Overhaul of San Francisco business tax eyed 

An overhaul of the business tax structure in San Francisco is being mulled by city officials at a time when hundreds of storefronts are empty and thousands are unemployed.

The long-standing debate over the types of taxes assessed to local businesses resurged as The City faces another year of having to close a deficit in excess of $500 million.

As political battles brew over the various tactics to stimulate job growth in San Francisco, discussions to eliminate The City’s 1.5 percent payroll tax, which business advocates criticize as a penalty for hiring workers, are under way.

In San Francisco there are about 80,000 businesses, all of which pay an annual license fee between $25 to $500. About 6,000 are required to pay the 1.5 percent payroll tax, according to David Augustine, spokesman for the Treasurer’s Office. This fiscal year, payroll taxes, along with business registration fee, will fill the city coffers with $346 million.

The City Controller’s Office is working with stakeholders, including Board of Supervisors President David Chiu, business interests and the Mayor’s Office, in recommending overhauls to current tax system.

Chiu, a former business owner, said the current payroll tax is “regressive and does not incentivize job growth.”

Mayor Gavin Newsom’s spokesman Tony Winnicker said that there is a process under way to conduct “a comprehensive analysis of the business tax with the goal of producing a report that could be acted on by the mayor and the Board of Supervisors by November.”

Supervisor Ross Mirkarimi said he and number of supervisors are reviewing a gross receipts tax structure, with representatives of downtown business interests and union labor. A gross receipts tax levies the sales of a business as opposed to taxing the number of employees.

Mirkarimi has also requested that the City Controller examine what impact a gross receipts tax would have on the federal enclave Presidio, where businesses such as George Lucas Film and Sports Basement are exempt from paying The City’s 1.5 percent tax on payroll. According to the report, 34 large businesses in the Presidio produce $882 million in gross receipts annually. Using Oakland’s gross-receipts tax model, a rate that differs per industry type, it would generate $2.2 million a year in taxes.

The gross receipts tax would have to be voter approved and while it’s possible to ask voters to approve such a tax for just the Presidio, Mirkarami said, “I would encourage a [citywide] gross receipts tax as a way to even out the imperfections of a payroll tax.”

Steve Falk, president and CEO of the San Francisco Chamber of Commerce, said, “The chamber would be interested in a way to broaden the tax base” that places less of a burden on small businesses, especially at a time of hundreds of storefront vacancies and tens of thousands unemployed. Falk said the criticism with a payroll tax is that “you don’t tax behavior you want to encourage.”

Scott Hauge, president of Small Business California, said when it comes to a gross receipts tax “it all depends on its structure.” But if done right, he said, “I think the business community would prefer a gross receipts tax.”

Hauge said businesses do not want taxes increased and would want a revenue-neutral proposal, as well as one tailored to different industries to address fairness for businesses with few employees but high gross receipts.

Tax facts

80,000: Number of San Francisco businesses

1.5 percent: San Francisco’s tax on payroll

6,000: Businesses levied with payroll tax

6,000: Businesses’ payroll expenses in excess of $250,000 annually

$346 million: Expected city revenue from business fees and payroll taxes in fiscal year 2009-10

jsabatini@sfexaminer.com

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