SAN FRANCISCO, CA — Treasurer José Cisneros, Controller Ben Rosenfield, and the City’s Chief Economist Ted Egan have issued recommendations intended to frame the development of a measure for the consideration of the voters in November 2024. These recommendations build on a July 2023 analysis, completed at the request of Supervisor Mandelman, that identified key vulnerabilities of San Francisco’s business tax system in the context of the City’s post-pandemic recovery.
The process to develop the recommendations included five months of outreach and input gathering from a broad cross-section of San Francisco’s business community, labor organizations, advocates and other stakeholders. With the assistance of the Office of Economic and Workforce Development (OEWD), outreach included more than 30 group meetings with affected businesses, community stakeholders, and three large public roundtable meetings.
“Simplifying our business tax structure helps businesses and the City,” said Treasurer José Cisneros. “These reforms create a tax structure that is clear, fair, and promotes economic growth.”
“Fruitful discussions with a range of perspectives have gotten us to this point, and I’m pleased that we now have a solid set of implementable ideas for policy makers to consider,” said Controller Ben Rosenfield. “Tax reform is going to be a necessary part of navigating the economic and financial realities of the City’s post-pandemic recovery.”
The recommendations in this report are intended to mitigate risks in the current business tax structure in San Francisco, advance broad goals of simplicity and predictability for taxpayers, and promote greater equity for small businesses. With these goals in mind, recommendations include:
Increasing Equity for Small Businesses — increasing the small-business exemption and eliminating $10 million in regulatory license fees primarily paid by small businesses.
Consolidating Tax Structure — Merging the Homelessness Gross Receipts Tax into the Gross Receipts Tax, while preserving the same dedicated funding for homeless services; reducing the rates of the Overpaid Executive Tax by 90%; and reducing the rates of the Commercial Rents Tax by 25%, while preserving the same dedicated funding for early childhood care and education.
Simplifying Tax Schedules and Apportionment Rules — Reducing the number of tax schedules to simplify administration of the tax and reduce potential conflicts between the City and taxpayers. Shifting away from calculation of taxes based on payroll in San Francisco towards sales in the City.
Improving Tax Predictability — Aligning local tax filing deadlines with those for federal and state tax filings; aligning rules to place tax measures on the ballot with other cities in California.
“I’m thankful to our Treasurer, Controller, and Chief Economist for working on this initiative," said Mayor Breed. “We’ve long known regaining our competitive edge requires changes to how we structure our taxes. I look forward to working with everyone in City Hall as well as our labor partners and business community on how we move forward from here with reforms that will be in the best interest of San Francisco, and the people who live here.”
This report does not make any recommendation regarding how much revenue the City should seek to generate through business taxes, only the way in which that revenue is collected. All recommendations assume revenue neutrality based on 2022 tax filings, with no significant changes to the City’s base of taxpayers. Most changes recommended in the report would require approval of the voters.
“The City has regularly ‘trued-up’ our business tax since we transitioned our payroll tax to gross receipts years ago,” said Board of Supervisors President Aaron Peskin, who also serves on the Budget and Appropriations Committee. “But the next true-up will need to balance so many additional post-pandemic challenges, from declining revenue to stabilizing our struggling small businesses and attracting new jobs to San Francisco. This working group has labored for many hours to identify recommendations that improve our tax system and give some much-needed relief to smaller operators. I hope that policy makers can build on this work and negotiate a fair compromise reform package that – while no one will love – most tax payers can agree will help stabilize San Francisco’s economy.”
“The process and analysis behind these recommendations provide a solid foundation for further work toward a business tax reform that will simplify our business tax structure, support small business, adapt to changing economic conditions, and stabilize the City budget," said Supervisor Rafael Mandelman. “I want to thank the City staff who have brought the project this far, as well as our friends in labor, business, and the nonprofit community who have given their time and insights.”
Additional resources can be found at sf.gov/businesstaxreform.