City Attorney and mayoral candidate Dennis Herrera is arguing that the controversy over a proposed tax break for Twitter highlights the need to reform the city’s business payroll tax to help create jobs and foster growth.
“The fact that city leaders have been prompted to craft a narrow tax break to avoid losing one large employer speaks volumes about the far more serious problems with our local business taxation scheme,” Herrera said in a campaign press release. “Whatever happens with the Twitter tax deal, it has highlighted a public policy priority. San Francisco can no longer afford to ignore: we need to replace our business payroll tax with something fairer that creates jobs.”

Herrera notes that among all California cities, San Francisco is alone in basing its entire business tax on payroll.  As a result only about 8,000 companies pay the tax out some 80,000 registered to do business in San Francisco...

Herrera says this narrow tax base puts “a wildly disproportionate burden on the approximately 10 percent of businesses required to pay the tax, which is especially tough for smaller businesses crossing the $250,000 payroll threshold for the first time.  It bears little correlation to businesses’ ability to pay, and even less to their comparative use of city services.”

Herrera notes that the City Attorney’s office took part in a policy working group in late 2009 alongside the City Controller, the Treasurer and Tax Collector, and the Office of Economic and Workforce Development. The working group examined alternatives to the current business payroll tax, considered legal options and researched the advantages and disadvantages of business tax systems employed by other local governments. 

Herrera argues that the current tax is unfair to businesses, working families, and San Francisco’s low- income residents, since they suffer the most from severe budget cuts “owing to the tax scheme’s mercurial instability from year to year.”

Herrera's full proposal can be found on his mayoral campaign website.