Friday, April 28, 2017

San Francisco Business Tax Reform: Annual Report for 2016

In 2012, BOMA San Francisco members and the business community worked with the City and County of San Francisco to move the business tax from a payroll tax to a gross receipts tax. That transition continues and, based on 2016 data, this is the latest information from the San Francisco Office of the Controller and the San Francisco Treasurer's Office.

San Francisco voters approved a transition in the City’s business tax, away from a tax based on business payroll to one based on gross receipts. The voter-approved ordinance also requires the Controller’s and Treasurer’s Offices to prepare annual reports on the implementation and impacts of the new tax. The two offices have issued the second of these annual reports today. It may be accessed here:

Main Conclusions 

1. The shift to a gross receipts tax has led to a broader business tax base. In 2015, 50% more businesses paid the gross receipts tax than paid the payroll expense tax. Nevertheless, the vast majority of San Francisco businesses benefited from the small business exemption, and paid neither tax.

2. The gross receipts tax is significantly more progressive than the payroll tax. Businesses with over $100 million in gross receipts paid 43% of the total tax revenue in 2015, while businesses with less than $2.5 million paid only 5%.

3. The shift from a payroll-based to gross receipts-based tax has shifted the business tax burden among industries. Some aspects of this burden were expected, such as the fact that the financial services and real estate industries pay a higher share of the gross receipts tax than they do of the payroll tax, and industries such as retail trade and information pay a lower share. Some other industry impacts have differed from those initially expected.

4. During the shift to gross receipts, the payroll tax rate is being reduced as new gross receipts revenue is collected. In 2012, it was expected that the voter-approved maximum gross receipts tax rates would be sufficient to fully retire the payroll expense tax, but based on two years of data, it now appears that the payroll tax will remain in place in 2018 when the phase-in period concludes.

5. Filing data for the third year of implementation, tax year 2016, is now being collected, and the two offices plan to release the next annual implementation report in late 2017.

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