95,958 / 36.3% Yes votes ...... 168,536 / 63.7% No votes

See Also: Index of all Measures

Currently, San Francisco collects a business tax from companies or persons doing business in the City. A business must use one of two methods to calculate the tax owed: 1) 1.5 percent of its payroll; or 2) An amount from $1.23 to $3.00 per thousand dollars of its gross receipts. The business must use the method that results in the higher amount of tax.

Any business owing less than $2,500 in taxes does not have to pay any tax. This is called the "small business exemption."

In addition to the tax, all businesses must pay an annual registration fee.

Proposition I would eliminate the gross receipts method of tax calculation and require all businesses to use the payroll method. If, during the past three years, a business had paid more under the gross receipts method than it would have paid under the payroll method, the City would refund or credit the difference. Proposition I would raise the tax rate from 1.5 percent to 1.7 percent of the payroll for the 2000 tax year. After that, the rate would increase or decrease based on changes in how much the City collected from the business tax. This would mean that the rate would be reduced when revenue growth exceeds 7.5% and the rate would be increased when the revenue growth drops below 2.5%. Proposition I would keep the small business exemption, but the base amount would be adjusted annually so that changes in the tax rate would not disqualify small business that would otherwise be entitled to the exemption. Under Proposition I the annual registration fees for most businesses would be reduced.

Summary of Arguments FOR Proposition I:

The City currently faces litigation brought by a few large corporations related to the current business tax structure. If the City loses the suit it could be required to pay back over $800 million to these corporations. The changes to the business tax structure proposed by Proposition I would negate the basis for the suit.

Proposition I is not a tax that you pay on your wages. It is an adjustment to the City's business tax structure so that businesses that require the most services from the City pay their fair share.

Proposition I is necessary to ensure that the lawsuits regarding the current business tax structure do not cripple the City's ability to provide services to its citizens.

Summary of Arguments AGAINST Proposition I:

Proposition I would increase by 13.3% the city taxes on wages. Employers count the Payroll Tax Expense as a direct cost of employment, thereby reducing funds available to pay wages by this amount.

Proposition I would inhibit job growth in the City. For a company with a labor intensive business, it would be better off to leave the City and avoid the increase proposed by Proposition I.

The lawsuit brought by the corporations related to the business tax structure has not been concluded. The City's losses related to this suit are only theoretical at this point in time.

League of Women Voters

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