Business proposal to shift tax from payroll to rent 

Taxing commercial rents — though controversial — could be one of the least-damaging taxes for businesses proposed for the November ballot, according to new analysis.

Board of Supervisors President David Chiu has proposed reducing the current 1.5 percent payroll tax for employees who earn less than $85,000 and offers a $1,500 payroll tax credit to all businesses. Perhaps the most controversial part of his plan, however, is imposing a new gross-receipts tax on commercial rents. Landlords with commercial rents below $200,000 annually would be exempt.

Chiu says the plan would spread the tax burden among the business community while generating roughly $34 million annually at a time when The City is faced with multimillion-dollar budget deficits. He explained his position at the Small Business Commission’s special hearing Monday.

Also on Monday, the City Controller’s Office released an economic analysis report outlining the pros and cons to Chiu’s business tax proposal.

In contrast, a proposed 2 percent hotel tax would hurt tourism, The City’s No. 1 industry, according to the report.

"We are not going to lose any private sector jobs," Chiu said.

Ted Egan, The City’s chief economist, explained that a commercial rent tax combined with a reduced payroll tax would eventually make it cheaper and more appealing for businesses to hire. The tradeoff is that it would increase rents in a city that is already high-priced.

Some businesses would realize savings, while others would be shelling out thousands of dollars more as the commercial rent tax is passed through to the tenants, Egan said.

For example, a software company with 75 employees would end up paying $10,000 more annually under this proposal while a grocery wholesaler with 58 employees would save nearly $500 annually, according to the economic impact analysis.

"It’s very upsetting that you continue to ask for more and more money from us," said Dennis Collins, a manager at Citizen Clothing Inc., based in the Castro. "We already pay 30 percent more in cost for payroll than any other city in the Bay Area. With the additional minimum wage, sick pay, health costs, it’s just getting out of hand."

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