Amidst the myriad of 2018 voter-approved tax increases in the city (namely the commercial rents tax (see Tax Alert 2018-1423) and homelessness tax (see Tax Alert 2018-2307), San Francisco Supervisor Gordon Mar has proposed asking San Francisco voters to approve an additional 1.12% payroll tax on stock-based compensation on the November 5, 2019 ballot. Referred to as the "IPO Tax," the proposed tax would be retroactive to May 7, 2019, the date it was introduced. Consequently, all San Francisco companies would be subject to the new payroll tax when employees exercise their stock options starting in May of this year. The proposed tax is not a direct tax on IPOs, but rather a tax on the payroll expense of any business with stock-based compensation. Combined with the current 0.38% payroll tax rate, the additional 1.12% payroll tax rate would effectively restore San Francisco's old payroll tax rate of 1.5%.

San Francisco's revenue officials estimate that revenues from the new tax could be between $100 million and $200 million within the first two years. Supervisor Mar must obtain the support of at least six Supervisors before the measure can be placed on the ballot, and the proposal would likely need at least a two-thirds vote to pass this November. The San Francisco Board of Supervisors is likely to vote on this tax proposal in the coming weeks. Mayor London Breed has not announced a public position on the proposal.

Implications

Companies located in San Francisco should determine whether the proposed tax would apply to them. Those affected should follow the proposal's progress and consider participating in the legislative process.

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