General Motors’ bombshell legal demand in December for more than $121 million in refunds from San Francisco for taxes, interest and penalties is not an isolated case.
Tax disputes between San Francisco and companies operating in The City have been on the rise in recent years in the wake of voters approving several new business-tax measures, city officials say.
“The complexity and number of new taxes passed by voters in recent years combined with downward economic pressure have increased the amount of tax disputes,” said Alyssa Sewlal, a spokesperson for the City Controller’s Office.
The City has paid out at least $44.7 million to companies for business-tax lawsuits and refund claims since 2020, according to city records.
This year, The City has already approved a $3.9 million refund of business taxes to Deloitte. Last year, it was almost $4.2 million to AppLovin and $13.3 million to WeWork. In 2022, it paid nearly $9.2 million to Gap. And in 2020 and 2021, The City shelled out $9.6 million to settle lawsuits filed by the payments company Square, now known as Block.
Chime Financial, an online financial-services company, filed a lawsuit in late February seeking another $7.2 million refund of business taxes and fees.
Partly in response, city officials are now trying to fashion a ballot measure for November to simplify The City’s rules and prevent disputes over business taxes.
The tax-reform effort’s other goals include reducing incentives for the largest employers, which pay a disproportionate amount of business taxes, to leave town or have employees work remotely, as well as lightening the tax load on small businesses.
The City identifies four voter-approved taxes — the gross-receipts tax, the homelessness gross-receipts tax, the overpaid-executive gross-receipts tax and the commercial-rents gross-receipts tax — as making up its business taxes.
Bradley Marsh, a tax lawyer with Greenberg Traurig, said The City’s business tax rules need to be clarified.
Marsh called San Francisco’s gross-receipts taxes “a compliance nightmare” and said The City is viewed by many as “quite aggressive” in tax matters.
“It is probably the most complicated gross-receipts tax in the United States to comply with,” and lack of clarity can foster litigation, Marsh said.
Ex // Top Stories
SFMTA officials said that the issue stemmed from its Market Street subway train control system, which runs on floppy disks that were first installed in 1998 and surpas…
Ernest “EJ” Jones, a former aide to outgoing Supervisor Safai, and Chyanne Chen, a union official, face entrepreneur Michael Lai
City officials said that the upgrades will bolster San Francisco's response in the event of major emergencies, as well as help the Department of Emergency's response t…
One frequent area of disagreement, Marsh said, is how a company’s operations from outside of The City should be weighed in determining taxes owed to The City.
In GM’s case, the Detroit automaker contends it has almost no footprint in San Francisco and that The City inappropriately combined the operations of Cruise, its self-driving-automobile unit — which had minimal revenue — with GM’s global operations. It seeks refunds for the years 2016 to 2022.
A February report issued by the Treasurer & Tax Collector’s Office and the Controller’s Office to support the tax-reform effort recommended consolidating taxes, simplifying rates and rules, and raising and lowering taxes on different types of businesses.
The report suggested merging the homelessness gross-receipts tax into the gross-receipts tax and reducing the number of gross-receipts tax rates for different business activities from the current 14 to five.
Amanda Fried, chief of policy and communications for the Office of the Treasurer & Tax Collector, said one goal of the reform effort is to increase simplicity.
“The gross-receipts tax is a very complicated tax, and one thing that we’re seeking to do in any new measure is to flatten the distinction between industries wherever possible,” she said. “Right now, if someone is in one industry versus another, not only are the rates different, but the basis for calculation is different. In the new measure, what we are trying to do is simplify that.”
The gross-receipts tax, which generates about $800 million a year, was approved by city voters in 2012. About 15,000 businesses filed in 2022. It was most recently updated in 2020 when voters approved Proposition F, completing The City’s transition from a payroll-expense tax. Prop. F also raised gross-receipts tax rates across most industries while providing relief to certain industries and small businesses.
In 2018, voters approved the homelessness gross-receipts tax, which applies to combined gross receipts of more than $50 million, and the commercial-rents tax. Tax watchdogs unsuccessfully argued in court that both measures were invalid because they got less than two-thirds approval.
In 2020, city voters approved the overpaid-executive tax, which since 2022 has levied an additional tax on gross receipts of businesses with a top managerial employee earning more than 100 times the median compensation of employees based in San Francisco.
The City had more than $400 million in litigation reserves for disputes over business taxes at the end of Fiscal Year 2022-23, according to a city report that noted an “acceleration” of litigation.
“Our current tax system leads to a worst-of-all-worlds outcome where a portion of taxes paid by businesses can’t be spent to improve services,” Sewlal said. “We believe there are ways to improve that with changes to the structure of the tax.”
