CITY OF SOUTH SAN
FRANCISCO
Business Tax Analysis
May 22, 2024
The Basis of the Tax
• The business tax is imposed on the privilege of
transacting or carrying on a business.
• It cannot be imposed on net income.
• It is imposed for the purpose of generating revenue and not recouping the costs of regulatory activities.
Five Key
Components of A
Business License
Tax
1. The taxable activity.
2. The measure of the taxable activity.
3. The rate.
4. The classification.
5. The results.
Major Types of Measurements
Measure Type Measure Pro Con
Input Per Employee •Maybe less volatile than
gross receipts
•Higher burden on businesses with more labor inputs
(like restaurants) that have already seen their costs of goods sold increase.
•Doesn't capture per-employee productivity gains
from technology.
Input Square
footage
•Fixed amount for
calculation
•Can be tricky to calculate.
•Tends to miss the business activity occurring at other than floor level. (For example, if you have a
warehouse that has shelving that is 20 feet high, but
you are only measuring the square footage imprint,
your measure misses significant business activity.
•Is limited to only businesses with a location in the
city, reducing the tax base.
Input Unit •The units of input may
already be tracked.
•Does require pro-ration and may only have a weak
relation to the amount of business activity.
Flat N/A •Easy to calculate. •No clear relationship to the amount of taxable activity.
Output Gross
Receipts
•Closer relationship to the
amount of business activity
since it captures the output
of the taxable activity.
•Can include alternative
measures for the cost of
operations without
traditionally recognized
"gross receipts."
•Increase in the volatility of revenues since they are
pegged to the outputs of the business activities.
•In some cases, may be harder to calculate.
•Under State law, it cannot be based on net income.
Jurisdictions Comparison Summary
Business License Tax Revenue Impact
Comparison
Hypothetical Business Comparison Analysis
Hypothetical Business Comparison Analysis
Gross Receipts Tax - Estimates
Key Estimates Used in The Models
Model 2: Gross Receipts Tax – Single Gross
Receipts Rate
Model 2 – Potential Structure
Model 2 – Rough Estimates from a Simple Gross Receipts Structure Model 2: Highlights & Impact Review
Model 2 - Estimated Effective Tax Rates Under A Simple Gross Receipt Model Model 3: Gross Receipts Tax – Classificationbased Rates Model 3 – Basic Tax Structure for Classification-Based Gross Receipts Model 3: Gross Receipts Tax – Classificationbased Rates Model 3 – Estimated Revenue From Classification-based Gross Receipts Model 3: Highlights And Impact Review
Model 3 - Estimated Effective Tax Rates Under A Classification-based Gross Receipt Model Gross Receipts Rates Comparisons
Selected Comparisons for Gross Receipts Rates
Q&A
Appendix
Model 4: Employee-based Model
Model 4 – Adjustable Current City Structure
Model 5: Employee-based Model
Model 5 - Progressive Employee Structure with
Professional and Contractor Categories