The voters hereby find and declare as follows:
1. San Francisco is the only major city in California that levies its entire business tax on payroll expense. This exclusive payroll-based tax discourages job creation and economic growth, lowers wages, and provides an unstable revenue stream.
2. San Francisco currently charges a flat rate on its payroll expense tax base. Instituting a tiered rate structure, in which businesses are taxed based on their gross receipts, will better distribute the tax burden according to a business’s ability to pay.
3. Gross receipts is the most common business tax base among California’s largest cities.
4. Amending San Francisco’s business tax system to include a gross receipts tax will promote revenue stability by diversifying the tax base.
5. The rate schedules and the small business exemption for businesses with receipts under $1,000,000 provide particular tax relief to small businesses.
6. The legislation will gradually phase in the new gross receipts tax over a five-year period, beginning in tax year 2014, to allow businesses time to adjust to the change and to minimize the risk to the City and to taxpayers of instability in City revenues during the transition from the payroll expense tax to a gross receipts tax.
7. Also beginning in tax year 2014, the payroll expense tax will be adjusted, over the same period, in increments that are consistent with the phase in of the gross receipts tax.
8. Each year during the phase-in period, the formula dictates an increase in the gross receipts tax rate and an adjustment in the payroll expense tax rate that is expected to reduce the payroll expense tax rate to zero by or before 2018. The Controller will calculate the annual increase in the gross receipts tax rate and the adjustment in the payroll expense tax rate by applying formulas specified in this legislation.
(Added by Proposition E, App. 11/6/2012, Oper. 1/1/2014)