San Francisco will ask voters to approve another new tax - a tax targeting companies with highly paid executives. This tax would be imposed on San Francisco gross receipts at a rate of 0.1% to 0.6%, depending on the executive pay ratio of the business, defined as the highest paid employee compared to the median compensation paid to the employees based in the city. (San Francisco Initiative Ordinance.) San Francisco also is considering a stock-based compensation tax, which would be on the same ballot. (See PwC’s prior Insight.) These taxes would be in addition to the existing gross receipts tax under Article 12-A-1, the additional ‘surcharge’ on gross receipts over $50 million under Article 28, the commercial rents tax under Article 21, and the payroll tax under Article 12-A.
For some taxpayers, this new tax measure could effectively increase their San Francisco gross receipts tax liability by as much as a third, should this tax go into effect as currently drafted. Accordingly, businesses should start modeling out their increased San Francisco tax liabilities under the proposed legislation and consider what, if any, interaction with the authors of the bill they want to undertake, such action could be directly made through governmental affairs personal, or indirectly through business organizations such as the San Francisco Chamber of Commerce.