February 16, 2023

San Francisco’s Business Taxes Well Above Those of Any Other Bay Area City, Study Finds

By Mark Calvey – Senior Reporter, San Francisco Business Times

San Francisco’s large companies are shouldering a tax burden that’s more than double that of the Bay Area city with the next-highest tax burden on big businesses — Oakland, according to a new study by the Bay Area Council Economic Institute.

The business-tax burden is in the spotlight as companies have greater freedom in choosing where to locate their offices, especially as more employees work remotely.

San Francisco Mayor London Breed recently unveiled a plan to make tax changes and offer incentives to attract businesses to downtown San Francisco, where office vacancies are more than 25%. The San Francisco Board of Supervisors must approve the mayor’s proposals. The mayor’s office did not immediately respond to a request for comment on the institute’s study.

In recent years, downtown San Francisco has lost the headquarters of Fortune 500 companies such as Charles Schwab Corp. and McKesson Corp. Companies with high growth in recent years, including Brex and Coinbase, gave up their San Francisco headquarters in favor of a no-HQ strategy. San Francisco’s business-tax structure provides powerful incentives for companies to take their headquarters and employees out of the city.

And as a Wells Fargo CEO once said, businesses don’t have to move far away. Much lower business taxes are found in San Jose, Walnut Creek and Sunnyvale, according to the institute’s study, which examined business taxes in 15 Bay Area cities.

The study looked at three hypothetical companies to illustrate the business-tax burden in different industries and different-size companies. The institute also chose cities with similar business-tax structures, such as gross receipts taxes and so-called employee headcount taxes.

A tech or information company with 250 employees and $750 million in taxable gross receipts would face total business taxes in San Francisco of more than $10.4 million annually, according to the study. That same company would pay more than $4 million in taxes in Oakland, $17,000 in San Jose and $3,600 in Sunnyvale.

For a financial services company with 75 employees and $100 million in taxable gross receipts, the tax burden in San Francisco comes to $6.8 million annually, compared with almost $2.7 million in Oakland and just around $12,000 in Walnut Creek.

A professional services firm with 75 employees and $100 million in taxable gross receipts would face a tax bill in San Francisco of $1.1 million annually, compared to $493,000 in Oakland and far more than it would pay in San Jose.

“The study offers stark insight into the considerable challenges high business tax cities like San Francisco face as they struggle to emerge from the economic doldrums of the pandemic and re-make central business districts and office towers left mostly empty by companies downsizing, relocating and shifting to remote work,” said Jeff Bellisario, executive director of the Bay Area Council Economic Institute.