Tax
Aug. 2, 2002
Payroll Tax Would Hurt Firms
SAN FRANCISCO - The Bar Association of San Francisco joined a chorus of business interests Wednesday in protesting a supervisor's efforts to extend the city's payroll tax to law firm partners.
The measure, heard Wednesday by the San Francisco Board of Supervisors Finance Committee, would place a measure on the November ballot extending the city's 1.5 percent payroll tax to some professional partnerships, including law firms, architectural firms and doctors' offices.
Such businesses already pay tax on employee salaries, but partner income, which comes from profits, isn't considered part of the payroll.
The finance committee postponed any vote on the hearing until Monday. The proposal must also clear the full board of supervisors to appear on the Nov. 5 ballot.
In an emergency meeting Wednesday morning, a quorum of the BASF board of directors unanimously voted to oppose the ordinance. The board drafted a letter denouncing the proposal that was hand-delivered to each of the city's supervisors.
Partners receive profits, the letter said, not a paycheck. Any attempt to impose a payroll tax on partner profits runs contrary to fundamental tax law, they said.
"On behalf of the Bar Association of San Francisco and its 9,000 members," the letter reads, "we urge the Board of Supervisors to resist the effort to amend the reach of the city's payroll tax statute to, in effect, levy a city income tax on the profits of local businesses that are organized as partnerships ... ."
BASF President Angela Bradstreet said the ordinance could drive law firms out of the city, noting that it follows a period of rising commercial rents downtown.
"This will be another nail in the coffin for businesses in San Francisco," she said in an interview. "This is going to provide further incentive to drive law firms out of San Francisco. Hopefully, the supervisors will take a real close look at this."
The measure faces opposition from other business groups including the San Francisco Chamber of Commerce and the Building Owners and Managers Association of San Francisco.
Supervisor Jake McGoldrick introduced the proposal to recoup more than $20 million in annual 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 the suit for about $80 million and agreed to revamp its tax code.
The measure could take millions of dollars from the pockets of local law partners. It would add $10 million to $15 million more to city coffers, according to Controller Ed Harrington. The measure would also re-establish the city's gross receipts tax on businesses such as commercial real estate and contractors.
Speaking at the finance committee meeting Wednesday, McGoldrick characterized the measure as merely closing a loophole that has allowed partners to avoid payroll taxes.
"I believe they're not really doing their fair share," he said.
Ronald E. Ruma, managing partner for the San Francisco office of Hancock Rothert & Bunshoft, disagreed. He said the city was trying to impose an income tax on partners under a different name.
"It's not that we are opposed to payroll tax," he said. "We pay payroll tax. We pay plenty of payroll tax - on employees. But the owners are not employees."
Daily Journal Staff Writer Erik Cummins contributed to this report.
Tyler Cunningham
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