San Francisco Income Tax Plans on Hold

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Joyce E. Cutler

It will be at least two weeks before San Francisco pushes ahead on a plan to charge its own personal and corporate income taxes to fund “Sanctuary City policies” in the face of threats by the Trump administration to pull local funding.

The supervisors delayed a vote Feb. 14 on a resolution that asks state lawmakers to amend Rev. & Tax. Code Section 17041.5 so that San Francisco can create new revenue sources to fund these policies, among other initiatives. In addition, operational and capital costs of providing health and human services are expected to dramatically increase with the threatened rescission of the Affordable Care Act, the resolution said.

Seven of 11 board members are sponsors of the resolution that would create a new tax on city residents like Twitter Inc. and Uber Technologies Inc. San Francisco would cap the proposed income tax at 10 percent of an individual’s state income tax liability.

Supervisor Aaron Peshkin introduced amendments to the resolution and sought a two-week postponement on the vote.

Whether San Francisco, which has a lot of pull in the California Legislature, can get the state to sign off on expanding the income tax is unknown. The Legislature in recent years passed state laws giving local governments authority to increase or levy other taxes like sales and utility taxes on their own, usually requiring voter approval.

San Francisco is the fourth-largest city by population in the state, according to the latest U.S. Census Bureau figures.

$3.6 Billion From City

Some 170 cities levy municipal income taxes, which the resolution called a “valuable and reliable source of revenue.” California collected $3.6 billion in state income taxes from San Francisco in 2013.

An additional 1 percent increase in the state’s highest tax bracket and proportional increases in the lower brackets would have generated $270 million from personal income taxes collected in San Francisco in the 2013 tax year, “demonstrating that fractional additions to State taxation rates could provide a new and valuable revenue source for California cities.”

San Francisco is the only city in California with a payroll tax, but it has increased its attractiveness for businesses by granting exclusions for biotechnology businesses that locate in the city. The city also exempted from the payroll tax new jobs created in a certain neighborhood now home to companies including Twitter. Stock options offered by startups and small businesses with less than $500,000 in payroll expenses also are exempt from the tax.

San Francisco last month joined a movement, started in Portland, Ore., to aim business tax surcharges at companies with chief executive officers whose compensation is 100 times greater than their median workers’ pay.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at JCutler@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the resolution is at http://src.bna.com/mar.

Copyright © 2017 Tax Management Inc. All Rights Reserved.