Tax
Aug. 9, 2002
Proposed Partnership Tax Will Not Be On the Ballot
SAN FRANCISCO - The tax collector won't touch San Francisco law partners' profits, as a 5 p.m. deadline passed Wednesday before city supervisors could place a controversial tax proposal on the November ballot.
Supervisor Jake McGoldrick had proposed to expand the city's 1.5 percent payroll tax to include some professional partners. But he dropped the idea, and no other champion emerged.
McGoldrick still supports the idea of expanding the payroll tax, he said, but backed off when it became clear some small businesses might be affected.
"I didn't want small businesses to be affected," he said. "It became obvious [the proposed measure] wasn't entirely clear."
If supervisors want to revisit the issue, they must wait until 2004. Under Proposition 218, local governments may hold elections on general taxes only once every two years.
"We'll spend the next two years studying it," McGoldrick said.
Lawyers said they were relieved to escape the threat of a new tax. The professionals and business people it targeted had argued the tax would have violated state and federal tax laws, and predicted it would drive firms out of the city.
Angela Bradstreet, a partner at San Francisco's Carroll, Burdick & McDonough and president of the Bar Association of San Francisco, said a number of "panicked" lawyers had called seeking help in battling the proposal. BASF voted to denounce the measure and sent letters to all the supervisors.
"It's good news for a big segment of our members," she said of the proposal's failure. "Now is not the time, given the economy in the wake of Sept. 11, to be imposing new taxes. Businesses are suffering, law firms are suffering. These are tough times."
Partners in professional corporations are considered employees and already pay the city's payroll tax, according to tax experts. The McGoldrick proposal most likely would have affected larger law firms set up as limited liability corporations, or LLCs, in the mid-1990s.
McGoldrick had hoped to recoup a large measure of tax income the city lost last year when it settled a major legal challenge to its business tax scheme. More than 100 companies joined in the suit, General Motors Corp. v. CCSF, 301510. The city ultimately settled for about $80 million and agreed to revamp its tax code.
The new tax structure will net the city about $20 million less in revenue. McGoldrick's proposal would have taken between $10 million and $15 million from professional partners in the city, including lawyers, doctors, architects and accountants.
McGoldrick seemed to have the support of Board President Tom Ammiano and supervisors Aaron Peskin and Chris Daly. Although McGoldrick tabled his measure during Monday's supervisors meeting, Ammiano apparently hoped to place the measure on the ballot without the board's imprimatur by gathering signatures from four supervisors.
But those signatures failed to reach the Elections Department by 5 p.m. Wednesday.
Instead, four supervisors submitted a proposal that would double the tax imposed when a property worth $1 million or more is transferred. The measure was signed by supervisors Ammiano, Peskin, Matt Gonzalez and Sophie Maxwell.
Tyler Cunningham
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