San Francisco – Today Mayor London N. Breed will introduce new tax policy legislation as part of her plan to reinvent and strengthen Downtown San Francisco. This includes legislation to provide tax relief for existing businesses and tax credits for new businesses that locate in San Francisco. This legislation is co-sponsored by Supervisors Matt Dorsey and Joel Engardio. Additionally, Mayor Breed has initiated a longer-term process to reform San Francisco’s tax structure with a goal of putting a measure on the ballot in 2024.
Last week, Mayor Breed released her “Roadmap for Downtown San Francisco’s Future”, a comprehensive plan to reinvigorate Downtown and reposition San Francisco as the Bay Area’s economic hub and a global anchor for commerce. The Roadmap includes nine strategies to respond to emerging economic trends and capitalize on the City’s strengths to keep Downtown vibrant, focusing on key priorities such as offering a clean and safe environment, fostering a resilient workforce, strengthening transportation, and attracting new industries.
“The long-term health of our Downtown and our City’s finances require us to be creative in how we attract and retain businesses,” said Mayor London Breed. “To have workers Downtown visiting small businesses and being a part of a vibrant neighborhood, and to have the revenue necessary to deliver critical city services our residents expect, we need to make adjustments. Our vision for Downtown includes being a diverse, resilient economy that fosters success and helps support our entire City.”
“San Francisco’s Gross Receipts Tax is incentivizing remote work at a time when we need to do the exact opposite,” said District 6 Supervisor Matt Dorsey. “Mayor Breed is taking a bold and smart approach to jumpstart our downtown’s economic recovery, combining needed short-term tax relief with longer-term business tax reforms that will make San Francisco a more attractive destination for employers and their employees for years to come.”
“We need to roll out the red carpet and cut the red tape for businesses in San Francisco. That starts with not hitting them with a 50 percent tax increase. We must reduce taxes, fees, and regulations so entrepreneurs have the freedom to create the next big thing to save our local economy,” said District 4 Supervisor Joel Engardio. “We can’t afford to hinder the new ideas that will revolutionize our downtown and neighborhood merchant corridors in a post-pandemic world.”
As her first steps in addressing taxes, the Mayor will introduce legislation today to the Board of Supervisors, in addition to steps to begin longer-term reforms around San Francisco’s tax structure.
Delays Tax Increases for All Businesses
In 2020, voters passed Prop F in order to phase out payroll expense tax. In that measure voters chose to delay a gross receipts increase for some industries hardest hit by the COVID-19 pandemic, including certain services such as maintenance and laundry businesses, retail trade, food services, manufacturing, accommodations, arts, entertainment and recreation until 2023.
The Mayor’s legislation would further delay the tax increase on these businesses for two years. Without this change, these businesses will see their taxes increase by 50% this year and an additional 30% the following year. She further announced that stop gaps she included in Prop F for other sectors to prevent tax rate growth that outpaced the city's recovery were working and that tax rates for other business sectors will remain at 2022 levels as a result of the current economic climate.
Office Attraction Tax Credit
With a 25+% office vacancy rate, attracting new office users to Downtown will be key to the future of San Francisco’s economy. The City must find a way to attract new office businesses to shore up our vacancy rates, support ground floor businesses and bolster our future revenue through gross receipts tax, property tax, and other sources.
The Mayor’s legislation would offer a 0.45% discount on the office based gross receipts for new offices locating in San Francisco for up to three years. A business’ annual discount would be capped at $1 million and the program would expire in 2028. To be eligible for the tax credit, businesses must file Gross Receipts Tax in the following categories: information, administrative and support services, financial services, insurance, and professional, scientific and technical services.
Initiate Tax Reform Process
Finally, the realities of a long-term hybrid workforce and the changing nature of our Downtown have exposed weaknesses in the City’s approach to business tax revenue.
To address this, Mayor Breed has asked Controller Ben Rosenfield and Treasurer José Cisneros to embark on a collaborative process with legislators, businesses, labor, and community stakeholders on a potential 2024 tax revenue measure. These efforts will explore identifying tax adjustments that mitigate disincentives for in-person work, diversify the City’s tax base to reduce disproportionate dependence on a very small set of tax payers, stabilize the City’s finances, and allow San Francisco to better compete with its peer cities in attracting new businesses, while still maintaining the robust tax revenues that allow the City to provide critical services.
“The tax changes being proposed by Mayor Breed represent a strong start in making San Francisco more competitive with lower-tax cities," said Jim Wunderman, President and CEO, Bay Area Council. “We applaud the Mayor’s leadership in leveraging as many tools as possible to accelerate the city’s economic recovery, attract new investment, diversify the business mix of our downtown core and help small businesses survive. On top of the tax changes she’s proposing, Mayor Breed is right that we also must look at additional deeper tax reforms that will make San Francisco a viable destination well into the future for new jobs and investment, and help retain the employers and jobs we have now.”
"This pause on tax increases for San Francisco businesses is most welcome as the last few years have been the most challenging time for so many businesses, said Cynthia Huie, President of the Small Business Commission”. This break will bolster our small businesses that are vital to the health and resilience of our neighborhoods and communities."
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