Proposed New San Francisco Business Tax Scheme

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The City and County of San Francisco, like many jurisdictions throughout California and the U.S., is facing a huge budget shortfall. For fiscal year 2010-11, the City Controller’s Office projects that the shortfall will total nearly $483 million. For fiscal year 2011-12, the cumulative projected shortfall will reach $787 million. In the face of this budgetary crisis, San Francisco is exploring ways to raise additional revenue, including modifying the tax regime for businesses.

Currently, San Francisco imposes a payroll expense tax on every entity engaging in business in the City at the rate of 1.5% of the portion of the entity’s payroll expense attributable to the City. See S.F. Bus. & Tax Regs. Code Art. 12-A §§ 903, 903.1, 904.

According to a draft report from the Controller’s Office, the City is considering two alternative proposals to modify or replace the existing payroll expense tax.

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