Proposed S.F. Tax to Address Homelessness Could Hit Retail Hardest
Some of San Francisco’s largest companies could collectively be facing an estimated $300 million annual tax increase, which is likely to spark a political fight amid concerns over higher costs for consumers and the effect on businesses.
Homeless advocates, nonprofits and community groups submitted 28,000 signatures last week for a November ballot measure called “Our City Our Home,” which would raise gross receipts taxes by 0.5 percent for companies making $50 million or more in gross receipts.
The initiative is not yet certified for the ballot but has exceeded the number of required signatures.
The measure would roughly double the city’s funding for homelessness services and housing. “It’s going to completely turn around this crisis,” Jennifer Friedenbach, director of the Coalition on Homelessness, one of the ballot’s backers, told The Chronicle last month.
A poll of 400 likely voters, conducted last week by David Binder Research and commissioned by South of Market affordable housing manager Todco, found 66 percent in favor and 28 percent opposed.
“We’ll be strongly supporting this ballot measure,” Todco said in a statement, describing it as the “only real chance” to reduce homelessness in the city in the face of federal cutbacks.
But tax experts and the San Francisco Chamber of Commerce say a higher tax based largely on local sales could disproportionately harm certain businesses like retailers. It also won’t necessarily hit tech giants hard, they said.
When gross receipts taxes rise, “grocery stores do the worst. They don’t have a high profit margin,” said Joseph Bankman, a Stanford professor.
“Tech firms have high profit,” he said, but their chief revenue sources may be outside of San Francisco.
The measure could also lead to higher costs for consumers, said Alan Auerbach, a UC Berkeley professor and director of its tax policy center.
“A gross receipts tax is relatively simple to collect, but otherwise not as good as a broad-based sales tax, because it applies to business purchases, raising the cost of producing and employing people in San Francisco,” he said.
Auerbach said the proposal won’t hurt the economy as much as a recent Seattle tax based on the number of employees that was quickly repealed. “But the tax will probably lead to slightly higher prices, shifting much of the burden onto purchasers. So it’s largely a marketing gimmick if it is being sold as a tax on the companies,” he said.
The San Francisco Chamber of Commerce will probably oppose the measure, said Jim Lazarus, the group’s senior vice president of public policy.
The city previously estimated that 900 to 1,000 companies have more than $50 million in gross receipts, but it isn’t clear which companies will be affected because tax filings are confidential, Lazarus said. Some companies will avoid tax increases: Banking activities are shielded from local taxes because of state laws, but other financial activities aren’t, according to Lazarus.
“This isn’t just a bunch of international companies that got a Trump tax cut,” Lazarus said. “Can retail survive with higher taxes? If they’re hanging on or have a low-margin business, do they close stores?”
He added that while more funding could help address homelessness, policy reforms related to mental health and shelter could have a major impact without requiring more revenue.
Some financial supporters of the measure are employees at major tech companies that could be affected, at least in a modest way, including LinkedIn, Adobe and Facebook.
Evan Owski, a software engineer at LinkedIn, contributed $19,500, or nearly a third of the ballot campaign’s total of $61,350 through May, according to public filings. Owski previously co-founded and sold photo startup Heirloom.
“Every single day, I see people struggling for bare survival, and I couldn’t sit by and do nothing. This measure is really thoughtful and well crafted. It’s been put together by community groups and people on the front lines of this crisis,” Owski said.
Jeff Kositsky, director of the city’s Department of Homelessness and Supportive Housing, also contributed to the campaign. He declined to comment.
The city’s challenge is striking a balance in tax policy, according to Bankman of Stanford.
“If you tax business too much, it’s terrible, you lose the business,” he said. “Right now, San Francisco is probably in a position to levy that tax without losing a lot.”