2020 may be a landmark year for San Francisco business tax reform with the specter of pending legal litigation around the Commercial Rents Tax and Homelessness Gross Receipts Tax looming in the background.
Enacted in 2018, both taxes were held to be valid taxes by San Francisco Superior Court Judge Ethan Shulman on July 5, 2019 (See PwC’s Insight San Francisco special taxes only required simple majority vote, July 2019.) This decision, which is on appeal to the California First Circuit Court of Appeal, is at odds with subsequent decisions by the Fresno and Alameda Superior Courts that ruled special purposes taxes passed by voter initiative still require a two-thirds majority vote to pass.
With this litigation in the background, and continued attempts to get new San Francisco tax measures on the ballot to fund special initiatives, San Francisco Mayor London Breed and the supervisors requested the City Controller, Ben Rosenfield, to work with a coalition of businesses and community members to study a new round of tax reform measures.
While this initiative appears to respond to the recent proliferation of new one-off tax initiatives, it also may be in response to the business community’s request to fulfill the legislative goal of 2012 to eliminate the payroll tax. Additionally, the City Controller has been tasked with raising $100 million in new funds as part of the tax reform process to fund a new mental health initiative in San Francisco.
City tax reform efforts will be underway over the next several months as various business and community stakeholders come together in an effort to develop a reform package that would give new funds to City Hall, while providing the business community with a tax regime intended to be more stable, transparent, and predictable.
Businesses wishing to have a say in tax reform efforts may consider becoming part of the tax reform dialog. As new proposals are put forward, tax departments likely will be asked to model the impact for the various operations of their businesses.