See our November 2024 SF Voter Guide for a nonpartisan analysis of measures on the San Francisco ballot, for the election occurring Nov. 5, 2024. The following measure is on that ballot.
Proposition M would fundamentally change how the city taxes businesses, in order to better align with post-pandemic work norms and strengthen the government’s long-term financial footing.
The measure would exempt more small businesses from taxes and fees, while reducing taxes on some of the city’s largest companies.
What it would do
Proposition M would shift how San Francisco calculates its gross receipts tax paid by businesses. If it passes, San Francisco will rely less on payroll expenses for staff working here, and more on revenue that firms earn within the city. The changes would apply indefinitely, unless repealed.
The measure could affect companies’ behaviors in ways that would help San Francisco’s economy:
Their staff might return to the office and work remotely less frequently, because companies would face a lower tax burden for having employees work in San Francisco.
Companies might be less likely to leave San Francisco. That’s because, even if they moved their headquarters out of the city, their sales here would still get taxed.
The measure would tend to raise taxes on businesses that had large revenues and small staffs, and that could not easily move operations. One likely example is Pacific Gas & Electric Co., the region’s utility. Industries to see their gross receipts taxes rise would include biotechnology, with an 18% increase; retail trade, at 16%; and construction, at 7%.
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Some notable industries would see major savings, such as the category that includes arts, entertainment and recreation businesses, at an 80% average tax reduction; restaurants, bars and other food service businesses would get a 45% reduction; and educational and health care services would see taxes fall by 30%.
The measure would also more than double the threshold at which companies become subject to the gross receipts tax, from $2.25 million in annual revenue to $5 million. That would eliminate gross receipts taxes for more than 2,700 small businesses.
Proposition M would stall a scheduled tax hike on all businesses — first delayed with the onset of the pandemic and now slated for 2025 — until 2027.
And Proposition M would simplify the tax system, consolidating the city’s 14 business categories into seven, making it easier for companies to pay their taxes. It could also prevent costly legal battles, said a city official who requested anonymity because their department has not endorsed the proposition. In light of today’s complicated tax system, companies are disputing their business categories in court, the source said.
In addition the measure would increase the rate for the homelessness gross receipts tax, which generates government revenue for housing and services for unhoused people, and apply it to more businesses. Meanwhile, the city would stop charging businesses certain fees, including for occupying sidewalks with tables and chairs.
Support
Proposition M would give critical tax relief to small businesses that are still struggling to recover from the pandemic, said Laurie Thomas, executive director of the Golden Gate Restaurant Association, in the official proponent argument for the measure. The tax break could pull some back from the brink of closure, said proponents in the official paid argument for the measure.
Delaying the 2025 tax hike could also help many neighborhood businesses survive, proponents said.
The measure would especially help the restaurant industry. Nearly 90% of restaurants, virtually all of them small businesses, would be exempt from the rejiggered tax. Big chain restaurants would likely receive tax increases, Thomas said.
Many of the city’s tech giants would benefit from Proposition M’s tax breaks, helping the whole business ecosystem, Thomas said. If the lower taxes enticed them to stay in San Francisco, their workers would patronize local restaurants and retailers, possibly helping revive downtown, she said.
And by exempting businesses from arcane permitting and licensing fees, the measure could save businesses citywide $10 million. Going forward, the city would cover those fees with other revenue sources. That would be almost as big a boon for small businesses as the gross receipts tax exemption, Thomas said.
Proposition M’s supporters include Mayor London Breed and a majority of the Board of Supervisors, including Aaron Peskin, board president and a mayoral candidate running to unseat Breed. It also has the backing of Assessor-Recorder Joaquín Torres, Masood Samereie of the Council of District Merchants Associations, Rodney Fong of the Chamber of Commerce, Alex Bastian of the Hotel Council, Larry Mazzola Jr. of the Building and Construction Trades Council and Mary Jung of the San Francisco Democratic Party.
Opposition
Proposition M’s new tax system is forecast to generate more revenue than today’s system through “steep tax hikes” that could “drastically alter the financial future of major companies,” said Larry Marso, a local technology executive and attorney, in the official opposition argument.
The measure would hurt certain industries, with some larger mid-sized businesses taking a massive hit, Marso said.
Those companies may still be financially recovering from the pandemic, he said, adding that tax hikes could further hurt them and push them to leave the city, which would harm the local economy.
Cost
If passed, Proposition M would first lose money for the city, and then earn it back and sustain increased tax revenues. For the first three fiscal years, the measure would reduce revenues by about $40 million annually, according to an analysis by City Controller Greg Wagner. Scheduled rate increases would thereafter earn the city roughly an additional $50 million each year, nullifying the initial deficit by Fiscal Year 2029-2030.
Campaign finance
As of Oct. 7, the “Yes on M” campaign committee had raised $1,480,000, according to data from the San Francisco Ethics Commission. Major contributions include $500,000 from Google, $250,000 from Airbnb and $245,000 from the Chamber of Commerce.
No group opposing Proposition M had reported fundraising activity to the city.
History and context
Because San Francisco taxes companies at higher rates the more they spend on payroll, the city leans heavily on a handful of businesses for tax revenue. San Francisco’s five largest companies pay nearly a quarter of its total tax haul, according to a 2023 report by the controller’s office. That’s risky, because the city would lose significant revenue if any of those businesses were to leave.
Votes needed to pass
Proposition M requires a simple majority of “yes” votes to pass.
The measure includes a poison pill: Depending on the vote count, it could nullify Proposition L, which would levy a gross receipts tax on ride-hailing and autonomous vehicle companies to fund public transit.
In the event that voters passed both measures:
If Proposition M got more “yes” votes, only Proposition M would be implemented.
If Proposition L got more “yes” votes, both measures would be implemented.
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