TAX NEWS - JUNE 2010

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San Fransisco Tax: Tax proposed for commercial rents

A new tax on commercial rents in San Francisco would be enacted under a new revenue measure that Board of Supervisors President David Chiu hopes to put before voters in November.

At the same time, he hopes to reduce the city's payroll tax levied on employees earning less than $85,000 a year.

The proposed change to the city's business-tax structure could net the city close to $35 million a year more in additional revenue. In the fiscal year that ended July 2009, the payroll tax generated $380 million.

Under Chiu's proposal, the commercial rent tax would be levied on property owners, who then could pass it along to their tenants. It could capture businesses now exempt from the payroll tax, among them banks and insurance companies. In addition, people who work in sole proprietorships or partnerships with no paid employees in San Francisco don't pay the payroll tax.

In the end, only about 10 percent of the 80,000 businesses registered in the city pay the payroll tax, according to a report released Monday by the city controller's office that examined alternatives to improve San Francisco's business tax.

The report on the business tax was written at the request of Chiu and Mayor Gavin Newsom. They and others have long believed that a tax on business payroll stymies job creation in San Francisco. The question is how to make up for the lost revenue if it were altered.

Chiu said the tax on commercial rents is one answer. It would spread the burden to more kinds of businesses, chief among them financial institutions. ''This is about business tax reform,'' he said. More details are expected today.

Newsom spokesman Tony Winnicker said it would be premature for the mayor to support or reject the proposal pending further analysis.

Chiu's idea is just one of many tax proposals expected to be introduced by supervisors today, the deadline for submitting revenue measures for the November ballot.
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