SF Props L and M Ask Voters to Consider Business Tax Changes and Rideshare Tax Increase

SFrancisco voters will decide on two tax measures at the ballot box in November.

Proposal L would impose an additional tax on revenues from ride-sharing companies and autonomous vehicles, while Proposal M would make a series of changes to business taxes.

The two measures received mixed support from the San Francisco Chamber of Commerce, which endorsed the new business tax plan but opposed the new tax proposed by Prop.

Proposal L: Additional traffic tax

Proposal L would add an additional tax on gross receipts on a progressive tax scale, starting with a 1% tax on a company’s annual gross receipts above $500,000 and increasing to 4.5% on annual gross receipts above of US$25 million.

The money would be directed to the San Francisco Municipal Transit Agency, SFMTA, to maintain or expand Muni service and bolster fare discount programs for seniors and other riders. Funds would also go toward expanding the service to public schools, libraries and parks.

The proposed ordinance makes explicit that the funds raised, which City Controller Greg Wagner estimated at about $25 million annually, would be deposited into the SFMTA for service expansion.

But detractors of the proposal, which include a political action committee to which Uber has given substantial financial support, have noted that there is no audit mechanism or citizen oversight panel established by the measure to ensure the money would be used as intended or would have the impact announced by its supporters.

They further argued that the funding would not have a significant impact on the imminent financial crisis facing the transit agency. The agency will face annual deficits of between $239 million and $322 million starting in the 2026-27 fiscal year.

The San Francisco Chamber of Commerce, California Nightlife Association and Golden Gate Restaurant Association criticized the measure for its lack of accountability for additional revenue and said the measure would only mask larger problems with SF Muni funding.

“This tax raises only a small fraction of the funding Muni needs, with no plan to spend it,” the Chamber of Commerce wrote in its election opposition message on the measure.

Uber had contributed $750,000 to the campaign against the proposal as of Thursday, according to campaign finance data. The company sent questions to the campaign against the No to L proposition.

John Whitehurst, spokesman for the campaign against the measure, said the committee was pleased with Uber’s support.

“The No to L campaign unites drivers, riders, businesses of all sizes and community leaders against a massive new ride-sharing tax that lacks transparency and does not address Muni reforms,” he said in a statement.

The proposal is supported by a majority of the San Francisco Board of Supervisors, the Sierra Club and the nonprofit advocacy organization San Francisco Transit Riders. They argued the money would make a significant difference in Muni’s operations as it faces the loss of state and federal funding that has kept it afloat amid declining ridership in the wake of the COVID-19 pandemic.

“Muni is facing severe cuts due to the end of emergency federal funding that has kept our public transportation running during the pandemic,” a Transit Riders representative wrote for the proposal’s voting argument.

“These cuts will mean reduced Muni hours and frequency, and likely entire lines eliminated. Proposition L will provide enough critical funding now to protect up to a dozen bus lines from cuts,” the group said.

Some of the same organizations that spoke out against the ride-sharing tax proposed by Proposition L have expressed support for the business tax change proposed by Proposition M.

Proposition M: Tax Reforms for Small Businesses

Proposition M would make several changes to the business tax code, perhaps most notably increasing the exemption for small businesses from paying any tax from $2.25 million in annual gross receipts to $5 million in annual gross receipts.

The San Francisco Chamber of Commerce and the Golden Gate Restaurant Association said it could help up to 2,700 small businesses get exempt status.

“Proposition M will also significantly reduce business license fees for restaurants, hotels, arts venues, and neighborhood stores,” the group’s representatives wrote in the proposition’s proponent argument.

“More than 90% of our local restaurants will have lower tax burdens, with 88% not paying any business taxes. Lower taxes will allow our neighborhood businesses to thrive. Proposition M will simplify our current tax system, making it more predictable for business owners and the city. This will help preserve essential services while working towards a more vibrant, clean and safe downtown,” representatives wrote to voters.

The proposal’s opposing argument was written by San Francisco Republican County Central Committee Delegate Larry Marso, who argued that higher taxes on larger companies could lead to them cutting jobs.

Proposition M introduces new tax rates that drastically increase the burden on many businesses in San Francisco,” Marso wrote. “While some small businesses may see minimal changes, others – especially medium and large employers – face doubled or even quadrupled tax rates.”

The measure was supported by Google, whose lobbying arm Google Client Services LLC had donated $500,000 to the proposal as of Thursday, according to campaign finance data.

The new tax regime would increase corporate tax rates to between 0.1% and around 3.7% from current rates which range between 0.05 and around 1%, increase the small business exemption, it would reduce the number of different categories of companies from 14 to seven, and change the tax regime. Likewise, many non-sales companies calculate their taxes from one based on payroll to one based on income.

Proposal M would also lower the threshold that requires a company to pay an additional tax on gross income from homelessness from those with gross receipts in excess of $50 million to businesses with gross receipts in excess of $25 million. It would also increase the maximum rate of this tax from 0.69% to 1.64%.

City Controller Greg Wagner said in his analysis of Proposition M that it would cost the city $40 million a year during the first three years of implementation, before increasing revenue by $50 million annually starting in fiscal year 2028-29. He said the initial lost revenue would be made up by FY 2029-30.