San Francisco Mayor Proposes Eliminating License Fees for Small Businesses

San Francisco Mayor London Breed speaks during a news conference in San Francisco on March 17, 2021. Justin Sullivan/Getty Images

San Francisco Mayor London Breed joined city Treasurer José Cisneros and Supervisors Rafael Mandelman and Aaron Peskin on Sept. 25 to introduce legislation that would eliminate existing annual small business license fees.

“San Francisco has been working hard to remove years of built-up red tape to make it easier to thrive as a small business in our city,” Breed said in a press release announcing the plan. “I have remained committed to changing the narrative that San Francisco is a city of ‘no’ to getting us to a place where we are a city of ‘yes.’”

The proposal is meant to facilitate the operation, growth, and opening of family-owned and other small businesses across the city, according to the mayor.

The mayor said that if the legislation is ultimately approved by the board of supervisors, about 91 percent of restaurants and 87 percent of bars and nightclubs will benefit.

Bakeries, bars, food trucks, and restaurants currently pay thousands of dollars in annual fees to operate their establishments. These fees include charges for cash registers, extended hours, outdoor seating, billiard tables, and other things, according to the mayor’s press release.

Departments citywide charge the fees, which are billed to businesses in a so-called “unified license bill” distributed by the city’s tax collector.

Researchers with the Institute for Justice—a nonprofit public interest law firm—found the city topped a list of the most difficult to conduct business in, as detailed in an August 2022 report titled “Barriers to Business.”

The study outlined the costs and steps to open a business in 20 cities. San Francisco’s average of 61 separate processes and permitting, license, and compliance fees for new restaurants exceeded $22,600, compared with an average of $5,300 nationwide.

“Entrepreneurs in San Francisco face notoriously high regulatory hurdles to get their businesses off the ground,” the report concluded. “It is the most complex city we studied: Layers of onerous zoning review and permitting requirements present serious challenges.”

Environmental reviews and other regulations were deemed “burdensome ... and sometimes altogether impossible” to comply with, according to the report.

One supporter of the new proposal said the plan will help businesses “survive and thrive.”

“The elimination of numerous annual license fees will truly benefit small businesses in San Francisco,” Laurie Thomas, executive director of the Golden Gate Restaurant Association, said in the mayor’s press release.

According to proponents, change is needed because the fees disproportionately affect small businesses—some charges cost the same regardless of the business’s size.

Supporters say the fees should be progressive—for small businesses to pay less than larger counterparts—to match the city’s tax structure.

One supervisor said the proposal is a step toward recovering from the impacts of the pandemic, which resulted in a steep loss of businesses and office workers.

“Small business is the beating heart of our neighborhoods, and helping these businesses thrive is one of the best strategies to support San Francisco’s post-pandemic recovery,” Mandelman said in the press release.

The legislation is only valid if voters approve Proposition M in November. This measure exempts small business owners from paying 49 annual license fees and offers approximately $10 million in savings to some San Francisco businesses.

Prop M will offer tax relief to more than 2,700 small businesses, according to proponents, and will lower tax burdens on more than 90 percent of restaurants—approximately 88 percent would see their taxes eliminated.

Opponents said the tax changes in the proposition would increase taxes for mid-size and large businesses, pointing to a city controller’s report that shows the net result of the rate adjustments would be a $50 million per year tax increase.

“These steep hikes will force companies to reduce investments, cut jobs, and reconsider operations in San Francisco entirely,” Larry Marso, a San Francisco-based attorney, said in an opposition statement. “There’s a better way to reform our business tax system.”

He said streamlining government operations, simplifying the tax code, and reducing spending would benefit the city’s finances more.

According to the mayor, San Francisco faces a budget deficit of nearly $800 million over the current and next fiscal years. The mayor submitted a balanced budget earlier this year that included significant cuts to departments citywide.