Deal reached on San Francisco business tax reform 

click to enlarge Supervisor John Avalos, left, and Mayor Ed Lee discuss a compromise on a business tax ballot measure set to go before voters in November. Board of Supervisors President David Chiu is pictured at right. - MIKE KOOZMIN/THE SF EXAMINER
  • Mike Koozmin/The SF Examiner
  • Supervisor John Avalos, left, and Mayor Ed Lee discuss a compromise on a business tax ballot measure set to go before voters in November. Board of Supervisors President David Chiu is pictured at right.

Mayor Ed Lee unveiled a compromise November business tax ballot measure that could end a decadelong debate about changing the way The City taxes businesses.

The proposal would replace a 1.5 percent payroll tax long maligned by business leaders as a job-killer. The gross receipts tax that would replace the existing levy would encourage increased investment and innovation in San Francisco, Lee said.

“We have to create our own stronger economy,” Lee said.

The mayor and Board of Supervisors President David Chiu had proposed a gross receipts measure with rates set to generate as much as the current payroll tax, about $410 million, while also increasing business registration fees to generate $13 million. Supervisor John Avalos submitted a dueling measure that mirrored the mayor’s proposal but raised business fees by $40 million.

Talks of a compromise had intensified in recent weeks as the deadline loomed to place any measure on the November ballot. But now there appears to be broad support for the consensus proposal.

On Monday, Lee announced that the compromise would split the difference by generating $28.5 million with business fees ranging from $75 to $35,000. Fees currently range from $25 to $500. The new fees would go into effect in 2013 and increase annually based on the Consumer Price Index.

Such tax reform has been talked about continually in the 10-plus years since a lawsuit shot down The City’s dual-tax system, which relied on both gross receipts and payroll taxes. But with the recent growth of the labor-intensive technology industry, city officials have faced increased pressure to do away with the payroll levy. San Francisco is the only city in California with such a tax.

Lee backer and technology investor Ron Conway said in a statement that moving to a gross receipts tax “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.”

Under the gross receipts measure, rates would be narrowly tailored for different industries on seven different tax tables. The proposal would double the number of businesses that pay a business tax, from 7,500 to 15,000. Businesses with gross receipts under $1 million would not pay the tax, just the fees.

The deal ensures that the Board of Supervisors will adopt the changes today to reflect the agreement. Next week, the board is expected to officially place it on the ballot.

jsabatini@sfexaminer.com

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