San Francisco tech rallies around startup-friendly tax measure Prop E

San Francisco City Hall

San Francisco residents will have the option of voting next Tuesday on Prop E, a proposal to eliminate the existing city payroll tax in favor of a tax on revenue. It’s an issue that’s received widespread approval and support from the tech community and re-ignited the conversation about keeping startups in the city.

San Francisco Mayor Ed Lee gives remarks at the Greenstart event.

San Francisco is currently the only city in California that taxes companies based on their payroll, an unpopular move among fast-growing tech companies that might double or triple their staff sizes in a single year without producing significant revenue, and some feel they might have to consider moving south where they won’t face a similar tax. Up for a vote on Tuesday, Prop E would replace the payroll tax with a tax on a company’s gross receipts over $1 million.

For tech companies, staying in San Francisco versus moving down to Silicon Valley is a tough decision, and one that’s tipped in San Francisco’s favor recently with companies like Twitter, AirBnB, and Pinterest setting up camp. But those companies tend to grow rapidly, and if they’re to remain in the city they could prove a serious lobbying force in city government for their particular interests.

The San Francisco Chronicle explained the potential economic impact of the change, noting that it would benefit tech and manufacturing companies, who complain they’ve been unfairly burdened by the existing tax structure:

If passed, Prop. E would phase out the payroll tax over five years starting in 2014. It’s designed to raise the same amount of tax revenue as the payroll tax but almost double the number of businesses that are paying. It’s also expected to generate an additional $28.5 million a year for city coffers from increased business license fees. The city currently levies a 1.5 percent tax on companies with at least $250,000 in payroll expenses. It’s the second biggest source of revenue, behind only property taxes, for the city’s General Account, bringing in $410 million last year.

Prop E is backed by SF Citi, the group that advocates on behalf of local tech companies in San Francisco, both the local Democratic and Republican parties, and Mayor Ed Lee, who’s been a cheerleader of pro-tech legislation, like tax breaks for companies such as Twitter that moved into the mid-Market area of downtown San Francisco this year. Lee is leading a rally on Saturday in support of Prop E, in conjunction with SF Citi.

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