What the Measure Would Do

Proposition C would speed up the scheduled Top Executive Pay Tax increase, making the planned 2028 tax rates effective in 2027.

The measure would also exempt small businesses with gross receipts of $7.5 million from the Gross Receipts Tax, raising the threshold for the current exemption, which applies to businesses with gross receipts of $5 million or less. It is estimated that about 800 businesses would benefit from this change to the exemption.

Prop. C would have a negative fiscal impact on the city, reducing revenues by an estimated $30 million to $40 million per year, according to the controller.

This ballot measure would nullify Prop. D, a competing business tax measure, if it receives more votes.

The Backstory

Both Prop. C and Prop. D propose changes to San Francisco’s current business tax structure.

Current business tax structure

Bringing in about $1.3 billion annually, business taxes are San Francisco’s second-highest revenue source, exceeded only by property taxes. The Gross Receipts Tax, which accounts for 88% of business tax revenues, applies to businesses with more than $5 million in revenue. The Top Executive Pay Tax is an additional gross receipts tax applicable to businesses with at least 1,000 employees or $1 billion in sales that pay their highest-paid manager more than 100 times the median pay of their San Francisco employees. The tax rate is tiered according to the ratio of the salary for a company’s highest-paid manager to the median San Francisco worker’s salary. The city collected approximately $130 million in revenues from this tax in fiscal year 2023–24, according to the controller.

Evolution of business tax policy in San Francisco

In 2012, San Francisco voters approved the city’s transition from the payroll tax to a gross receipts tax. Like an income tax rate, the gross receipts tax rate increases with gross revenue, making it more beneficial for small businesses than the previous flat payroll tax.

From 2018 to 2020, voters passed additional ballot measures to increase gross receipts taxes, including a homelessness gross receipts tax on large companies and a commercial rents gross receipts tax. In 2020, voters approved the Top Executive Pay Tax, which imposed an additional gross receipts tax on companies with a high compensation ratio between top executives and the median San Francisco worker.

The rise of remote work after 2020 exposed the vulnerabilities of the city’s business tax structure. First, the city was overly reliant on a small number of companies for its tax base. In 2024, the top 10 taxpayers paid 28% of total business taxes. The Top Executive Pay Tax was even more concentrated, with the top 10 companies accounting for 61% of revenue. Second, the city’s “payroll apportionment factor” reduced business taxes for companies with remote workers, disincentivizing local job growth. Third, the city’s tax code had become convoluted, with 14 categories of business taxes.

To address these weaknesses, the city reformed its tax structure again in 2024. In an effort led by the Office of the Controller and the Office of the Treasurer and Tax Collector, the city conducted analysis, engaged with employers and stakeholders, and finalized its proposed reforms in May 2024. Business groups, nonprofits, and labor organizations collected signatures for a November 2024 ballot measure to implement those reforms. The resulting Prop. M:

• Changed the apportionment ratio to remove the disincentive for companies to hire more employees in San Francisco
• Reduced the number of business tax categories from 14 to 7
• Cut the top executive tax rate by 80% and exempted businesses with 1,000 or fewer U.S. employees and $1 billion or less in gross receipts
• Exempted small businesses with gross receipts of $5 million or less from all business taxes and fees

The new tax structure became effective in January 2025, and companies are just beginning to file under it. Therefore, the impacts of the new structure remain unknown.

Federal funding cuts and the city’s growing budget deficit

The One Big Beautiful Bill Act (H.R. 1), enacted in July 2025, will impose significant cuts to critical social safety-net programs nationwide. The controller has estimated $200 million in lost revenue annually due to these cuts, which will exacerbate the city’s fiscal deficit, estimated at nearly $169 million for FY 2026–27.

To fill that deficit, Supervisor Chan proposed raising the Top Executive Pay Tax and imposing new fees on ride-hailing companies. Chan’s measure, co-signed by supervisors Chen, Fielder, and Walton, was withdrawn when three labor unions filed Prop. D.

Prop. C was placed on the ballot through a signature-gathering campaign led by the San Francisco Chamber of Commerce and Advance SF, which represent businesses in San Francisco. The measure was proposed in reaction to Prop. D, a competing tax measure that would increase business taxes. Prop. C requires a simple majority (50% plus one vote) to pass.

Equity Impacts

The measure would worsen the city’s structural budget deficit, making it less likely that the city can provide resources for vulnerable populations. It would provide some additional tax relief for smaller businesses.

Pros

• The measure would cut taxes for 800 businesses, providing some financial relief for smaller establishments.
• The measure would preserve the basic structure of the business tax that was approved by voters in 2024.

Cons

• The measure would worsen the city’s fiscal deficit.
• The measure was placed on the ballot to prevent a competing measure from succeeding.