During a mammoth meeting at City Hall on Wednesday to discuss how to overhaul San Francisco’s payroll tax, a fault line emerged between The City’s labor-intensive technology sector and its more
As time grows short to craft a November ballot measure to overhaul the way San Francisco taxes businesses, about 50 business leaders met with Mayor Ed Lee and Board of Supervisors President David Chiu to debate replacing The City’s 1.5 percent tax on business payrolls with a tax on gross receipts.
Pressure is mounting to reach a consensus and avoid a counterproductive fight at the ballot box. But since there will be winners and losers whatever the end result, businesses from a variety of diverse industries are paying close attention.
The meeting included tech companies such as Salesforce.com, Yelp and Zynga; financial services companies such as BlackRock and Visa; small- business representatives including SFMade and the Golden Gate Restaurant Association; and nationwide companies with headquarters in San Francisco, such as Wells Fargo and the pharmaceutical giant McKesson.
Several people in attendance characterized the meeting as positive and productive, downplaying any tension.
But others said technology investor Ron Conway rubbed many business leaders the wrong way with his brash support for a gross receipts tax. While some sectors would see their tax bills more than double under such a proposal, The City’s fast-growing tech industry could see its tab significantly slashed.
“The tech companies don’t seem to be team players,” said small-business advocate Scott Hauge.
San Francisco’s existing payroll tax has long been maligned as a disincentive to hiring and a barrier to attracting and keeping companies in The City.
The tech industry supports the theoretically more egalitarian gross receipts tax because payrolls represent such a high percentage of its overall costs. Last year, under pressure from tech leaders, The City created a payroll tax exemption designed specifically to encourage Twitter’s relocation to the mid-Market Street area, and then exempted stock option compensation for companies that go public, which benefited Zynga and other pre-IPO tech firms.
But the gross receipts model worries executives in industries where employee costs are not a high percentage of their total expenses, such as the finance, insurance and real estate sectors. The City Controller’s Office says those companies’ payment of business taxes would increase from 16 percent to 26 percent of total tax revenue under the gross receipts proposal.
“We have to realize it’s not just about high tech,” said Ken Cleaveland, who represents the owners of high-rise offices as head of the Building Owners and Managers Association of San Francisco. Cleaveland said the gross-receipts proposal would more than double the costs for his members, and he is urging the mayor to lower the proposed tax rates.
The challenge for Lee and Chiu will be to come up with rates seen as fair across multiple industries while also generating the same amount of revenue currently brought in by The City’s payroll tax, which is about $400 million.
The city controller is expected to release a final report on a new business-tax model as early as Tuesday. A proposed ballot measure would need to be introduced in early June to make it onto the November ballot. It would take the city attorney about a month to draft any measure’s language.
Wednesday’s meeting on how to overhaul the business tax was well-attended by The City’s business elite. Among the parties represented:
Banking and finance
- Fremont Group
- Wells Fargo
- Chamber of Commerce
- Coalition for Better Housing
- Committee on Jobs
- Golden Gate Restaurant Association
- Hotel Council
- sfCITI: San Francisco Citizens Initiative for Technology & Innovation
- San Francisco Locally Owned Merchants Alliance
- Real estate and construction
- Building Owners and Managers Association of San Francisco
- Investor Ron Conway
- Berg Davis Public Affairs
- High Flying Foods
- Morrison & Foerster
- Platinum Advisors
- San Francisco Soup Kitchen