San Francisco considering tax break on payrolls for small businesses

Courtesy PhotoSupervisor Mark Farrell wants a tax break for small businesses regardless of Prop. E's outcome.

Small businesses that are growing could benefit from a payroll-tax break during the next several years even if voters in The City do away with that tax on Election Day.

While such a tax break had been previously approved, the Board of Supervisors is deciding today whether to award it even after the possible passage of Proposition E, which proposes to do away with San Francisco’s tax on what businesses pay their employees.

If voters approve Prop. E on Tuesday, The City would begin phasing out its 1.5 percent payroll tax beginning in 2014. Under that scenario, according to an analysis by the board’s budget analyst, Harvey Rose, the proposed tax break would result in The City losing about $7.3 million in payroll-tax revenue during the course of the four years the tax break would be in effect.

If Prop. E doesn’t pass, the tax break would cost The City $8 million during the four-year period.

The Board of Supervisors previously approved the tax break with the provision that it would not go into effect if Prop. E passed. But Supervisor Mark Farrell, who authored the legislation, now wants the tax break in place regardless of Prop. E’s outcome.

A small business is defined as having a payroll of $500,000 or less, using 2011 as the base tax year. Businesses that qualify could grow their total payrolls by $250,000 starting with the 2012 tax year without paying taxes on the growth, which represents a tax break of up to $3,750 per year. About 30,000 of San Francisco’s 80,000 businesses qualify as small businesses.

The Board of Supervisors Budget and Finance Committee votes on Farrell’s legislation today. It would require approval by the full board to go into effect.

jsabatini@sfexaminer.com

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