By Mark Calvey – Senior Reporter, San Francisco Business Times

Jun 26, 2020, 5:46pm EDT

San Francisco’s raft of proposed business tax hikes and new levies will hit small and mid-sized businesses especially hard, a key opponent of the measures says.

“Large employers will have the flexibility of moving their workforce to avoid these taxes,” Jay Cheng, public policy director for the San Francisco Chamber of Commerce, told me. “Small, local businesses are the ones who do not have the flexibility to move their business and will be stuck paying the bulk of these taxes.”

Big companies also have the sizable payrolls and economic clout to have Dallas and other lower-cost cities scramble to offer incentives to lure them out of the Bay Area.

“Large employers have already begun to leave San Francisco, you’ve seen them save millions in tax dollars just by moving to Oakland or South San Francisco,” Cheng said, without mentioning specific companies. But PG&E said earlier this month that its San Francisco headquarters will move to Oakland, following a similar move by Blue Shield of California. Payments company Stripe said last year that it will move its San Francisco headquarters to South San Francisco.

Measures have been placed by Mayor London Breed or at least four supervisors on San Francisco's November ballot on a gross receipts tax, a tax on stock-based compensation and another on excessive executive pay. The chamber analyzed each.

• Gross receipts tax

The mayor and supervisors have filed dueling gross receipts measures. Both would complete the city's transition away from the payroll tax, and both would leave it until later to set exact tax rates by industry. Breed's proposal would raise gross receipts taxes as the economy improves, and would add a separate tax to be implemented if previous voter-approved tax measures to fund child care and homelessness are thrown out in court. The supervisors' proposal would raise gross receipts higher and faster than the mayor.

“In its current format, the transition from payroll to gross receipts is going to deeply hurt small and local businesses, especially grocery stores, retailers, wholesalers, hotels and food service. These are industries that have high volume and low margins,” Cheng said, adding that the chamber had sought to have new tax rates on gross receipts protect these industries and business models.

The supervisors' tax was sponsored by Norman Yee, Sandra Fewer, Matt Haney and Aaron Peskin.

•Stock-based compensation

This would impose a tax on companies who distribute stock grants or stock options to their employees.

“The Stock-Based Compensation Tax, or IPO Tax, is really going to punish businesses for giving their employees any equity in their companies, and thus will actually push companies to pay their employees less,” Cheng argues. “There are so many working and middle-class families who are relying on that equity to buy their first house, pay down their student loans and build economic stability for their family.”

It was placed on the ballot by Gordon Mar, Hillary Ronen, Dean Preston and Matt Haney.

• "Overpaid Executive" tax

Another supervisor-sponsored November ballot measure would institute an “Overpaid Executive” tax on companies where the CEO makes more than 100 times more than the company's median compensation for its San Francisco workers. Higher tax step up at 200 times, 300 times and on up to 1,000 times.

“It is going to impact those businesses that have been impacted the most by Covid-19: hotels, grocery stores, retailers and brick-and-mortar businesses,” Cheng said. “Most tech companies fall far below the ratios of the CEO tax.

“Many large businesses are going to avoid the tax by moving their administrative and support positions out of San Francisco, changing their compensation ratio and worsening the economic diversity of San Francisco,” Cheng said.

Proposed by Matt Haney, the tax was supported by at least four other supervisors publicly, but it was not immediately clear which three had signed to put it on the ballot.

Such measures come as San Francisco is seeking to close a projected $1.7 billion budget deficit over the next two-and-a-half years, the mayor’s office said in May. Cities and states are under financial stress stemming from costs and lost revenue tied to Covid-19. Unfunded public pensions also pose a risk to city and state budgets and are increasingly a factor in companies’ headquarters relocation and expansion decisions, said John Boyd, principal of site-selection consulting firm The Boyd Co.

Meanwhile, the bevy of proposed tax increases in San Francisco and across California is drawing cheers from economic recruiters in Dallas and other lower-cost cities eagerly courting Bay Area companies. Last year, the Bay Area lost three Fortune 500 headquarters to Dallas as McKesson, Charles Schwab and Core-Mark Holding Co. moved their headquarters or announced plans to move. Other companies may join these companies in leaving the Bay Area. No wonder Jim Wunderman, president and CEO of the Bay Area Council, told me this week, “Taxes equal Texas.