6:13pm

Thu October 25, 2012
Politics

Proposition E could be the end for payroll tax and the beginning of new businesses

Credit Under CC license from Flickr user enricod

With less than two weeks to go before election day, San Franciscans have a lot of issues to consider. Some are unique to San Francisco, for example, we’re the only city in California that bases our business tax on a company’s payroll. That means if your business makes more than $250,000, your tax is based on how many employees you have, not how much money you make.

Proposition E would change that. It would phase this tax out, and institute a new one based on a company’s gross receipts, meaning the total amount of money it brings in each year. 

Proposition E has received a great deal of support, with unanimous approval from the Board of Supervisors, restaurant owners, and Mayor Ed Lee. Lee’s been campaigning hard for the change, arguing that it will bring more jobs to the city, and tens of millions of dollars in extra revenue, without hurting small businesses. 

KALW's Martina Castro spoke with Melissa Griffin, a political columnist with the San Francisco Examiner, and asked her what's at stake for San Francisco businesses if Proposition E is passed. 

MELISSA GRIFFIN: One example of a company that is really going to benefit from a gross receipts tax is a company like a biotech company, that are developing a drug. They've gotten some seed money from some investors, or a hedge fund, and they are employing a number of well paid people; engineers, doctors, Ph.Ds to develop this drug. They don't have anything in the way of gross receipts, they're not making any money, they are just developing this thing. Under the payroll system, they're having to pay payroll tax, not an insignificant amount, on the number of people they're employing. That's an example of a company that under a gross receipts tax would be much better off.

In contrast, a company that has few employees here but generates a lot of money, a lot of wealth, will be punished by a gross receipts tax. For example, Visa. They have a small number of employees in San Francisco but they generate a lot of money. Under a gross receipts tax that money is what is going to be taxed, as opposed to the current system where they're paying a smaller amount, because it is based on just the amount they are paying the handful of people that are here. It's larger financial institutions that are going to be hurt by this potentially, and those kind of businesses with fewer employees,

far bigger profits and revenue generation are also not going to be happy about this.