San Francisco business groups said they are squeamish over a proposal to replace a tax on payroll with one on gross receipts.
Businesses are busy calculating the impact if voters ultimately approve the gross receipts tax in November.
Instead of a 1.5 percent tax on payrolls exceeding $250,000, The City would impose a gross receipts levy varying by business type and size. It would initially generate the same revenue for The City while ultimately reducing taxes to create 2,500 jobs a year.
But businesses currently paying relatively little or no payroll tax, such as real estate companies, are favoring a modified payroll tax structure. The tax committee of the San Francisco Chamber of Commerce, which has 1,500 members, took a straw vote 10 days ago opposing the gross receipts proposal.
“Would we prefer to get away from a payroll tax? Yes, if an alternative can be created that’s fair and doesn’t impact job creation,” said Jim Lazarus, public policy director for the chamber.
The chamber has requested analysis of a modified payroll tax that has a tiered rate of 1.3, 1.2 and 0.75 percent, along with increases to the annual business registration fees, which haven’t changed in 30 years. They currently range from $65 to $500 and generate about $10 million annually. Also, the chamber wants to look at a tax exemption of up to four years for new businesses.
Board of Supervisors President David Chiu said he is “broadly in support” of examining options for a gross receipts tax.
“It’s fair and it will create more jobs,” Chiu said.
Ken Cleaveland, director of public affairs for the Building Owners and Managers Association of San Francisco, said a gross receipts tax is concerning since building owners “take in a whole lot of money, but the profit margins are very small.” He said City Hall sees downtown’s buildings “as tall, vertical ATMs, but we house the bulk of small businesses” and cost increases would be passed on to tenants.
Supervisor John Avalos said The City should change the business tax structure to increase revenue by up to $50 million annually. It currently collects about $400 million.
Mayor Ed Lee will listen to “all” the feedback before proposing a measure, mayoral spokeswoman Christine Falvey said.
Just 10 percent of businesses, or 8,000, pay the payroll tax.
The city controller is meeting with businesses this month and analyzing alternatives, and plans to issue a final report April 15.