By George Paulsen, Hood & Strong LLP
Two measures passed last week increasing business taxes in San Francisco. Propositions F and L were passed by voters aimed at businesses with over 2 million dollars in gross receipts.
What is Proposition F?
Proposition F, now law, repeals the payroll tax and raises the gross receipt tax on businesses with gross receipts over two million dollars a year. The law is scheduled to increase the tax between 15 to 20% over the old rates.
A tax based on gross receipts affects businesses differently. A business like a grocery store that sells goods at low margins and high volume with high payroll will have the same tax as a high margin retailer like a mattress store with less overhead and payroll. It is also a burden on startup companies that are just ramping up revenues while spending their money on product development and operating at a loss.
What is Proposition L?
Proposition L is looking to tax large global corporations by taxing these businesses based on the highest-paid employee globally comparing that person’s pay to the median pay of the company’s San Francisco-based employees. The way this would work is with a 100:1 ratio.
Say the CEO of a company makes $25,000,000 compensation per year and is headquartered in another country. If the San Francisco location’s business has an average compensation of $100,000 per employee, it is multiplied by 100 to compare $10,000,000 to the officer’s pay of $25,000,000 creating a $15,000,000 amount that will be used to calculate the increase in the gross receipts tax.
At this time, it is unclear how the Propositions will be integrated but local businesses need to understand that the gross receipts payroll tax in San Francisco has changed and many local businesses will be affected. It remains to be seen how or if the local business landscape will change.
The San Francisco Chamber of Commerce opposed both laws with concerns of businesses leaving the city and taxing struggling small businesses now that are trying to recover from the pandemic.
Contact AEIS Today
Reach out to us at AEIS, Inc. at Alyssa@AEISAdvisors.com if you would like to be connected with George Paulsen and his team of tax advisors and CPAs at Hood & Strong, LLP to see how the new San Francisco laws will impact your business.
This post was originally published in Hood & Strong’s Newsletter.
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