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San Francisco’s tech leaders accept been disconnected for weeks over Proposition C, a election admeasurement that would accession taxes on the city’s better companies to armamentarium abandoned services. Salesforce arch Marc Benioff, who supports Prop. C, and Jack Dorsey, arch of Twitter and Square, who opposes it, accept been the best arresting abstracts in the debate.

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Their accessible angry has accent the city’s gross receipts tax, the agent through which Prop. C would accession hundreds of millions of dollars for shelter, analysis and added programs. The circuitous tax is ailing understood, yet its particulars comedy a acute role in abstraction the stances of those on both sides. Here’s what you charge to apperceive about it.

What is the gross receipts tax?

Though the name suggests it’s a tax on all-embracing revenue, the burghal uses as its abject a abstraction alleged “San Francisco gross receipts.” Those start, in best cases, with a company’s common acquirement assorted by an “apportionment percentage.” That agreement varies by business class — retail, construction, advice and banking services. There are 20 in total.

Some businesses pay a amount that’s a 50/50 alloy of the allotment of their absolute amount that’s in San Francisco and a allotment of their absolute acquirement that’s in San Francisco. Others — best conspicuously banking firms — pay a amount based absolutely on their allotment of common amount in San Francisco.

That abacus is again activated to their common acquirement to access at San Francisco gross receipts. That’s assorted by a tax amount that varies by business admeasurement and class amid 0.075 and 0.65 percent to account the tax owed.

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Overall, the bigger a business is and the added concentrated its agent abject or acquirement is in San Francisco, the college a amount it will pay, but the class affairs a lot in what it owes.

That sounds absolutely complicated.

You’re not wrong.

Why does San Francisco accept such a circuitous tax system?

Previously, San Francisco answerable businesses a tax on payrolls over $250,000. In 2004, the burghal adapted its cipher to accommodate banal options, which it ahead hadn’t taxed, but it didn’t accomplish that accouterment for years. In 2011, as the burghal started authoritative noises about demanding options as the law required, tech companies and business barter groups began accusatory about the amount tax. Added businesses had added accepted apropos about the amount tax, which they saw as black hiring by abacus to the all-embracing amount of employment.

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So in 2012, with the abetment of businesses, burghal voters anesthetized Proposition E, which alien a gross receipts tax advised to alter the amount tax in phases. Since the amount tax wasn’t anon eliminated, the burghal additionally alien a tax breach for businesses that amid in Mid-Market, accepted as the “Twitter tax break.” It was an camp accommodation meant to ster a depressed breadth downtown.

The amount tax was declared to be alone this year, but because the gross receipts tax didn’t accession abundant money, the amount tax has ashore around, admitting at a bargain amount of 0.38 percent for 2018. So now the burghal has two systems of business tax.

Notably, Dorsey, who was again active aloof Square (a co-founder of Twitter, he was accursed as its CEO in 2008 and did not re-assume the role until 2015), accurate Prop. E, as did best business leaders.

How would Prop. C change the gross receipts tax?

Though it’s generally declared as hiking the gross receipts tax by 0.5 percent for companies authoritative added than $50 actor in gross receipts a year, that’s an all-embracing figure. The absolute amount varies added or beneath as it does for the accepted tax. Depending on category, businesses would pay an added 0.175 to 0.69 percent.

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Does Prop. C accession the amount tax?

This is a bit of a misconception. There’s a loophole-closing accouterment in the gross receipts tax alleged the “administrative appointment tax.” The abstraction is if you accept a arch appointment with a few advantageous admiral but little of your amount or acquirement is in the city, you shouldn’t escape taxation. Businesses that fit that description and accept added than 1,000 U.S. advisers and added than $1 billion in accumulated gross receipts pay 1.4 percent of bounded amount beneath absolute law — essentially, the old amount tax. Prop. C would accession the amount on such businesses by 1.5 percent.

Why would Square, which is abundant abate than Salesforce, pay added beneath the tax?

Benioff, who volubly supports Prop. C, said his company, which expects to cull in about $13 billion in acquirement this year, could calmly allow the $10 actor added tax it would owe beneath Prop. C. Dorsey said Square, which forecasts acquirement of about $3 billion this year, would pay an added $20 million.

The aberration comes bottomward to how the burghal categorizes those businesses for tax purposes — and it’s important to apperceive that Square has fought with San Francisco over its classification.

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In May, in a filing with the Securities and Exchange Commission active by Dorsey, Square appear that the city’s tax beneficiary “believes the company’s primary business action is banking casework rather than advice services,” and had issued a accommodation to that effect. That translates to a tax amount access from 0.475 percent to 0.56 percent on its gross receipts.

But Square took a abundant bigger hit than that, because banking companies’ San Francisco gross receipts are afflicted abnormally than software companies’. Banking firms pay the tax on a allotment of their common acquirement that is according to the allotment of their amount in San Francisco. Software companies account their gross receipts based 50 percent on the admeasurement of bounded amount and 50 percent on their allotment of sales in San Francisco.

Roughly two-thirds of Square’s 2,338 advisers are based at headquarters; for Salesforce, it’s about 28 percent of 30,000 all-around employees. Admitting neither breach out sales by city, it’s accessible to assumption that their hometown accounts for a tiny allotment of sales. That agency that Square would cut its gross receipts tax by added than bisected if it were put in the aforementioned class as Salesforce. Square would get the aforementioned accumulation on the added tax imposed by Prop. C. That’s how you acreage on Square advantageous alert as abundant as Salesforce on a abate acquirement base.

Dorsey hasn’t commented on what Twitter would pay, but d it is categorized as an advice company, its proportional accountability would be added like Salesforce’s. Its amount tax breach beneath the Mid-Market absolution — for which Square, admitting its appointment is one block abroad on Market Street, isn’t acceptable — expires in May.

Who abroad is affected?

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Stripe has not said which class it is in, and the burghal cannot acknowledge such information, which is accounted allotment of a taxpayer’s clandestine return. But Stripe has said it is afflicted analogously by the gross receipts tax and its CEO, Patrick Collison, has announced out adjoin Prop. C. The startup, which like Square processes acclaim agenda and debit agenda transactions, is a held, so it has not appear its revenue, but analysts told Bloomberg it’s about $1.5 billion a year. (Stripe did not acknowledge to a appeal for comment.) Based on a chase of LinkedIn profiles, about two-thirds of Stripe’s advisers assignment in its San Francisco headquarters.

Because it is absurd to apperceive which categories companies are in unless they voluntarily acknowledge that information, as Square has done, it’s absurd to actuate the appulse of tax changes. But it’s accessible to atom some inequities. Uber, which operates its ride-hailing account worldwide, is aloof on Prop. C. Lyft, which opposes Prop. C, has alone amorphous accretion internationally, has a added concentrated workforce and has said that its hometown is one of its bigger markets. Bold the companies are in the aforementioned category, Lyft would about absolutely pay added bounded tax on every dollar of revenue.

Why abroad do some bodies animosity a gross receipts tax?

Let’s say you bash a agenda on a Square terminal to buy a latte at Blue Bottle with a Wells Fargo Visa card. (Conveniently, those are all San Francisco companies.) Blue Bottle pays tax to the burghal based on the $4 amount of the latte. Square accuse a few nickels to action that payment; that fee adds to Square’s gross receipts, on which it is additionally taxed. It pays a allocation of that to Wells Fargo and Visa, which are additionally San Francisco companies, and — you estimated it — they too pay tax on their share. Critics of the gross receipts tax point out that demanding a transaction so abounding times adds to businesses’ costs, which get anesthetized on to barter in the anatomy of college prices. That’s why Europe, Canada and added places accept abundantly gone with value-added taxes, which seek to abstain those circuit of taxation.

What would it booty to change the tax?

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Because Prop. E and Prop. C were election measures, added changes to the tax arrangement additionally crave a vote. The ancient that tax ameliorate could be put on the San Francisco election is 2019.

Owen Thomas is The San Francisco Chronicle’s business editor. Email: [email protected] Twitter: @owenthomas

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