is calculated.
Proposition F would increase the City’s spending limit for four years.
Should the proposed combined charter amendment and ordinance be approved by the voters, in my opinion, it would result in additional annual revenue to the City of approximately $97 million annually on an ongoing basis once fully implemented. The proceeds would be deposited in the City’s General Fund. Additionally, the proposed measure would permit onetime spending of approximately $1.5 billion in the shorter-term generated by two currently assessed taxes that are impounded pending resolution of ongoing litigation.
The proposed ordinance would amend the city’s existing Business and Tax Regulations Code in a number of ways, including discontinuing the City’s payroll expense tax, increasing gross receipts business tax rates, and increasing the number of small businesses exempted from the business tax. Overall business tax rates for some industries are increased, generally phased in over three years beginning in tax years 2022. Temporary rate reductions for tax years 2021, 2022, and 2023 are proposed for other industries heavily impacted by current economic conditions, including those paid by the hospitality, restaurant, and retail sectors. The revenue estimates reflect the expected change in City revenue compared to the existing business tax structure and the current availability of collected revenues subject to judicial action.
The proposed ordinance authorizes contingent taxes that would be imposed if two currently assessed dedicated taxes for homeless services and childcare are struck down by court action. The proposed replacement taxes are similar in structure to those dedicated taxes. The measure excludes revenues generated by those contingent taxes from the calculation of various required voter-adopted minimum spending requirements on transit, parks, youth services, and other setasides and baselines.
It is important to note that business taxes can vary significantly depending on economic conditions, and current estimates may not be predictive of future revenues.
