A recent report from top economists at San Francisco City Hall has shed light on the financial implications of remote work on the city's tax revenue. According to the report, the rise of remote work, particularly in the finance, information, and tech sectors, led to a decrease of $484 million in tax revenue for the city in 2021. As mentioned by SFist, this revelation has sparked discussions about the concentration of San Francisco's tax base and its vulnerability to changes in the business landscape.
Understanding the Context
According to a Chronicle writeup, while the figure of $484 million may seem alarming, it is important to note that this number does not represent an actual loss in the city's budget. The report clarifies that the city's revenue from gross receipts tax and homelessness gross receipts tax did not decline by that amount. Instead, the figure serves as a fiscal impact assessment, illustrating the revenue that the city was not entitled to due to the reduced presence of office employees physically working in San Francisco.
New SF study found the city lost $484 million in taxes due to remote work across three major sectors including tech.— Roland Li (@rolandlisf) July 12, 2023
And the 5 biggest taxpayers account for 24% of all business taxes, making the city vulnerable to potential downsizings or relocations: https://t.co/vtzzBzSNUn
Erosion of the business tax base
Gross receipts taxes in San Francisco are calculated based on the number of employees located within the city. As remote work became more prevalent, the city's business tax base began eroding. The report warns of the challenges posed by this new era of remote work, which is slowly reversing the city's tax revenue growth.
A new report from our City economic leaders shows the vulnerabilities of our existing tax structure. Remote work, an unstable and narrow tax base, and other challenges require change. Our long-term economic health requires real tax reform. And that’s what we are doing. https://t.co/dhwYYhUviT— London Breed (@LondonBreed) July 12, 2023
The concentration of tax revenue
One significant issue highlighted in the report is the concentration of San Francisco's tax revenue among a small number of large companies. While the report does not identify these companies, it is likely that tech giants such as Salesforce and Wells Fargo are among them. According to the Chronicle, the five largest taxpayers accounted for $339 million in business taxes, approximately 24% of the total. The San Francisco Business Times takes a broader perspective, stating that the city relies on just 10 companies for a third of its business tax revenue.
Reforms to make our tax code more progressive have also made SF revenues increasingly reliant on sectors like tech & finance.— Rafael Mandelman (@RafaelMandelman) July 12, 2023
Yet these industries are more likely to adopt remote and downsize downtown office space.
As a result, our City's biz tax base is already eroding. (2/4) pic.twitter.com/udcBotnQhN
The risks of overreliance
Dependence on a handful of major corporations poses a significant risk to San Francisco's tax revenue. If one or two of these companies were to falter or relocate their headquarters elsewhere, it could have a substantial impact on the city's finances. Supervisor Rafael Mandelman, who requested the report, is using its findings to drive his political agenda, and future political battles are likely to ensue.
The growth conundrum
Despite concerns about the concentration of tax revenue, San Francisco's Gross Domestic Product (GDP) experienced substantial growth, increasing by nearly $25 billion in 2020 and 2021. This growth represents the largest increase among counties with over 500,000 residents, even considering the population decline. This data challenges the notion that San Francisco is inherently "anti-business."
San Francisco's top-heavy business taxes place most of the burden on a handful of large firms — and the city is discovering that's a problem. https://t.co/1qojnsZAGo— San Francisco Business Times (@SFBusinessTimes) July 12, 2023
Tech titans and their influence
Many of the prominent tech companies, often referred to as 'Tech Titans' have a significant presence or are headquartered in San Francisco. However, their presence in the city remains uncertain in the future due to the rise of remote work. While these companies contribute to San Francisco's economy, the remote work trend could potentially lead to a shift in their operations and office locations.
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