San Francisco ballot measure Proposition E, which would change the way businesses are taxed by the city, has very little organized opposition, but tech companies have raised hundreds of thousands of dollars to support it.
According to documents filed with the city, some of the biggest names in local tech have contributed.
Salesforce.com, a San Francisco software company, has given $250,000. Zynga, an online game company that recently made headlines for cutting about 5 percent of its workforce, contributed $100,000 on Sept. 14. Riverbed Technology, another company headquartered in San Francisco, added $100,000 to the campaign, while OpenTable donated $37,500 and Airbnb gave $25,000.
The measure itself is full of financial jargon, but the proposition is important because business taxes are the second largest source of revenue for the city, according to the controller’s office.
Under the current system, businesses in the city pay taxes based on payroll, which is how much a business pays out in salaries, bonuses, and so forth. Regardless of their size, businesses pay a flat tax rate of 1.5 percent on their payroll. Businesses with payrolls under $250,000 are exempt from the tax, as are some businesses located in the central Market Street area.
If Prop. E passes, businesses would be taxed based on a percentage of their gross receipts, which is the total amount they receive for goods and services.
The percentage charged would vary depending on the type of business and how big it is, with larger businesses generally paying more.
Businesses with less than $1 million in gross receipts would be exempt, and businesses located in the central Market Street area would continue to benefit from their current exemptions, at least until they run out.
One advocate for Prop. E is Ron Conway, the well-known startup investor and chairman of sf.citi, San Francisco Citizens Initiative for Technology and Innovation. In a recent article for TechCrunch titled “Why the Technology Industry Must Get Involved with Government,” Conway wrote, “Tax policy over the past decade has penalized job creation by taxing jobs instead of profit. Proposition E would fix that by incentivizing job growth, hiring, and economic investment which has a multiplier effect that generates millions of dollars in revenue for San Francisco.”
Many of the biggest donors to the Yes on E campaign are members of Conway’s sf.citi, including Airbnb, AT&T, Autodesk, Expedia, OpenTable, Riverbed, Salesforce, Stumbleupon, Splunk, Zendesk and Zynga. Sf.citi did not respond to repeated requests for comment.
Documents show that Conway himself has helped fund efforts to pass Prop. E, contributing $25,000 on Aug. 8 and loaning the campaign $250,000 on Oct. 26.
Nobody seems to like the current payroll tax system, which many people characterize as limiting job creation in the city. “We know that the payroll tax is a disincentive to job creation. It’s a deterrent to hiring for local businesses,” said Gwen Oldham, communications director for the San Francisco Chamber of Commerce.
Jefferson McCarley, general manager of Mission Bicycle Company, said, “I’m the one that does the hiring and firing and makes the decision on whether we hire part-time or full-time or hire contractors.” Because of Prop. E, he said, “When it comes time to hire more staff I won’t have to hesitate and think about how will this affect our payroll tax. So there’s not hesitation in hiring, there’s no second-guessing.” McCarley said he was asked by the campaign to endorse the proposition.
While there are no organized committees opposing Prop. E, the San Francisco Libertarian Party opposes the measure in part because of its complexity. “Proposition E is 70 pages long, and its complexity will predictably demand an increase in the already substantial city bureaucracy,” wrote party vice chair Marcy Berry in an email.
Another concern raised by the party is the increase in business license fees that is part of the proposition. Business license fees are expected to increase by approximately $28.5 million beginning in fiscal year 2013-2014, according to a report from City Controller Ben Rosenfield.
Prop. E needs a simple majority of votes to pass. Previous measures to change the city’s business taxes in 2002 and 2004 were not successful.
I know that payroll taxes differ from income tax but what lousy timing to try to gather sympathy when it was reported that Apple paid less than two precent in taxes from overseas revenue.