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On November 3, 2020, San Francisco voters approved Proposition F (Business Tax Overhaul) and Proposition L (Overpaid CEO Tax) by overwhelming majorities.¹

The Business Tax Overhaul, which was passed by 68% of voters,² will increase most of the current Gross Receipts Tax rates by approximately 40% and eliminate the Payroll Expense Tax beginning in 2021. Many of these tax rates will continue to increase until 2024 under the new law. The Business Tax Overhaul dramatically increases the rates for taxpayers that have revenue streams classified as information services. See Tax Alert 2020-2107.

The Overpaid CEO Tax, which was passed by 65% of voters, generally will apply to all businesses in San Francisco in which the compensation ratio of the highest-paid managerial employee as compared to the median compensation paid to the business's employees based in San Francisco exceeds 100:1. The new tax will take effect beginning in 2022. The increase of rates is as follows:

• 0.1% for an Executive Pay Ratio of more than 100:1 but less than or equal to 200:1
• 0.2% for an Executive Pay Ratio of more than 200:1 but less than or equal to 300:1
• 0.3% for an Executive Pay Ratio of more than 300:1 but less than or equal to 400:1
• 0.4% for an Executive Pay Ratio of more than 400:1 but less than or equal to 500:1
• 0.5% for an Executive Pay Ratio of more than 500:1 but less than or equal to 600:1
• 0.6% for an Executive Pay Ratio of more than 600:1

Taxpayers engaged in business as an administrative office will also see an increase in their tax based on payroll expense. The rates of this increase follow the schedule above, multiplied by four. 

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ENDNOTES

¹ Both propositions required a simple majority, 50% +1 vote to pass.

² The election results are available here.