Mayor Lee, President Chiu & Supervisor Avalos Reach Agreement on Consensus Business Tax Reform Measure for November 2012 Ballot
With Support from Business & Labor, Consensus Measure Will End San Francisco’s Direct Tax on Jobs, Create More than 1,750 New Jobs, Generate New Revenue for Infrastructure, Economic & Community Develo
Mayor Edwin M. Lee, Board of Supervisors President David Chiu and Supervisor John Avalos today announced they have reached agreement on a consensus measure for the November 2012 ballot to reform San Francisco’s business tax structure, create more than 1,750 new private sector jobs on an average annual basis and generate $28.5 million in new revenue for the City’s general fund in its first year.
“San Francisco is the only city in California with a payroll tax, and the time to stop punishing companies for creating jobs in our City is long overdue,” said Mayor Lee. “I am very pleased we have reached agreement on a single business tax reform measure that will generate new general fund revenue for infrastructure, economic and community development and one that has wide support from business and labor and members of the Board of Supervisors. I am looking forward to working together this November to end the tax on jobs and help our City’s small businesses and innovative entrepreneurs thrive and create more jobs for our residents. I want to thank Controller Ben Rosenfield, City Economist Ted Egan and their hardworking staff for their months of effort to develop a fair, equitable and broad-based business tax reform measure.”
“This crucial shift to a gross receipts-based business tax lays the groundwork to help grow the San Francisco economy for decades to come,” said Board of Supervisors President David Chiu, who first began working on business tax reform as a member of the Small Business Commission. “After years of debate, we are closer than we’ve ever been to having a fair and rationale business tax system.”
“Once merged, our proposal will protect small businesses, get rid of the payroll tax, and bring in much needed revenue for affordable housing and other city infrastructure and services that we need to support our recovering economy,” said Supervisor John Avalos.
San Francisco currently imposes a tax on the payroll expense of persons who conduct business in the City. The tax is levied at a rate of 1.5 percent against a business’s taxable payroll expense, which includes all compensation a person pays to individuals for services performed in the City.
The proposed Gross Receipts Tax Ordinance imposes a gross receipts tax and a gross expense tax on businesses in San Francisco, phased in over five years beginning in tax year 2014 to reduce the business payroll expense tax rates based on the amount of gross receipts tax collected based on seven different schedules categorized by industry/business sectors with progressive tax rates.
The legislation enacting the gross receipts tax would phase-in the new tax at increasing rates, over a five year period. In the first year, the City would impose a small gross receipts tax, and a slightly reduced payroll tax. In subsequent years, the gross receipts tax would increase according to the approved schedule, while the payroll tax would be cut according to a formula described in the legislation.
Under the new proposal, small businesses that earn less than $1 million annually in gross receipts are exempt and protected from liability for gross receipts tax. The small business exemption will rise annually in accordance with the consumer price index to continue protecting small business from local business tax liability even as their businesses grow with the economy.
The new consensus measure broadens the City’s business tax base to include sole proprietors and businesses in Federal enclaves with gross receipts of more than $1 million annually who currently escape San Francisco business tax liability. More than 30 other California cities and most other large cities, including Los Angeles and Oakland, levy gross receipts taxes on local businesses.
The proposal also establishes business registration fees based on gross receipts and gross expenses, which have not been adjusted in more than a decade. Progressively starting at $75 for small businesses increasing up to $35,000 for companies earning more than $200 million in annual gross receipts, the proposal amends the current business registration fees to generate to generate $28.5 million in new general fund revenue beginning in 2013, with license fees adjusted annually by the consumer price index thereafter.
“The San Francisco Chamber of Commerce has long advocated for a business tax reform that broadens the tax base and is fair and equitable to businesses large and small,” said San Francisco Chamber of Commerce President & CEO Steve Falk. “We are pleased that the Mayor and members of the Board of Supervisors have reached agreement on a tax reform measure that achieves those goals, will create jobs and generate revenue for economic development and infrastructure. We appreciate the efforts these past six months by the Mayor, the Supervisors and the Controller’s Office to involve the business community in the process and build consensus."
“We congratulate the Mayor, President Chiu and Supervisor Avalos in putting together a winning compromise,” said San Francisco Labor Council Vice President of Political Affairs Conny Ford. “This is a great step forward for all of San Francisco, especially working families, and it would not have been possible if not for the community-labor-business coalition that came together. We are looking forward to working with everyone to help pass this measure this November.”
“Small business is the backbone of San Francisco’s economy and I am pleased the Mayor and members of the Board have reached agreement on a business tax reform measure that is fair to small business and will exempt many from paying the gross receipts tax,” said Scott Hauge of CAL Insurance & Associates. “We appreciate the efforts from the beginning from the Controller's Office, the Mayor and members of the Board to include and protect small business throughout the development of this tax reform measure for November."
“SEIU 1021 is thankful for the leadership of Mayor Lee, Board President David Chiu and Supervisor John Avalos and encouraged by their leadership to restore fairness to San Francisco's business tax structure,” said SEIU Local 1021 President Roxanne Sanchez.
“We are pleased the Mayor, Board President Chiu and the Board of Supervisors are coming together to move forward with only one tax measure this November,” said Committee on Jobs Executive Director Chris Wright. “We applaud their open and consensus-building approach.”
“On behalf of our more than 200 member tech companies in San Francisco, sf.citi is thrilled that Mayor Lee, President Chiu, Supervisor Avalos and other members of the Board of Supervisors have reached agreement on a consensus business tax reform measure for November,” said Ron Conway of SV Angel and Chair of sf.citi. “Moving to a gross receipts tax system will create thousands of jobs and further unleash the innovative power of the growing tech sector in San Francisco – the Innovation Capital of the World. We look forward to working together to pass the measure in November.”
“As President of the Small Business Commission and a small businessperson, I am thrilled the Mayor and Board have reached agreement on a long-overdue business tax reform measure that will create jobs, exempt most small businesses from paying the gross receipts tax and will cut taxes for many others,” said Small Business Commission President Steve Adams.
Following passage by the voters in November 2012, Mayor Lee intends to convene a Jobs, Economic & Community Development Advisory Council with representation from the Mayor, Board President, Supervisors, business, labor and community organizations to develop recommendations for the Mayor’s annual budget that invest business license fee revenues in critical infrastructure – including housing, Muni maintenance and street repaving – and other economic and community development initiatives that will create jobs, invest in the City’s workforce, support small business and promote economic growth.
“Thank you to Mayor Lee and the Board for their leadership in getting this done. Our local business community has been asking for a decade to move away from a tax on jobs to one that encourages job growth,” said Golden Gate Restaurant Association Executive Director Rob Black. “We are glad that Mayor Lee continues his focus on job creation. The creation of the Jobs, Economic & Community Development Advisory Council is an important step so that San Francisco businesses know that their tax dollars are going to support essential city infrastructure and investments in the City's long-term economic health.”
The Mayor/Chiu and Avalos measures will be amended and merged Tuesday at the Board of Supervisors meeting for final consideration for the November 2012 ballot by the Board of Supervisors at its July 31 meeting. As an initiative ordinance, the measure requires only one reading of a motion to appear on the ballot in November.