City of San Francisco

Proposition C Ordinance - Majority Approval Required

The Way It Is Now: The City collects a gross receipts tax from many businesses receiving revenue from the lease of commercial property, such as office buildings, warehouses and other industrial buildings, and retail spaces. The current tax rate ranges from 0.285% to 0.3%.

Businesses with $1 million or less in total gross revenues within San Francisco are generally exempt from the gross receipts tax. Certain other businesses are also exempt, including some nonprofit organizations, banks and insurance companies.

Propositions C and D concern the same tax. If both measures are adopted by the voters, the one with the most votes will be enacted.

The Proposal: Proposition C would impose an additional gross receipts tax of:

• 1% on the revenues a business receives from the lease of warehouse space in the City; and

• 3.5% on the revenues a business receives from the lease of other commercial spaces in the City.

This additional tax would generally not apply to businesses exempt from the existing gross receipts tax.

It would also not apply to revenues received from leases to businesses engaged in:

• Industrial uses.

• Some retail sales of goods and services directly to consumers; or

• Arts activities.

This additional tax would also not apply to revenues received from certain nonprofit organizations or from government entities.

The City would use 15% of funds collected from this additional tax for any general purpose.

The City would use the remaining 85% of the funds from this additional tax for:

• Quality early care and education for children from newborns through age 5 whose parents are very low income to low income;

• Quality early care and education for children from newborns through age 3 whose parents are low to middle income and do not currently qualify for assistance;

• Investment in services that support physical, emotional and cognitive development of children from newborns through age 5; and

• Increased compensation for people who provide quality early care and education for children from newborns through age 5.

City Controller Ben Rosenfield has issued the following statement on the fiscal impact of Proposition C:

Should the proposed ordinance be approved by the voters, in my opinion, it would generate additional net annual revenue to the City of approximately $146 million. The proposed ordinance would raise the gross receipts tax paid by commercial landlords in San Francisco. Eighty-five percent of the revenues from the tax would be designated for child care and early education, and 15% would be available for any public purpose. Total tax collections would change over time at the rate of inflation of commercial rents in the City.

The current gross receipts tax was passed by the voters in November 2012 and replaced the former 1.5% payroll tax with a gross receipts tax that varies by the size and type of business. Commercial landlords generally pay a rate between 0.285% and 0.3% of gross receipts currently. The proposed ordinance would add a new tax of 3.5% for most commercial spaces and 1.0% for rents from warehouse spaces, in addition to the current gross receipts tax.

The proposal exempts commercial landlords with less than $1.0 million in gross receipts, rents paid from non-profit tenants, government tenants, arts, industrial uses and non-formula retail uses as well as other exemptions required under State law. We estimate that these exemptions represent approximately 20% of the tax base, and therefore that 80% of commercial rents paid in the city would be subject to the tax.

As noted above, total tax revenues that would be generated are estimated to be approximately $146 million annually based on the current tax base, exemptions and rates, and would change over time at the rate of inflation of commercial rents in the City.