Eileen Hassi, owner of Ritual Coffee Roasters (who just showcased in PCV’s Annual Marketplace on June 6th), was shocked when she received a bill for almost $4,000 in payroll taxes for 2006, her first full year in business. At the time, she had only $11,000 in her bank account and couldn’t pay the tax on time, which resulted in a hefty late penalty.
Obviously, this tax was a huge burden for her new business. “Even the most successful business are generally in a very precarious situation in their first year or two. Or five or ten,” Hassi says. “Having a tax based on gross receipts would be much more equitable and less likely to push a business teetering on the end into failure.”
Ed Lee’s plan to overhaul San Francisco’s business payroll tax would greatly reduce the tax burden for many small businesses. Labor-intensive companies – such as retailers, restaurants and hotels – would generally see their share of the tax burden go down under the gross receipts plan. Startups with personnel but little or no revenue would fare much better. Not surprisingly, finance, real estate and insurance firms would fare far worse under the plan. They would pay a larger share of the city’s gross receipts tax than the payroll tax.
What about job creation? It is estimated that over 20 years, there would be an average of 2,400 more jobs in the city under the gross receipts tax than under the payroll tax. Not a huge number, as the base of jobs is about 600,000, but ending the payroll tax would send a clear message that San Francisco cares about job creation. “It’s symbolic,” says Scott Hauge, president of Small Business California. Mayor Ed Lee weighs in, stating, “San Francisco is the only city in California with a payroll tax, and it’s time to reward companies for creating jobs in our city, not punish them.” This statement comes on the heels of Mayor Lee proposing a comprehesive city tax reform to appear on the November 2012 ballot.
Stay updated on the news coming from Mayor Lee’s office and check out the Small Business California website for more information about San Francisco’s tax laws and how they affect you.