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Supervisors advance four-year payroll-tax exclusion aimed at small businesses
Summary
The Board’s audit and oversight committee forwarded an ordinance to exempt net new payroll for small businesses (payroll under $500,000) from San Francisco’s payroll expense tax for calendar years 2012–2015, estimated to reduce city payroll tax revenues by about $2 million a year and to create roughly 150–250 jobs annually, according to city analysts.
Supervisor Farrell introduced an ordinance to amend the Business and Tax Regulations Code to permit a four‑year payroll expense tax exclusion for net new payroll at qualifying small businesses, and the Government Audit and Oversight Committee voted to send the measure on to the full Board with a committee recommendation.
The proposal would exclude net new payroll for businesses whose base‑year payroll is less than $500,000 and would cap the excluded new payroll at $250,000 per business per year for calendar years 2012 through 2015. In opening remarks the sponsor said the measure is intended to create jobs and support neighborhood small businesses by reducing the cost of hiring.
Severin Campbell of the Budget and Legislative Analyst’s Office summarized the fiscal effects, saying the controller’s estimates imply roughly $2,000,000 in lost payroll tax revenue to the city per year and about $8,000,000 over the exclusion’s four‑year term; he also noted a one‑time $150,000 programming and documentation cost for the Treasury Tax Collector’s Office. Ted Egan of the Controller’s Office of Economic Analysis told supervisors the measure is tailored to net new payroll and small businesses, which limits subsidy exposure; his office estimated approximately 30,000 businesses could be eligible and projected an annual job‑growth range of roughly 150–250 jobs, with a cost per job between about $6,500 and $10,000.
Greg Cotto of the Treasurer’s Office said the exclusion can be implemented through automation of existing payroll expense tax returns without collecting additional data and described a process to match lists from the Office of Labor Standards Enforcement to exclude businesses with labor‑law findings. Supervisor Campos said an amendment requires no finding of misconduct by the Office of Labor Standards Enforcement for a business to benefit, a provision Campos said reflects work with the Progressive Workers Alliance and aims to reward employers who follow labor laws.
Small‑business groups in public comment — including representatives identified by the supervisors as local merchants, the San Francisco Chamber of Commerce and neighborhood merchant networks — urged passage, saying increased payroll would translate into more local spending and more hiring in neighborhood businesses.
The committee moved the ordinance forward with a recommendation to the full Board without recorded objection. Next steps: the full Board will consider the ordinance and any final amendments before a vote.
