San Francisco imposes a so-called “payroll” tax upon approximately 6,000 local businesses that have payrolls in excess of $250,000 per year. City Hall extracts a 1.5 percent tax from the gross amount of the payroll. The tax produces over $342.5 million annually. It is a dumb tax; it means every time a business grossing $250,000 or more reduces unemployment by adding a job, City Hall rewards the business with a tax.
The payroll tax was imposed by the then-Board of Supervisors and then-Mayor Joseph L. Alioto in 1970 at 1 percent. Concomitant with enactment of a payroll tax (now 1.5 percent), the Board of Supervisors and mayor adopted a gross receipts tax, which taxed a business’ total revenue before deducting expenses. Whichever yielded more money, the business paid.
It resulted in large part from frustration. San Francisco politicians complained that commuters received numerous public services, from police and fire protection to street sweeping, but paid less than their proper share for the costs of such services. City Hall, led by Alioto and assisted by like-minded supervisors, wanted to impose a city income tax upon all who resided and worked in The City. The Legislature and then-Gov. Edmund G. “Pat” Brown in 1963 enacted the California Revenue and Taxation Code, Section 17041.5, to prohibit any city, county or local district income tax. Thus frustrated, they seized taxes on employees and gross receipts as substitutes.
In the 1980s, as a member of the Board of Supervisors, I introduced an ordinance to eliminate the payroll tax. It was supported conspicuously by the late James Harvey, president of Transamerica Corporation and chairman of the San Francisco Chamber of Commerce. The incumbent mayor strongly opposed the notion. (She had voted for the original payroll tax in 1970 as a supervisor.) My effort was futile. Thus, San Francisco for more than four decades has assessed specified businesses with an iniquitous tax, which flies in the face of constant political exhortations to create jobs for unemployed San Franciscans.
Recently, the Board of Supervisors president evinced a desire to eliminate the payroll tax and retrieve the amount collected by a tax on business gross receipts. That tax was repealed in 2001 after City Hall, like Los Angeles, capitulated to a legal challenge because of its unequal and unconstitutional treatment of businesses. Unlike San Francisco, Los Angeles repealed its payroll tax. Current Board of Supervisors President David Chiu noted — some 29 years after I attempted to abolish this dumb tax — that it “has been a job killer.” No kidding!
Almost simultaneously, City Hall savants, trying desperately to appease Twitter, have pursued the troubling concept of specially exempting that company from the payroll tax if it locates in the mid-Market Street area formerly occupied by the Furniture Mart. Now suppose you’re a San Francisco business with a payroll exceeding $250,000, and therefore paying a 1.5 percent tax on your total payroll. You won’t receive the Twitter special treatment. Do you think that encourages businesses in other neighborhoods to maintain their existence in San Francisco? I don’t. (Maybe City Hall thinks some businesses are more elegant than others.)
Frankly, the spectacle of a non-San Francisco company receiving a tax break unavailable to a loyal San Francisco business owner would infuriate me as the business owner. Let’s imagine another scenario: Now, I’m another non-San Francisco business in technology or microbiology, and I want to lease or buy a building on Montgomery Street. Will I receive a payroll tax exemption, too? Suppose I want to locate on Irving Street and 19th Avenue, or Chestnut Street, or the Richmond district. How about giving me that payroll tax exemption?
Why shouldn’t other San Francisco businesses receive the same exemption as Twitter for their existing or future payroll? Wise men and women on the Board of Supervisors would forcefully, truly motivate job creation in San Francisco (and not in Brisbane) by abandoning a payroll tax on any business or using gross receipts as the measure of defraying city services costs.
Quentin Kopp has served on the San Francisco Board of Supervisors, the California state Senate and as a Superior Court judge in San Mateo County.