San Francisco Mayor London Breed and the Board of Supervisors requested that city staff perform an evaluation of the city business tax structure to provide recommendations to preserve revenue and lessen dependence on a few big corporations in the light of increasing remote work preferences and an exodus from the city. Controller Ben Rosenfield, Treasurer José Cisneros, and Chief Economist Ted Egan conducted 30+ meetings over five months with local businesses to brainstorm ideas. The result of this outreach was recently released in a report containing specific proposals to streamline the tax structure without increasing the tax burden on small businesses.
The proposals in the report include the following:
- Revise apportionment rules for the gross receipts tax to use 75% sales in the city and 25% city payroll apportionment to reduce the penalty of having employees in the city. Currently, non-real estate taxpayers use either 100% city payroll or 50% payroll and 50% sales in apportioning revenue to the city.
- Reduce the city’s Overpaid Executive Tax by 90%. This is currently paid by large companies with top executives making 100 times more than the average employee.
- Reduce the commercial rents tax by 25%, while maintaining the commitment to funding education.
- Merge the homelessness gross receipts tax into the gross receipts tax, while maintaining the commitment to funding homelessness.
- Eliminate annual business license fees, generally paid by small businesses.
- Increase the voter threshold required to position tax measures on the ballot and restrict a minority of board members or the mayor from directly placing a tax measure on the ballot. This proposal more closely aligns the city with other cities in the state.
To keep revenue neutral, the tax rate on gross receipts would be necessarily increased accordingly. Although not everyone agrees with these proposals, it is agreed that some change is necessary to lessen dependence on a few large corporations while accommodating small businesses still recuperating from the pandemic.
Josh Booth, a principal in the State Income and Franchise Tax practice at Ryan commented: “For many Bay Area-based businesses, even if multinational in scope, the San Francisco tax represents their highest tax liability, putting a lot of pressure on where they allow their employees to work remotely or otherwise. The increased materiality in the sales factor presents opportunities and heightens the importance of prospective planning.”
According to Booth, “The city’s desire to diversify its taxpayer base puts companies with limited San Francisco payroll on alert to expect the city to become more aggressive in their audit reach.”
We will keep you updated as to how these proposals are addressed in the budget later this year. In the meantime, if you feel your business could be impacted by these changes, reach out to one of our experts listed below for assistance.
TECHNICAL INFORMATION CONTACTS:
Josh Booth
Principal
Ryan
916.790.3772
josh.booth@ryan.com
Landon Julius
Principal
Ryan
913.338.2005
landon.julius@ryan.com
Gina Rodriquez
Principal
Ryan
279.600.3261
gina.rodriquez@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.