Tax revision casts wider net 

click to enlarge Gross goods: Companies with many employees, such as restaurants and tech companies, would benefit from a gross-receipts tax. - S.F. EXAMINER FILE PHOTO
  • S.F. Examiner File Photo
  • Gross goods: Companies with many employees, such as restaurants and tech companies, would benefit from a gross-receipts tax.

Even as negotiations with business leaders are ongoing, Mayor Ed Lee will introduce a proposed November ballot measure today that would replace San Francisco’s payroll tax with a tax on businesses’ gross receipts.

San Francisco’s 1.5 percent payroll tax — the only one of its kind in California — is maligned by employee-heavy industries such as tech and hospitality as a “job killer” that discourages hiring. Yet because it only applies to companies with payrolls exceeding $250,000, it only affects 7,500 of The City’s 96,000 businesses.

“The City’s future is to get a tax system that is going to be a lot more job-friendly,” said Lee, who collaborated with Board of Supervisors President David Chiu on the plan.

Lee said his revenue-neutral proposal would generate the same $410 million as the payroll tax — with one caveat.

To placate the real estate industry, Lee wants to replace a separate real estate transfer-tax increase with business fee hikes designed to generate $13 million for an affordable-housing fund.

Business registration fees, which currently range from $25 to $500, would run from $75 to $20,000.

But Supervisor John Avalos plans to introduce a competing measure today with fee increases designed to generate $40 million more, a position backed by unions and community groups.

“Ultimately, I would like there to be one measure going to the ballot,” said Avalos, who has the support of supervisors Jane Kim and David Campos. “I’m willing to be flexible.”

Even without such fee increases, a new tax structure would produce winners and losers. To reduce the financial impact of the tax change, the City Controller’s Office has devised six schedules with tax rates tailored by industry.

Although businesses with less than $1 million in gross receipts would not owe the tax, the mayor’s proposal would spread the tax burden to twice as many companies — 15,000 — as now pay the payroll tax.

Ken Cleaveland, who represents high-rise office owners as head of the Building Owners and Managers Association of San Francisco, said he remains concerned.

“It’s going to definitely sock our industry pretty substantially,” he said, adding that some members’ tax bills could increase from $100,000 to $700,000. The proposal includes rates between 0.3 percent and 0.4 percent; BOMA had asked for a flat 0.3 percent tax.

Such debates are expected to continue through July, the deadline for the board to put the measure on the ballot.

Other sticking points include how to define gross receipts for businesses such as investment firms and how to tax corporate headquarters such as Gap, McKesson and PG&E.

The board is expected to hold public hearings on the proposal next month.

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