Background
The City collects taxes from San Francisco businesses, including:
- The payroll expense tax;
- The gross receipts tax;
- The administrative office tax;
- The annual business registration fee;
- The early care and education commercial rents tax (Child Care Tax); and The homelessness gross receipts tax (Homelessness Tax).
Before 1999, San Francisco taxed companies based on either payroll or gross receipts. In 1999, the City was sued to eliminate the gross receipts tax. The city decided to scrap the gross receipts tax and lost a large amount of money as a result. In 2012, the gross receipts tax was reintroduced, but this change did not bring in enough new revenue.
In 2018, San Francisco voters approved measures to impose the Early Care & Education Rents Tax and the Homelessness Gross Receipts Tax. The Child Care and Homelessness Taxes have been challenged in court in separate lawsuits, and the money collected through these taxes has been impounded pending settlement. State law limits the amount of revenue, including tax revenue, the City can spend each year. State law authorizes San Francisco voters to approve increases to this limit to last for four years.
Proposition F Proposal
Proposition F proposes several changes to the taxes the city collects from San Francisco businesses, including:
- Eliminating the payroll expense tax beginning in the 2021 tax year;
- Increasing the gross receipts tax rate in phases;
- Expanding the small business tax exemption from the gross receipts tax to $2,000,000 and eliminating the credit for businesses that pay a similar tax elsewhere;
- Increasing the administrative office tax rate in phases; and
- Reducing the annual business registration fee for businesses with less than $1,000,000 in gross receipts
Other changes would occur only if certain conditions are met:
- If the City loses the Child Care Tax lawsuit, the City would be required to collect a new tax on gross receipts from the lease of certain commercial spaces.
- If the City loses the Homelessness Tax lawsuit, gross receipts and administrative office tax rates would increase for some businesses.
- If the City loses either lawsuit, the City Charter would be amended to change how baseline funding is calculated. Baseline funding is where the Charter sets a base amount of funding for a particular purpose, e.g., the Public Education Enrichment Fund. The Board of Supervisors and the Mayor have no discretion to change these Charter-mandated baselines.
Proposition F would increase the City’s spending limit for four years from November 3, 2020. Tax increases would be generally phased in over three years beginning in tax year 2022, resulting in additional annual revenue to the city of approximately $97 million once fully implemented, according to the Controller. The proceeds would be deposited in the City’s General Fund. Temporary rate reductions for tax years 2021, 2022, and 2023 are proposed for industries heavily impacted by current economic conditions, including those paid by the hospitality, restaurant, and retail sectors.
Source: Legislative Digest of Proposition F and League of Women Voters of San Francisco Nonpartisan Analysis of Proposition F
