Board delays vote on small-business payroll tax exclusion to July 10

San Francisco supervisors on Tuesday voted to continue consideration of an ordinance that would create a payroll expense tax exclusion for small businesses, moving the item to July 10 as the board completes its budget work.

The ordinance (Item 12 on the agenda) would permit a payroll expense tax exclusion for net new payroll for 2012 through 2015. Supervisor Charles (first name not stated in the record) described concerns about the measure27s fiscal impact during the upcoming budget year, citing the city controller27s estimate that approving the exemption now could forgo roughly $1.5 million to $2 million in revenue next fiscal year.

Supporters said the exclusion would spur immediate job creation for small employers who are "on the edge" of hiring. Supervisor Farrell, a chief proponent, said the measure is meant to be "about creating jobs now" and argued a delay would deny earlier relief to small businesses. The mayor27s office, represented by Jason Elliott, said the mayor supports the policy and would sign it; Elliott said the administration would work with the board to fund any resulting shortfall through the add-back process or other means.

Opponents urged delay until the board completes budget allocations. Supervisor Avalos moved an initial continuance to a November meeting before withdrawing to seek a shorter delay; much of the debate centered on whether the board could responsibly adopt a tax break now without identifying the funds to replace the lost revenue. "We will have some work to do during our budget process with a limited pool of add backs," President Chiu said when noting the board27s responsibility to find any required offsets.

The board recorded a vote on the motion to continue the item to July 10; the motion passed with a 7-4 vote. The vote tally was recorded as seven ayes and four nos. The board will take up the item again at the July 10 meeting.

Why it matters: The ordinance would change how the city taxes payroll for small businesses and is linked to larger city deliberations over whether to move the business tax structure toward a gross-receipts model. Approving the payroll exclusion now would create a near-term revenue gap that supervisors said must be acknowledged and resolved in the budget process.

What27s next: The ordinance will return for a second reading July 10. If approved, the mayor indicated he would sign it and requested that the mayor's office, the budget chair and legislative sponsors work to identify funding offsets.