Proposition L

San Francisco Business Tax Based on Comparison of Top Executives’ Pay to Employees' Pay

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Would impose an additional gross receipts tax or an administrative office tax on businesses with a greater than 100:1 ratio of the compensation of the business's highest-paid managerial employee to the median compensation paid to the business's employees based in the City. Proposition L requires a simple majority (50% + 1) to pass.

Fiscal Impact: Would result in additional revenue of $60 million to $140 million annually, though results in a given year could vary due to economic conditions and the volatility of the tax.

Next San Francisco County Measure: Measure RR

Details

Pro/Con
Pro: 

Proponents of Proposition L argue that businesses with Top Executive Pay of more than 100 times that of Employee Pay can help the City recover from its projected budget deficit of between $1.1 billion and $1.7 billion over the next two years by paying this added business tax. They argue that executive salaries in the United States increased by 940% over the last 30 years, while employee wages grew by 11%, and the measure is intended to encourage businesses in the City to invest more in their workers by reducing the disparity between their Top Executive Pay and median Employee Pay.

A YES vote on this measure means: An additional tax would be placed on some businesses in San Francisco when their highest-paid managerial employee earns more than 100 times the median compensation paid to their employees in the City.

Con: 

Opponents of Proposition A argue that this added business tax won’t solve San Francisco’s looming budget shortfall and this attempt to redistribute wealth could provide an incentive for businesses impacted by this tax to leave San Francisco, resulting in reduced tax revenues.

A NO vote on this measure means: An additional tax would not be placed on some businesses in San Francisco when their highest-paid managerial employee earns more than 100 times the median compensation paid to their employees in the City.

In Depth
Background

The City currently imposes several taxes on businesses doing business in San Francisco. For example:

  • The City collects a tax on gross receipts (Gross Receipts Tax) from some businesses at a rate of between 0.16% and 0.65% annually, which is deposited in the General Fund.
  • Businesses with more than $1 billion in gross receipts, 1,000 employees nationwide and administrative offices in San Francisco pay an administrative office tax (Administrative Office Tax) based on their payroll expense instead of their gross receipts. This tax rate is 1.4% of their payroll expense and goes to the General Fund.
  • Not all business taxes collected are designated for the General Fund, which can be used for any City purpose. At present, one business tax dedicates 85 percent to funding early care and education for young children, with the remaining 15 percent for the General Fund. Another business tax is dedicated to funding services for homeless people and preventing homelessness.

According to the August 2020 City Controller’s required report on the Mayor’s proposed budgets for the next two Fiscal Years (FY): The COVID-19 emergency and resulting public health mandates in 2020 negatively impacted the City’s business tax revenue base due to increases in unemployment, temporary and permanent business closures, and reduced employee commuting into the City.

Business tax revenue includes payroll tax, business registration fee, administrative office tax and gross receipts tax. FY 2020-21 business tax revenue is 20.9 percent less than what was budgeted, and next year’s business tax revenue (FY 2021-22) is budgeted to be 24 percent greater than the proposed FY 2020-21 budget.

Proposition L Proposal

If passed, Proposition L would place an additional tax on some businesses in San Francisco when their highest-paid managerial employee (Top Executive Pay) earns more than 100 times the median compensation paid to their employees in San Francisco (Employee Pay). Taxes collected are to be deposited in the General Fund.

For a business that pays the Gross Receipts Tax, if its Top Executive Pay is more than 100 times Employee Pay, the business would pay an additional tax from 0.1 percent to 0.6 percent of its San Francisco gross receipts.

For a business that pays the Administrative Office Tax, if its Top Executive Pay is more than 100 times Employee Pay, the business would pay an additional tax from 0.4 percent to 2.4 percent of its San Francisco payroll expense.

Source: Legal Text of Proposition L and League of Women Voters of San Francisco Nonpartisan Analysis of Proposition L

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