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San Francisco County, CA November 6, 2012 Election
Proposition E
Gross Receipts Tax
San Francisco County

Ordinance - Majority Approval Required

Pass: 223887 / 70.75% Yes votes ...... 92577 / 29.25% No votes

See Also: Index of all Propositions

Information shown below: Summary | Fiscal Impact | Arguments |

Shall the City: create a gross receipts tax designed to eliminate or reduce the tax on payroll costs; and increase business registration fees?

Summary Prepared by The Ballot Simplification Committee:
The Way It Is Now: The City requires businesses to pay a flat 1.5% tax on payroll costs for work performed in the City. Small businesses with less than $250,000 in payroll costs are exempt from the tax. The City also requires businesses to pay an annual registration fee ranging from $25 to $500. The Proposal: Proposition E would create a new City business tax based on gross receipts rather than payroll costs. Under the new system, the tax on payroll costs would be eliminated or reduced. Businesses with gross receipts of less than $1 million annually would be exempt from the gross receipts tax. The $1 million threshold would be adjusted each year to account for inflation. The gross receipts tax rates would vary depending on the type of business and its annual gross receipts from its activity in the City. Generally, businesses with higher gross receipts would pay higher rates. The rates would range from 0.075% to 0.650%. Certain businesses that have their headquarters or administrative offices in San Francisco, but operate primarily in other locations, would pay the gross receipts tax based on payroll costs. The tax rate for these businesses would be 1.4% of payroll costs. Proposition E would require the City to phase in the gross receipts tax, and phase out the tax on payroll costs, over a five-year period beginning in 2014. Each year, the Controller would increase the gross receipts tax and decrease the tax on payroll costs according to a formula that would maintain business tax revenue. The final rates would depend on the revenue the City receives from the gross receipts tax. If the gross receipts tax revenue exceeds the revenue the City would have received under the tax on payroll costs, then the tax on payroll costs will be phased out and the final gross receipts rates will be lower than the maximum submitted in this measure. If the gross receipts tax revenue never equals the revenue the City would have received under the tax on payroll costs, then the tax on payroll costs will be reduced but not phased out. In that event, businesses would pay taxes based on both payroll costs and gross receipts. Proposition E would increase annual business registration fees. These fees would range from $75 for small businesses to $35,000 for businesses with more than $200 million a year in gross receipts. The fees also would be adjusted each year to account for inflation. Proposition E would establish penalties for failure to properly register a business.

Fiscal Impact from The City Controller:
City Controller Ben Rosenfield has issued the following statement on the fiscal impact of Proposition E: Should this ordinance be approved by the voters, in my opinion, it would generate additional net annual revenue from business taxes and registration fees to the City of approximately $28.5 million beginning in fiscal year 2013+14, and growing at approximately the rate of inflation in subsequent years. Revenues from the business tax and registration fees can be spent for any public purpose. The proposed ordinance would replace the existing tax which is 1.5% of a business' payroll with a tax on a business' gross receipts at rates that vary by the size and type of business. The new tax structure would be phased-in over a five year period and at the end of the period the gross receipts tax rates would remain fixed. The new tax structure is projected to generate annual tax revenues equal to what would have been generated under the existing tax structure plus the amount of the additional administrative cost of the new system. The existing business registration fee structure would be replaced by a new higher graduated registration fee structure that would generate a net revenue increase to the City of approximately $28.5 million beginning in fiscal year 2013+14 and growing at approximately the rate of inflation in subsequent years. Total business tax and registration fee revenues are estimated to be approximately $450 million in fiscal year 2012+2013 and are the City's second largest General Fund revenue source. The proposed gross receipts tax would apply to businesses with $1 million or more in gross receipts, and the $1 million threshold would be adjusted by the Consumer Price Index going forward. The ordinance would increase the number and types of businesses in the City that pay business tax and registration fees from approximately 7,500 currently to 15,000 under the new structure. The ordinance would convert most existing payroll tax exclusions into gross receipts tax exclusions of the same size, terms and expiration dates.

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Arguments For Proposition E Arguments Against Proposition E
Prop E Means Fair Business Taxes, More Good Jobs and Better City Services San Francisco's current business payroll tax is fundamentally unfair because it is a tax on jobs instead of a tax on sales or profits. That means now, every time a local business hires a new employee, its taxes increase ++ a huge disincentive to creating new jobs in San Francisco. The current payroll tax is a flat tax, so the biggest corporations and most profitable industries now pay the same rate as small neighborhood businesses and struggling startups. Proposition E fixes our unfair tax system and replaces it with one that will help small businesses and startups create more jobs. Prop E also will provide a more predictable and steady source of revenue to fund key public safety, affordable housing and public health programs and may even allow us to restore recent cuts to MUNI service. Prop E is fair because it only applies the gross receipts tax to businesses with more than $1 million in annual sales, exempting most small businesses, sole proprietors and small residential property owners. An extraordinarily broad coalition, led by Mayor Ed Lee, Board President David Chiu and Supervisor John Avalos, crafted the Prop E reform. Prop E is endorsed by: every member of the Board of Supervisors; the San Francisco Labor Council; the San Francisco Chamber of Commerce; San Francisco Firefighters; sf. citi, the organization of local tech employers; SFMade, the coalition of San Francisco-based small manufacturers, and the Chinese Chamber of Commerce. Vote YES on Prop E. Mayor Edwin M. Lee David Chiu, President; Board of Supervisors John Avalos David Campos Carmen Chu Malia Cohen Sean Elsbernd Mark Farrell Jane Kim Eric Mar Christina Olague Scott Wiener Board of Supervisors

Rebuttal to Arguments For
Prop E: MORE Taxes, MORE City Hall Waste, HIGHER Prices and FEWER Jobs Proposition E, a 60-page, $28.5 million tax increase rushed onto the ballot just before the deadline, proposes a gross receipts tax as "fairer" (as if government taking more money is fair). Proponents are correct; the current payroll tax discourages job creation. When you tax something, you get less of it. Proposition E acknowledges this by exempting businesses with under $1 million in gross receipts. But medium and large companies employ thousands of San Franciscans. Yet E wants to tax receipts so companies pay ever higher percentages as they succeed. By this City Hall effectively says it doesn't want businesses to grow and stay._ The mayor and Supervisors complain the current tax "provides unstable revenue" But rather than replace the flat payroll tax with a flat gross receipts tax bringing in equal revenue (a measure we wouldn't oppose) City Hall got greedy with Proposition E. If E passes they might be surprised how unstable revenues can be if businesses leave rather than sticking around to be fleeced. Taxes on business don't just affect rich people. They are passed on to the public in the form of higher prices, lower wages, and fewer jobs. That means people buying everything from Giants tickets to milk will pay. Politicians benefit from distributing funds to their friends, letting YOU pay the bills. Tell City Hall you want REAL tax reform, not an imposter. Vote NO on E. Libertarian Party of San Francisco

Libertarians oppose Proposition E, which replaces the gross payroll tax with a gross receipts tax. One of the arguments for this change is that the gross payroll tax is a tax on hiring employees which reduces employment. The proponents of Proposition E are explicitly recognizing that taxing an economic activity will reduce it. Therefore, a tax on gross receipts will reduce gross receipts in SF. Businesses will waste valuable resources trying to move activity out of The City, instead of producing goods and services customers want to buy. Reducing gross receipts will indirectly reduce employment just as sure as gross payroll tax since money paid in taxes is not available to be used to hire employees. The gross receipts tax is estimated to raise more revenue for the government than the gross payroll tax. This is an economic drain on the private sector that we cannot afford in hard times. In the private sector business and households earn revenue by providing goods and services that other people want to pay for. Governments raise revenue by confiscation and threats of violence. In the private sector there is a real relationship between revenue earned and wealth created, but in the public sector there is no such relationship. Compensation in the public sector soars out of control because the payers cannot easily cut off the flow of money. Vote NO on Proposition E. Libertarian Party of San Francisco

Rebuttal to Arguments Against
San Francisco's Small Businesses and Startups Support Prop E San Francisco's business community has led the effort to reform the City's business tax structure and eliminate the payroll tax, which taxes the wages of businesses' San Francisco workers and discourages businesses from hiring additional employees in San Francisco. Prop E replaces the payroll tax with a gross receipts tax -- a tax on gross sales, not jobs. Local business leaders support Prop E because it stands for: EMPLOYMENT. Prop E means more jobs for San Franciscans. By replacing San Francisco's payroll tax, the impartial City Controller's analysis says Prop E will create thousands of new jobs. EXEMPTING SMALL BUSINESS. Under Prop E, only businesses that earn more than $1 million in gross receipts annually will pay the tax. ESSENTIAL SERVICES. Prop E will provide additional funding for vital services, such as police and fire protection, affordable housing, MUNI service and neighborhood economic development. Vote YES on E for fairer business taxes and better City services. San Francisco Chamber of Commerce Chinese Chamber of Commerce San Francisco Council of District Merchants, the Citizens Initiative for Technology and Innovation SFMade, Supporting and Promoting San Francisco Manufacturing SPUR

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Created: December 17, 2012 13:47 PST
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