This combined charter amendment and ordinance would change the city’s business tax code in an effort to shift the tax burden away from small businesses and more toward larger ones, with the biggest relief going to restaurants, retail, arts and other businesses that have suffered during the pandemic.
For a detailed audio breakdown, you can listen to this conversation with Amanda Fried from the Office of the Treasurer and Tax Collector:
The authors of this measure also designed it to create a mechanism for the city to spend funds from previously voter-approved taxes that are tied up in litigation. The city controller estimates Proposition F could generate $97 million every year, once fully implemented in 2024, and would allow the city to spend the $1.5 billion generated by previous taxes tied up by litigation. If the measure doesn’t pass, the city may have to cut more than $100 million from its budget, as the current budget assumes the funds held up in litigation will be released.
There are several parts to this measure.
Tax reform: According to the urbanist think tank SPUR, which endorses this measure, the business tax overhaul included in this measure has been in the works since a voter initiative in 2012 mandated that the city phase out payroll taxes, which are based on how much a company spends on payroll, and replace them with gross receipts taxes, which are based on how much gross revenue the company pulls in. Negotiations for how to fully implement that shift were held up by the coronavirus pandemic, but the mayor and Board of Supervisors managed to get a compromise approach onto the ballot in the form of Proposition F. Payroll taxes, SPUR says, can discourage companies from hiring. The gross receipts taxes in this measure charge higher-revenue businesses more than lower-earning ones.
Pandemic relief in the measure takes the form of temporary reductions in taxes for certain hard-hit industries. The measure also raises the revenue threshold some businesses can reach before they have to pay gross receipts taxes.
Litigation response: Though an appellate court has affirmed a previous decision that a 2018 business tax measure intended to raise revenue for homeless services — that election’s Proposition C — needed only a simple majority to pass, other revenues are still tied up because of litigation challenging their simple-majority wins. This election’s Proposition F includes a general tax to replace the special taxes previously approved, as general taxes require only a simple majority. Revenues from this replacement would go toward repaying businesses that paid the old taxes if courts overturn them, and toward the services those original taxes were meant to fund.
The official opponent of this measure, David Pilpel, takes issue with its complexity — in particular, the combining of an ordinance with a charter amendment. Pilpel also notes that, while the supervisors who devised the measure tried to build in pandemic relief, it’s not possible to know how many and what kinds of businesses will be operating in the city in 10 years, so major overhauls to the tax code shouldn’t be made in such uncertain times. SF.citi, an advocacy group for the tech sector, also opposes the measure, writing, “If fully implemented, these tax increases would impose a tax rate on San Francisco’s tech industry that is nearly double that of other comparable cities, such as Seattle.”