The Board of Supervisors may be within reach of an agreement with Mayor London Breed over its gross receipts tax proposal for the November ballot after a number of amendments were made Thursday that will lower the overall tax hike and postpone increases until 2022.
During the Board of Supervisors Budget and Finance Committee, Board President Norman Yee announced a number of changes to the board’s proposed gross receipts tax measure that could generate at least $100 million annually for the general fund within four years.
Stepped increases in gross receipts rates would hit some sectors such as tech, biotech, financial services and real estate beginning in 2022.
Yee called the measure “balanced but bold in bringing immediate relief to those who need it the most while offsetting the cost to mainly large industries that are less cost sensitive.”
The changes are intended to strike an agreement with Breed, who had introduced a competing measure. One of the key differences between the two measures was how much money they would generate and when.
Breed is reviewing the board’s changes with the intention to arrive at a consensus.
“She is very appreciative of these amendments today, in particular that which phases in the tax hikes over a few years as we work our way through this economic recovery,” said Sophia Kittler, Breed’s liaison to the board. “She is reviewing those now and we do hope that we will be able to support this measure and we will be in touch.”
The measure was in the works before the COVID-19 pandemic as The City’s 2012 voter-approved transition from a tax on businesses payroll to a gross receipts tax ended up leaving a hybrid of both taxes. The measure would eliminate the payroll tax in its entirety.
With the changes Thursday, the measure likely to come before voters in November has come into focus.
The board’s measure would increase the current exemption for small businesses that have to pay the business tax from the current $1 million or less in gross receipt to $2 million or less in gross receipts, providing relief to an estimated 3,100 more small businesses.
The measure would provide a temporary tax relief to certain industries including hotels, restaurants, arts and entertainment, recreation, manufacturing and retail. For the first $25 million in gross receipts of businesses in these sectors, there would be a 50 percent reduction for adjusted rates in both tax years 2021 and 2022 and then a 25 percent reduction in 2023.
One of the biggest changes made, and those noted by Kittler, reduces the level of the ultimate tax rate increase versus what was initially proposed by Yee and it phases those increases in over time.
“Rates increases in the initial version were at the 30 percent level for many industries and would have gone into effect immediately in 2021,” City Controller Ben Rosenfield said during the hearing. “The changes here today reduce that ultimate increase to 15 percent to 20 percent depending on the industry and it phases those increases not immediately but beginning in 2022 and then taking steps forward in 2023 and 2024 as well.”
He added, “There are triggers added to the increases in 2023 and 2024 that delays those increases for a year if gross receipts in the city have not recovered.”
The remaining payroll tax would go away in January 2021 under the measure by replacing it with a 40 percent increase in gross receipts tax rates “prorated across all the schedules in a revenue neutral swap to solve for the same revenue that we are collecting today,” Rosenfield said.
He noted that “the information sector would be increased to match the rates paid by financial services, professional services and insurance.”
Another key element of the proposal is that it would create a “backstop” tax that would go into effect only in event The City loses its lawsuit over two 2018 tax measures approved by voters to fund child care and homeless services that are caught up in litigation.
The City has been collecting the tax funds but the City Controller has impounded the funds in case they lose the lawsuit and need to refund it. However, the measure would free up the money.
Rosenfield’s report on the measure said that the “backstop” tax would allow “The City to spend currently-assessed taxes of approximately $1.5 billion through fiscal year 2022-23, comprised of approximately $1.2 billion for childcare and homeless services and $300 million in general fund repayments.”
Talks have included labor leaders, business advocates, the Homeless Coalition and community advocates.
“I don’t want to put words in the Chamber of Commerce’s mouth but I think they are coming around to the fact that we have a fair and balanced package,” said Supervisor Aaron Peskin.
Jay Cheng, a spokesperson for the San Francisco Chamber of Commerce, told the San Francisco Examiner that “the gross receipts tax amendments introduced today make good progress towards protecting small businesses and coronavirus-impacted industries.
“We need to keep protecting our small and local businesses during this crisis.”
The budget committee adopted the amendments Thursday and is expected to hold a hearing Tuesday to send it to the full board for a vote to place it on the ballot.