The mayor's tech tax talks -- and the legacy of the "Filthy 52"

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PHOTO BY LUKE THOMAS/FOG CITY JOURNAL

Tech tax talks. I've always wanted to use that headline.

And of course, the meetings in the Mayor's Office on the city's business tax involve more than the tech folks -- but from what I hear, they dominated the discussion.

The issue is the way the city taxes businesses. Way back in the 1990s, the city had two types of tax -- a payroll tax and a gross receipts tax. The system was complicated, but essentially, companies paid a portion (about 1.5 percent) of payroll or gross receipts, whichever was higher. That made a certain amount of sense; since under California law, cities can't tax corporate income (profits), there's no simple way to enact a perfect local tax, but payroll and gross receipts are both rough approximations of the size of an company.

But in the late 1990s, a group of big corporations, including Pacific Gas & Electric, Chevron, Bechtel, the Gap, Levi Strauss, General Motors, Equity Office Properties, Eastman Kodak, Safeway, Charles Schwab, the Hearst Corporation, the Giants, Macy's, Neiman Marcus, Nordstrom, the Shorenstein Company, and others filed a lawsuit to overturn the tax system. We called them the "Filthy 52." The gross receipts tax was unfair, they argued -- and in 2001, with only three dissenting votes, the Board of Supervisors settle the suit by repealing that part of the tax structure.

Since then, the city has lost about $30 million a year in tax revenue.

And now the gross receipts tax is back -- because some companies, particularly tech firms, want to get rid of the payroll tax. The argument is that a tax on payroll discourages job creation, which is complete bullshit. The truth is that some companies (particularly tech startups) have a lot more payroll than gross reciepts. So they want a system that lets them pay lower taxes.

(That's a tech thing, I guess -- not paying taxes.)

Now: A gross receipts tax, combined with a commercial rent tax, is probably a better way for the city to go. But there are winners and losers, and a lot of the old downtown types (finance and commercial real estate) would be among the losers. So the meeting to discuss all of this was heated.

Among other things, Ron Conway, Mayor Lee's buddy and a big tech investor, stood up and basically told everyone else to take a hike.

"Tech jobs are important," Scott Hauge, a small business advocate, told me. "The problem was that at the meeting, the tech people didn't seem to understand the other side. Everyone was pretty well behaved, but then Ron [Conway] stood up and said, 'this is good for tech, so the rest of you figure it out.'"

Now Ed Lee has to decide: Is he going to cross the Building Owners and Managers Association to please Conway? Or the mayor who has hitched his political star to the likes of Twitter, airbnb and Zynga going to tell those folks that they have to accept a compromise that might force some of them to pay a little more?

That's just the internal politics. The overall shape of the potential tax reform is a much bigger issue.

For starters, any discussion needs to include a way to recover the $30 million a year that the city lost to the Filthy 52. If the mayor wants to make his package "revenue neutral," it needs to be based on the 2001 figures (adjusted for growth and inflation), not on what the business community is paying now.

And that's only the tiniest bit of the city's revenue needs. Realistically, given all the state and federal cuts and the cuts San Francisco has already made to the safety net, the city should be looking for about $250 million a year in new revenue. That might -- might -- make up for the dramatic cuts that have been made over the past five years.

"Revenue neutral" means sellout -- it means big businesses don't pay their fair share of the city's burden.

Then the structure needs to make a distinction between the giants and the tiny players. There's no reason the city should have a flat business tax; why should the Gap pay the same percentage of gross receipts as a food truck or a corner store?

I'm glad that city officials are finally talking seriously about tax reform. But from the looks of things, this is going to turn out badly. Check out the list of invitees (see the link above). Nobody from labor. Nobody from social services. Nobody from the affordable housing groups. Nobody except business types -- who, for the most part, are thinking only about how to keep their share of the taxes from going up.

If we wind up with an Ed Lee tax plan that shifts the burden around among business interests but doens't even bring us back to the pre-2001 levels and includes no net revenue gain, the mayor's going to have a fight in November. Because I can pretty much guarantee there will be a community alternative.

 

 

 

Comments

"the mayor's going to have a fight in November".

Bad punctuation in this sentence, but it made more sense than the rest of the article. Let's pick a date 11 years ago and declare that to be the revenue neutral reference. And then, if this change of methodology doesn't boost revenue it is a sellout.

Have you read about Yammer moving into the same building that Twitter is going to be in? They cited Lee's policies as a major motivation for keeping their jobs in the city. Thank heavens for Ed Lee's leadership and the SFBG's complete irrelevance. The city is now showing some signs of life for the first time in years.

Posted by Troll on Apr. 30, 2012 @ 5:27 pm

The objective here is to make the tax take fairer, and collect the same while minimizing harm to business and job losses.

If you want higher taxes, that's a separate issue.

That 30 million was ruled illegal. You can't have it "back" because it never should have existed in the first place.

So let's have two debates. One about making taxes fairer and less invasive i.e. revenue-neutral changes. And the other about whether taxes should be higher or lower overall.

Tax reform doesn't mean more taxes. Reagan taught you that, surely.

Posted by Guest on Apr. 30, 2012 @ 5:42 pm

As I read the tech industry proposal, it also included new registration and fees from nonprofits. But as Tim points out, while the nonprofits were on the list to face increased costs, they weren’t at the meeting.

Posted by CitiReport on Apr. 30, 2012 @ 5:53 pm

I mean - who does he think really runs the show in this town? Him or SEIU and its allies in Non Profit Inc?

Queue the coming "quivering with outrage" editorial from Gabs Haaland. This challenge must be stopped in its tracks AND QUICK.

Posted by Troll II on Apr. 30, 2012 @ 6:05 pm

Actually, some of the Filthy 52 rejected the settlement and went to trial. They lost. The city's tax policy was upheld as legal.

Reforming the tax laws to increase revenue and increase fairness at the same time seems like a logical move. Except to my anti-tax trolls.

Posted by tim on Apr. 30, 2012 @ 7:21 pm

I just would rather see it go towards things which benefit the majority of taxpayers in this city vs. feeding the leaches who suck off of our social services and the leach-masters who service them. We are already WAY too welcoming to homeless people, who if non-Californians should be encouraged, using strongly punitive measures, to go right back where they came from.

Improved infrastructure is one thing I think is absolutely necessary. Our roads are falling apart - those should be improved. And by that I do not mean "add more protected bicycle lanes while letting drivers bear the cost." Which I know is the SFBG-version of "improved infrastructure." I'd also support expanding BART and MUNI as long as monies raised for that expansion were dedicated to actual expansion + paired with pension reform and not to bringing on more overpaid bureaucrats to force more anti-car measures down our throats.

Posted by Troll II on Apr. 30, 2012 @ 8:36 pm

they felt it was genuinely going to provide services that benefit ordinary citizens, rather than to the unions, non-profits and other highly politicized groups.

And remember that SF has to compete with neighboring counties for these new tech companies. The first waves of the tech revolution virtually bypassed SF and were instead incubated in San Mateo and Santa Clara counties, both of which are more pro-business and anti-tax than SF. No coincidence.

If Tim really wants to save services, he has to support expanding the tax base, not punishing business.

Posted by Guest on May. 01, 2012 @ 3:22 am

>"If Tim really wants to save services, he has to support expanding the tax base, not punishing business."

He absolutely doesn't get that point and I don't think he is capable of doing so. On a related note he wants 8 Washington to remain a surface parking lot and Tennis Club rather than it becoming a source of tax revenue. But he also wants more social engineering services. I think that is one reason that Progressives have crashed and burned. They don't get that 'reality' thing.

Posted by Troll on May. 01, 2012 @ 7:15 am

Drivers don't come close to paying for the wear and tear they impose on the road, not to mention emissions, congestion, and other externalities they fail to internalize. Complaining about bikes, whose riders pay taxes that cover their fair share of road impact and far more, is wholly beyond the point.

Posted by Guest on May. 08, 2012 @ 10:45 am

>"Reforming the tax laws to increase revenue and increase fairness at the same time seems like a logical move. Except to my anti-tax trolls."

Increasing fairness seems like a logical move.

Increasing revenue is 'logical' only if your brain is restricted to looking in one direction. Other people are able to take a wider look and consider the effect on the businesses and their employees as well. Trust me, some people are indeed capable of looking at an issue from more than one perspective. Amazing, I know, but true.

Posted by Troll on Apr. 30, 2012 @ 8:52 pm

but rather cutting astronomical City employee costs.

Posted by Guest on Apr. 30, 2012 @ 11:08 pm

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