Feb 22, 2023 - News

San Francisco eyes corporate tax relief to attract new companies

Worker outside the Salesforce Tower in San Francisco

Outside San Francisco's tallest tower. Photo: Paul Chinn/The San Francisco Chronicle via Getty Images

To help attract companies to San Francisco's struggling downtown, officials are calling for a change to how businesses are taxed.

The big picture: The city has long imposed high corporate taxes, yet companies still flocked here because of the access to talent, venture capital and the "cachet of being in San Francisco," Jeff Bellisario, executive director of the Bay Area Council Economic Institute, told Axios.

  • But with the rise of remote work amid the pandemic, more companies are "rethinking their physical footprint" and evaluating their "cost of doing business," which includes local taxes, Bellisario said.

Why it matters: Some companies, like Meta, are downsizing their presence in San Francisco, while others, like Coinbase, have left altogether.

  • Today, over 25% of office space in San Francisco sits empty.
  • The city faces a potential $728 million deficit over the next two fiscal years thanks, in part, to lower-than-expected property tax revenue.

Details: Mayor London Breed's recently revealed plan for revitalizing San Francisco's city center includes tax incentives of up to $1 million for three years to businesses that open new offices here.

  • For more permanent changes, the mayor also called on the city's controller and treasurer to devise a potential tax reform measure for residents to vote on in 2024 that would "allow San Francisco to better compete with its peer cities in attracting new businesses," according to a press release.

By the numbers: A tech company in San Francisco with 250 employees and $750 million in total revenue would pay roughly $10.4 million annually in local taxes, according to an analysis released this month by the Bay Area Council Economic Institute.

  • That same hypothetical company would pay just over $4 million in Oakland and $2.7 million in Berkeley.
  • In South San Francisco, it would pay around $50,000 annually, and in San Jose, $17,118.

What they're saying: "Cities that view themselves as business friendly, they want these taxes to be as low as possible because it's something they can use as a selling point when they're trying to attract businesses from around the country or businesses that are moving out of San Francisco," Bellisario said.

Meanwhile, Supervisor Dean Preston said he was disappointed by Breed's plan, which he said "prioritizes tax handouts to massive corporations."

  • Instead, Preston wants the city to focus on "neighborhood-serving small businesses, critically needed affordable housing and a functional public transit system."

What's next: The Board of Supervisors will need to approve any short-term tax relief proposed by the mayor.

  • As for what the 2024 tax measure might look like, Supervisor Aaron Peskin told the SF Business Times: "Let's see where our economy goes."

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