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% to funding early care and education for young children, with the remaining 15% 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% less than what was budgeted, and next year’s business tax revenue (FY 2021-22) is budgeted to be 24% 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% to 0.6% 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% to 2.4% 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