San Francisco crazy high business taxes could get even worse

San Francisco has been a case study in how not to run a city, but a new report is amplifying the alarm as voters consider a CEO tax that some are calling a poison pill for the epicenter of tech.

The Bay Area Council Economic Institute released a study on Wednesday that found eye-watering business taxes are driving away San Francisco businesses and making it nearly impossible to fully recover from the pandemic. Payroll employment in the city is still 8.6% below pre-pandemic levels, while office vacancy has climbed to about 33% — the highest among major U.S. cities.

Downtown business formation also has essentially collapsed — falling from 711 new firms in 2017 to just 25 last year — as more companies seek out financially greener pastures, according to the report.

The report comes as San Francisco voters are set to weigh in on Measures C and D, two competing proposals on the June 2 ballot that would radically reshape the city’s business tax system. 

The think tank’s report found that a hypothetical payment processing firm would owe about $60.5 million a year in San Francisco business taxes — compared to roughly $5.1 million in Seattle.

Meanwhile, a mock cloud storage company would pay about $24.2 million, more than three times what it would face in competing cities.

“San Francisco continues to offer extraordinary advantages in talent, innovation, and global connectivity, but this report makes clear that the city’s tax structure has become a growing competitive disadvantage,” said Jeff Bellisario, executive director of the Bay Area Council Economic Institute. 

“Other knowledge-economy cities facing many of the same post-pandemic challenges have recovered more successfully than San Francisco. This report shows that tax competitiveness matters, particularly in industries where companies can increasingly deploy talent and investment across multiple regions.”

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Measure C, which is backed by business interests, would expand exemptions for smaller businesses in San Francisco — raising the cutoff from $5 million to $7.5 million in revenue — while accelerating scheduled tax increases on larger companies, particularly through higher executive pay tax rates starting in 2027.

Measure D, which is supported by labor unions and opposed by Mayor Daniel Lurie and the city’s Chamber of Commerce, would broaden the CEO tax by basing the figure on a company’s entire workforce — not just San Francisco employees. 

The measure would also significantly raise tax rates and lock them in place by requiring voter approval to reduce it, turning the executive tax into a larger and more permanent revenue stream.

Neighbors for a Better San Francisco, a moderate-leaning advocacy group, announced in February it planned to spend $10 million to kill the CEO tax, while other political groups in the city are actively opposing the measure.

“Every other city is rolling out the welcome mat for businesses while Prop D’s proponents are trying to lock the door,” Steven Buss, co-director of the political advocacy group GrowSF, told The Post.

“Prop D doubles down on the exact policies that are driving jobs out and driving vacancies up. Prop D is how we turn our recovery into a collapse.”

The Bay Area Council’s report frames the upcoming election as a critical moment, warning that the city’s cost of doing business is already pushing companies to rethink whether to grow — or even stay — in San Francisco.

San Francisco is clearly losing ground compared to other cities,

While places like Austin have added jobs — up 17.4% since 2020 — San Francisco is still digging out of a hole. The city posted the largest losses in office-based industries like tech and finance, which are the backbone of the local economy.

The think tank’s report argues that taxes are a key differentiator.

San Francisco is one of the few major cities that taxes businesses directly on gross receipts, payroll and other factors, layering multiple taxes on top of each other. Even after recent reforms, many companies actually saw their bills go up, the study found.

In one example, a firm’s annual tax burden jumped from about $19.2 million to $24.2 million after the latest changes took effect.

The shift to remote work has had one of the biggest impacts on San Francisco’s bottom line.

Weekday foot traffic is still hovering at roughly half of what it was before COVID, and average monthly sales tax revenue downtown has fallen from about $39 million before the pandemic to around $26 million.

San Francisco is now staring down the barrel of a projected $643 million two-year budget deficit, and Lurie began a round of layoffs by handing out 127 pink slips last month.

Up to 500 more workers could be laid off as the city attempts to balance its budget.

“The steps we have taken, let me reiterate, are incredibly painful,” Lurie said last month. “But they are necessary to continue the work we have been doing to manage taxpayer dollars responsibly, deliver the best possible services and set up our city for a long, lasting recovery.”