San Francisco Business Tax 2.0
San Francisco took one step forward in creating a more business-friendly city this week with the passage of the Mid-Market Payroll Tax Exclusion. The Chamber-supported incentive will help bring growing businesses to one of the city’s most blighted areas by providing a six-year payroll tax exemption for new hires at companies locating in Mid-Market and targeted areas of the Tenderloin. While the incentive will surely help revitalize a long-neglected area of the city, it is just one step in a much boarder effort that is needed to retain and attract businesses – and jobs – in San Francisco.
Re-examining the city’s business tax should be a top priority. San Francisco is the only California city that taxes payroll and the only city in America that taxes employee stock options once exercised. The 1.5 percent tax is levied on employment activity in the city for a business with a total San Francisco payroll in excess of $250,000. The tax applies to salaries, wages, bonuses, stock options, commissions and all other forms of compensation issued in exchange for services.
Critics have long cautioned that San Francisco’s tax structure is inequitable and a disincentive to job creation. There is some truth to both arguments. Under the current system, only about 10 percent of the city’s businesses pay the tax. And for some businesses, adding the tax can make or break a hiring decision, particularly in the current economic climate.