San Francisco, CA — Mayor London N. Breed today announced a proposed ballot measure to update the City’s business taxes, ensure critical funding for City services, and relieve pressure on small businesses. Mayor Breed’s proposal will reform the City’s gross receipts tax system, and unlock revenue generated by two previous tax measures to fund homelessness and childcare that are currently caught up in litigation.

Last year, Mayor Breed along with Board President Norman Yee, asked the City Controller to convene a public process to create a more efficient tax system while also ensuring that the system is fair and equitable, including for small businesses. The effort also aimed to generate additional revenue to address homelessness and the cost of housing, support youth and families, improve behavioral health, and enhance the City’s public transportation system. The Mayor’s proposed measure builds upon discussions that began in that working group process, which was interrupted by the COVID-19 public health emergency.

General agreement has been reached on a number of proposals regarding unlocking funding trapped in litigation and alleviating pressure on small businesses. However, there are outstanding conversations to be had on the raising of new taxes. 

“Our goal is to have a measure on the November ballot that reforms our business taxes, generates funding for badly needed City services, and relieves pressure on our small businesses,” said Mayor Breed. “The work that started in our working group and the Controller’s Office will make sure our business taxes will address the challenges of our current tax system, including the pressures on small businesses and other industries like retail, restaurants, and neighborhood businesses, which are really struggling. In a world where we are living with COVID-19 and its impact on our budget, we have to be creative and collaborative to do what’s best for San Francisco. I look forward to continuing our work with the Board of Supervisors, the business community, and all those who are focused on meeting the challenges our City is facing.”

Mayor Breed’s recognition of the need for more work on this effort is reflected in the fact that she has introduced two measures – one proposal that will go directly to the November 2020 ballot, and one that has been introduced at the Board of Supervisors to allow for additional collaboration and finalization. The proposal being signed directly onto the ballot will include reforms to the Gross Receipts Tax, including the plan to unlock funding for both homelessness and childcare collected through Proposition C that is currently in litigation, and the relief for small businesses. The measure signed onto the ballot contains no significant tax increases other than those necessary to unlock the Proposition C taxes. The measure being introduced at the Board of Supervisors will include those elements as well as raising new taxes, so that conversation can continue. The measure introduced at the Board also rebalances business taxes so certain industries like retail are less impacted. The goal is for there to be a single measure on the November 2020 ballot. 

If passed by voters in November, the proposal would add approximately $300 million to the General Fund for the upcoming two-year budget spanning Fiscal Years 2020-21 and 2021-22, and $76 million on an ongoing basis.

Unlock Homelessness and Childcare Funding

The Business Tax Reform measure would unlock approximately $300 million in funds that businesses have already paid for the Homelessness Gross Receipts Tax (November 2018 Prop C) and the Commercial Rents Tax for Childcare (June 2018 Prop C). Additionally, the measure would allow this funding to be collected and distributed on ongoing basis while litigation continues. It would do this by creating two “backstop” taxes that would provide sufficient additional general fund revenues for the City to refund businesses as necessary and provide some ongoing revenue in the event that the City loses pending litigation about the tax measures. The backstop taxes would be general taxes that would mirror the rates and exemptions from the Proposition C taxes for a period of 15 years.

Eliminate Payroll Tax

Mayor Breed’s proposal would immediately repeal the Payroll Tax and replace it with an increase of Gross Receipts Tax rates for most sectors. This change will simplify the tax system for businesses in San Francisco and promote job creation since the Payroll Tax generally disincentivizes hiring.

Small Business Relief

The measure includes several policies to alleviate financial pressure on small businesses and businesses that are struggling financially to operate in San Francisco. The measure would also expand the exemption for small businesses to include businesses with $1.5 million or less in gross receipts. Lastly, the measure will reduce business registration fees for business that have $1 million or less in gross receipts.

Measure Introduced at Board of Supervisors

The measure that Mayor Breed introduced at the Board of Supervisors is identical to the ballot measure described above, but also includes a proposed tax increase that would go into effect as the economy improves and provide tax relief for cost-sensitive industries. Over the coming weeks, Mayor Breed will work with the Board of Supervisors and the business community to finalize the tax increase component of the proposal.

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