The City’s patchwork of tax breaks for various industries will live on even if voters replace its payroll tax on businesses with a gross-receipts tax under Mayor Ed Lee’s proposed November ballot measure.
Last year, San Francisco provided $3.786 million in payroll-tax breaks to 53 companies in the biotech, clean tech and technology industries, according to the treasurer’s office. And nearly $300,000 in tax credits were given to 94 businesses operating in so-called Enterprise Zones under a program that rewards companies for hiring residents in certain parts of The City.
Under the ballot measure proposal Lee introduced Tuesday, the value of these existing benefits would be applied as tax credits to businesses’ gross receipts tax bills. Tony Winnicker, a senior adviser to Lee, said The City should honor the commitments it made to these companies so it doesn’t pull a “bait and switch” on them.
However, a competing tax proposal introduced last Tuesday by Supervisor John Avalos would do away with the payroll-tax exemptions. The merits of both measures will be debated next month.
Over the years, The City has adopted specific payroll tax breaks for industries in which it sought to encourage growth, even as officials lambasted the 1.5 percent tax on employee compensation as a job killer.
This piecemeal approach to taxing businesses is one reason cited for switching from a payroll to a gross receipts tax. It often draws criticism from businesses that don’t receive similar breaks, not to mention residents who are struggling to get by in a city with high rents.
The most recent tax breaks were created to boost the tech industry, which the mayor is banking on to help turn around The City’s economy. One was created for new hires in the mid-Market Street area to benefit the microblogging service Twitter, which moved in to the area last week. Other qualifying businesses located in the area also benefit, and last year three received a total tax break of $41,000.
Meanwhile, a tax break on stock-option compensation when a company goes public was adopted at the urging of the online gaming company Zynga. It excluded $101 million in stock-option compensation for 2011, resulting in a
$1.5 million payroll-tax break, according to the treasurer’s office. Previous estimates of Zynga’s savings ran as high as $6 million.
Supporters say a gross-receipts tax would make taxation more fair by ensuring that more businesses pay the tax, and by using tax tables narrowly tailored by industry and amount of gross receipts. It is being passionately pushed by tech investor Ron Conway, a big Lee supporter and a driving figure behind San Francisco’s tech revival. The tech industry supports the gross-receipts tax because payrolls represent a high percentage of its overall costs.
Should Lee’s measure be approved by voters and the tax exemptions remain in place, then a debate over whether to keep these tax breaks would be expected when they start to expire over the next few years.