Strengthening the Overpaid Executive Tax Rates Ordinance

Be it ordained by the People of the City and County of San Francisco:

Section 1. Title.

This ordinance shall be known as the "Strengthening the Overpaid Executive Tax Rates Ordinance."

The People of the City and County of San Francisco find and declare as follows:

1. In 2020, the People of San Francisco enacted the Overpaid Executive Gross Receipts Tax to tax large corporations a minimum 0.1% surcharge on their annual business tax payments if they pay their top executive over 100 times more than their average worker.

2. This measure was successful, bringing in as much as $140 million per year to hire more nurses, doctors, and first responders, and to pay for vital city services.

3. In 2024, the People of San Francisco revised its tax structure to lower taxes on small businesses by enacting Proposition M. While well intentioned and providing needed relief for local small businesses, Proposition M unnecessarily reduced the tax rates on large corporations that pay their top executive over 100 times more than what they pay their average worker. Large corporations with more than $1 billion in gross receipts saw an 80% reduction in the tax they pay under the revised overpaid executive tax rates.

4. Pay inequality continues to be rampant across the United States, and employees' salaries are not keeping up with the huge increases in pay for corporate executives. In 2020, executive salaries had skyrocketed 940% over the prior 30 years while workers' salaries had grown by just 11%. These problems continue to persist now, even while inflation squeezes workers even more.

5. Additionally, San Francisco relies on federal funding to support the delivery of vital services to the public, including health care, food assistance, social services, public health programs, child welfare services, housing, public safety, and other services critical for the health and safety of the public.

6. Fifty-three percent of patients at Zuckerberg San Francisco General Hospital and Trauma Center (ZSFG) and Laguna Honda Hospital and Rehabilitation Center are on Medi-Cal, and Medi-Cal is the single largest source of revenue for the SF Health Network, the system of hospitals and clinics, including ZSFG, run by the San Francisco Department of Public Health that provides irreplaceable lifesaving services for residents of San Francisco.

7. ZSFG is the only Level 1 trauma center in San Francisco and northern San Mateo county, the hub of the city's disaster response in an earthquake or major crisis, a world leader in HIV/AIDS care, and a provider of significant other lifesaving and essential care to all of San Francisco's residents, especially those who are reliant on Medi-Cal or Medicare or are uninsured.

8. Although more than 250,000 San Francisco residents rely on Medi-Cal for their healthcare, and the city is the primary provider of healthcare services to Medi-Cal recipients, the president and Congress enacted H.R. 1, which cuts Medicaid funding by more than $1 trillion over the next decade, the largest reduction in Medicaid's history. These cuts will lead to devastating reductions in critical medical services, especially at public hospitals like ZSFG.

9. As a result of H.R. 1, San Francisco anticipates more than $300 million annually in lost revenue over the next several fiscal years, with losses concentrated in healthcare and human services that are vital for the most vulnerable members of San Francisco's communities.

10. To continue to pay for healthcare workers and first responders, and to fund vital city services, the People of San Francisco therefore declare that if large corporations pay their top executives hundreds of times what they pay their average workers, those corporations should pay their fair share in taxes. Toward that end, the People resolve to strengthen the Overpaid Executive Gross Receipts Tax to help preserve public health and services.

Section 3.

Article 33 of the Business and Tax Regulations Code is hereby amended by revising Sections 3302, 3303, and 3310, to read as follows:

NOTE: Unchanged Code text and uncodified text are in plain font. Additions to Codes are in single-underline italics Times New Roman font. Deletions to Codes are in strikethrough italics Times New Roman font. Asterisks (* * *) indicate the omission of unchanged Code subsections or parts of tables.

SEC. 3302. DEFINITIONS.

(a) Unless otherwise defined in this Article 33, the terms used in this Article shall have the meanings given to them in Articles 6, 12-A-1, and 12-A-1 of the Business and Tax Regulations Code, as amended from time to time.

(b) For purposes of this Article 33:

(1) The following definitions apply for tax years ending on or before December 31, 2024:

"Compensation" means wages, salaries, commissions, bonuses, property issued or transferred in exchange for the performance of services (including but not limited to stock options), compensation for services to owners of pass-through entities, and any other form of remuneration paid to employees for services.

"Executive Pay Ratio" means the ratio of the annual Compensation paid to the person or combined group's Highest-Paid Managerial Employee for a tax year to the median Compensation paid to the person or combined group's full-time and part-time employees based in the City for that tax year, determined on a full-time equivalency and annualized basis. For purposes of this definition:

(i) An employee is "based in the City for [a] tax year" if the employee's total working hours in the City for the person or combined group during the tax year exceeds the employee's total working hours in any other local jurisdiction for the person or combined group during the tax year.

(ii) Compensation paid to a part-time employee for the tax year shall be converted to a "full-time equivalency" by multiplying the part-time employee's Compensation for the tax year by 40, and dividing the result by the average number of hours the part-time employee worked per week during the tax year for the person or combined group.

(iii) Compensation paid to an employee who was employed by the person or combined group for only a portion of the tax year shall be "annualized" by multiplying the employee's Compensation (or, as stated, for a part-time employee, full-time equivalent Compensation) for the tax year by 52, and dividing the result by the number of weeks that the employee was employed by that person or combined group during the tax year.

"Highest-Paid Managerial Employee" means the individual employee or officer of a person or combined group with managerial responsibility in a business function who received the most Compensation for a tax year.

"Compensation" means wages, salaries, commissions, bonuses, property issued or transferred in exchange for the performance of services (including but not limited to stock options), compensation for services to owners of pass-through entities, and any other form of remuneration paid to employees for services.

"Executive Pay Ratio" means the ratio of the Compensation paid to the person or combined group's Highest-Paid Managerial Employee for a tax year to the median Compensation paid to the person or combined group's full-time and part-time employees based in the City for that tax year. The median Compensation paid to the person or combined group's full-time and part-time employees based in the City for that tax year shall be determined on a full-time equivalency and annualized basis, and shall be determined without regard to any Compensation paid to the Highest-Paid Managerial Employee who may be based in the City for that tax year. For purposes of this definition:

(i) An employee is "based in the City for [a] tax year" if the employee's total working hours in the City for the person or combined group during the tax year exceeds the employee's total working hours in any other local jurisdiction for the person or combined group during the tax year.

(ii) Compensation paid to a part-time employee for the tax year shall be converted to a "full-time equivalency" by multiplying the part-time employee's Compensation for the tax year by 40, and dividing the result by the average number of hours the part-time employee worked per week during the tax year for the person or combined group.

(iii) Compensation paid to an employee who was employed by the person or combined group for only a portion of the tax year shall be "annualized" by multiplying the employee's Compensation (or, as stated, for a part-time employee, full-time equivalent Compensation) for the tax year by 52, and dividing the result by the number of weeks that the employee was employed by that person or combined group during the tax year.

"Highest-Paid Managerial Employee" means the individual employee or officer of a person or combined group with managerial responsibility in a business function who received the most Compensation for a tax year. For purposes of determining the Highest-Paid Managerial Employee and the Compensation of such employee, Compensation shall not be annualized or converted to a full-time equivalency.

SEC. 3303. IMPOSITION OF TAX.

(a) Except as otherwise provided in this Article 33, commencing with tax years beginning on or after January 1, 2022, for the privilege of engaging in business in the City, the City imposes an annual Overpaid Executive Gross Receipts Tax on each person engaging in business within the City where the Executive Pay Ratio for the tax year of that person or the combined group of which it is a part exceeds 100:1.

(b) For tax years ending on or before December 31, 2024, the Overpaid Executive Gross Receipts Tax shall be calculated as follows:

(1) 0.1% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 100:1, but less than or equal to 200:1;

(2) 0.2% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 200:1, but less than or equal to 300:1;

(3) 0.3% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 300:1, but less than or equal to 400:1;

(4) 0.4% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 400:1, but less than or equal to 500:1;

(5) 0.5% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 500:1, but less than or equal to 600:1; or

(6) 0.6% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 600:1.

(c) For tax years 2025 and 2026, the Overpaid Executive Gross Receipts Tax shall be calculated as follows:

(1) 0.02% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 100:1, but less than or equal to 200:1;

(2) 0.04% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 200:1, but less than or equal to 300:1;

(3) 0.06% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 300:1, but less than or equal to 400:1;

(4) 0.08% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 400:1, but less than or equal to 500:1;

(5) 0.1% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 500:1, but less than or equal to 600:1; or

(6) 0.12% of the person or combined group's taxable gross receipts for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 600:1.

(f) For purposes of this Section 3303, "taxable gross receipts" means a person or combined group's gross receipts, not excluded under Section 3304, attributable to the City. The person or combined group's gross receipts that are attributable to the City shall be determined in the same manner as in Article 12-A-1, as amended from time to time.

(1) For tax years ending on or before December 31, 2024, the overpaid executive administrative office tax shall be calculated as follows:

(A) 0.4% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 100:1, but less than or equal to 200:1;

(B) 0.8% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 200:1, but less than or equal to 300:1;

(C) 1.2% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 300:1, but less than or equal to 400:1;

(D) 1.6% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 400:1, but less than or equal to 500:1;

(E) 2% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 500:1, but less than or equal to 600:1; or

(F) 2.4% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 600:1.

(2) For tax years 2025 and 2026, the overpaid executive administrative office tax shall be calculated as follows:

(A) 0.08% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 100:1, but less than or equal to 200:1;

(B) 0.16% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 200:1, but less than or equal to 300:1;

(C) 0.24% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 300:1, but less than or equal to 400:1;

(D) 0.32% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 400:1, but less than or equal to 500:1;

(E) 0.4% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 500:1, but less than or equal to 600:1; or

(F) 0.48% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 600:1.

(A) 0.083% 0.75% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 100:1, but less than or equal to 200:1;

(B) 0.166% 1.49% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 200:1, but less than or equal to 300:1;

(C) 0.25% 2.23% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 300:1, but less than or equal to 400:1;

(D) 0.333% 2.98% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 400:1, but less than or equal to 500:1;

(E) 0.416% 3.72% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 500:1, but less than or equal to 600:1; or

(F) 0.499% 4.47% of the person or combined group's total payroll expense attributable to the City for a tax year if the person or combined group has an Executive Pay Ratio for that tax year of greater than 600:1.

Section 4. Amendment of Ordinance by Board of Supervisors.

Section 3310 of the Business and Tax Regulations Code, as amended by this ordinance, shall apply to amendments to this ordinance and Article 33.

Section 5. Appropriations Limit Increase.

Pursuant to California Constitution Article XIII B and applicable laws, for four years from June 2, 2026, the appropriations limit for the City shall be increased by any additional revenues collected under Article 33 of the Business and Tax Regulations Code.

Section 6. Scope of Ordinance.

In enacting this ordinance, the People of the City and County of San Francisco intend to amend only those words, phrases, paragraphs, subsections, sections, articles, numbers, punctuation marks, charts, diagrams, or any other constituent parts of the Municipal Code that are explicitly shown in this ordinance as additions or deletions, in accordance with the "Note" that appears under Section 3 of the ordinance.

Section 7. Severability.

If any section, subsection, sentence, clause, phrase, or word of this ordinance, or any application thereof to any person or circumstance, is held to be invalid or unconstitutional by a decision of a court of competent jurisdiction, such decision shall not affect the validity of the remaining portions or applications of the ordinance. The People of the City and County of San Francisco hereby declare that they would have adopted this ordinance and each and every section, subsection, sentence, clause, phrase, and word not declared invalid or unconstitutional without regard to whether any other portion of this ordinance or application thereof would be subsequently declared invalid or unconstitutional.

Section 8. Effective Date.

The effective date of this ordinance shall be ten days after the date the official vote count is declared by the Board of Supervisors.