artur -- we are on our own. what a role is perhaps not as complex, there are lots of questions about what is considered compensation, what is considered a role -- payroll? we would have to make rulings on our own. we would have the experience of other cities that have not gone through this in deciding how to craft our definitions of gross receipts or financial services. having said that, it is a legitimate issue, one we are struggling with right now. we have an estimate of what we think the s -- the industry would be paying under these proposals. we need to make sure that our definitions line up with that. and that follows through. if it is not true and an industry winds up playing less -- paying less, the rest of the economy bears the burden. that is not something we want. commissioner ortiz-cartagena: i heard you had a transition plan,

like a hybrid of payroll tax and gross receipts. is there any potential where you see that as not working and we are stuck as a small-business paying both? you open the box and it is too late to go back to either system. >> that is a risk. one of the things we know about when we do revenue projections is they are never right. there are always wrong one way or the other. we try to make them not that wrong. what could happen with these rates is, we could underestimate the amount of revenue we get from the gross receipts tax and that is great. all that means is we get to faze the payroll tax out that much faster. we collected our revenue from gross receipts and it is fine. the worst-case scenario is gross receipts come in less than expected. in order to be revenue neutral, we do not faze the payroll tax out 20. at the end of the phase-in period, we have reached the

maximum rate that voters have approved and we are left with a payroll tax, but still they came for businesses to pay. if that were to happen, we would have to be candid that that is a possibility. we would have to go back to the voters to fix that or be satisfied with a hybrid system, which we certainly do not want. the only way to handle that is to make our projections as accurate as we can. since i am the one doing them, i can be honest with you that there is going to be real uncertainty at the end of our process because we are just not going to know. the only way we can handle it is to air on this side of making the rates high and trying to communicate to voters that we will only hit these rates if we do not -- if the revenue comes in lower than we expect. if the revenue comes in as we expect, we will phase out the payroll tax. which probably air to the higher

side and hope that we never get to those rates and that we retire the payroll tax. >> are there any safeguards? i am with the payroll tax. what are the safeguards? at the end of the day, it is small businesses that are going to get stuck. are there going to be things in this legislation that can help us once it is voted on? >> we have introduced safeguards to the city and as a whole. that is why the phase-in process is necessary. if we did not have that and said, voters, please approve these rates and city, collect what you collect. it could be $50 million more and businesses would be unhappy. some kind of phase-in is necessary to have that safeguard for taxpayers as a

whole and the city. we are not going to be able to have an ironclad guarantee that this is what this industry is going to pay versus what that industry is willing to pay. that is going to rely on our best estimates. we do not envision an enforcement mechanism where if our estimates are wrong, they come in less and another industry will come in more. these are our best estimates. we cannot guarantee them to the decimal place that there will be exactly right. commissioner white: can you tell me, originally the payroll tax exemption was $250,000 and now it is $100,000. can you tell me how you got to the difference between the $250,000.100000 dollars? >> in terms of what it would

cost or why we take the numbers? commissioner white: why you picked the numbers. >> the deductible takes businesses less than $100,000 and continues to exclude them from the payroll tax. the $100,000 deductible for bigger businesses gradually introduces them to the payroll tax at a much lower respectively. if you have $110,000, you are playing a -- you are paying a lower rate on $10,000 of payroll. that was the idea in the payroll-only alternatives in which we could increase the number of businesses paying the tax but do so so the small businesses are paying a much lower rate than the bigger businesses. that was basically the logic of turning a hard exclusion at $250,000 into something that produces a more progressive rate at the end of the world -- at the lower level. certainly, introducing more businesses to pay for the tax.

commissioner yee riley: can you review some of the discussions from businesses that happened outside and transport products and goods inside and around the difficulty of the city, capturing that payroll tax? i thought was an interesting discussion that we had, that if we moved to a gross receipts tax, that is what we would be able to do. >> i would be happy to, to the extent i can speak to it. any business doing business in san francisco has to pay our payroll tax. you do not have to have a physical office here to be responsible for our payroll tax. if you are making deliveries into the city, you owe us a payroll tax because you have a physical nexus that allows us to tax you. the issue of a physical nexis

continues to apply in a gross receipts world. however, it is slightly different because if you have a physical nexus in sentences go -- in san francisco and are selling tangible property, you may be some -- apportioning more gross receipts into the city than you are payroll. let me give you an example of a retailer that delivers hardware across san mateo and san francisco counties in. right now, the san francisco version of the business has the bulk of its payroll in the city and spends some of its payroll expense in san mateo county in deliveries but are responsible for paying a lot of their gross receipts in san francisco. the only thing apportioned out is their payroll cut. when we moved to gross receipts, because they are selling tangible property, you also have

their sales. if they are selling high value things outside their city, they get to deduct that from their gross receipts. and their share of total gross receipts is likely to go down as a san francisco-based company. take the san mateo company that is doing the same thing. they have enough deliveries into san francisco that they have a nexus so that we can tax them. right now, there would be paying a small amount because a small amount of their payroll is happening in their series if they are delivering into the city, there would be apportioning a bigger share of things in. by introducing an apportionment for the sale of tangible property, it allows us to pick up san francisco's value in the market for businesses that are not physically based here. it also allows businesses that are based here to have more of a market outside the city to offload some of that tax burden. it is going to affect -- it is

going to introduce a kind of burden-sharing that we do not have now. if you are a business just shipping things into san francisco and you do not have -- i mean in a box, not an employee driving a truck, and you do not have any physical presence, we still cannot tax you. that is an outside business we will not be able to get revenue from. commissioner yee riley: i know that you had a couple of meetings with the community and business leaders. what kind of feedback did you get? what kind of input? >> we met with a couple hundred business leaders and business organization leaders in two stages during the past month. we had 10 or 12 meetings in the first round and compressed it to eight meetings last week.

we had a range of feedback. i am going to summarize this grossly, but my recollection is the most common feedback is there is a lot of uncertainty with gross receipts. can you answer all of our questions? in the first round of meetings, the answer was no. in the second round, the answer was, i hope we can answer all your questions now. we are looking to have a final product for the board president by the end of the month. we will have the best answer is we will be able to have by that time. i hope we can deal with people's uncertainty about gross receipts or at least be clear that we still have remaining uncertainty. but another piece of feedback that we heard from many businesses is the equity and payroll tax. we heard that again and again. it just did not make sense. 90% of the businesses that were in the city and benefiting were

not paying tax and a small percentage of businesses work. we also heard objections to the payroll tax. every few years, the issue of the payroll tax being replaced comes up because it is such a powerful -- let's say a discouragement to job creation in the city. it is seen as a nuisance by many businesses. we heard that again and again. different industries have different areas of focus. but the feedback we heard was, this seems complex. are you sure you have totally thought this through? and it would be great if you could replace the payroll tax with something that was broader-based and created jobs. commissioner yee riley: it sounds like they do not like the payroll tax, but they are not crazy about the gross receipts tax either. >> there is always an issue with a big change like this.

on the other hand, the last time we had a busy -- a big shift in the city was when we decided to get rid of our gross receipts tax. in the wake of the lawsuit in los angeles that said the old business tax that we had in which he played -- you pay a gross receipts or payroll, was not going to pass constitutional muster. we decided to have a payroll tax. what that left the city with was a big change in what industry paid what amount of tax. there was no process of what feels fair, what are the trade- offs between stability, jobs, equity. we are hoping to have that discussion and have it in an open, transparent way. commissioner dooley: with all the different proposals, it would seem as though the registration fee would be building up fairly substantially

on the smallest businesses to. i am wondering if you would be considering, when we take this to the voters, perhaps to allocate a small percentage to the office of small business as we are very busy helping those very tiny businesses that will actually have a substantial jump for many businesses that earned quite a small amount per year. >> i take your point that it is true that even in the gross receipts proposal, sole proprietors and partnerships would see their rates rise from $25 to $150 per year. obviously, the fee increases are much higher. how that question gets spent in terms of the office of small business or others is not a decision for us to make. you make a valid point. it is something decision makers

are willing to have to take on, how this impacts small business and what we do to prevent small business from being adversely affected by it. there may be an issue about dedicating tax revenue, changing the voter threshold. right now, the tax goes to the general fund. because of that, it only takes a simple majority vote to do anything with it. to increase the rates. if we were to make a designated tax, that is not to say that the board and the mayor could not say, coming down the pike, we recognize the increased burden on small business for it separately, we want to do something for the office of small business to allow them to respond to those adversely affected businesses. >> just to give you -- make sure that the framework is -- right now, not necessarily that you are making a decision on the

proposals. you have the fact that you have, in your packet, from different organizations and business leaders. this is your opportunity to have a thorough discussion with mr. eag -- egan, share some thoughts with him. we do not know exactly what the full proposal might be and what it is and if it does develop, if the city does move forward with the business tax reform, it will end up in legislation, which will come back before the commission before it goes on to the ballot. this is your opportunity to be able to have the commission send to, give some direction to the comptroller's office and be able to send some policy decisions as it relates to this matter to the mayor and board president, if that makes sense.

president adams: any other questions, commissioners? do we have public comment on this? we open it up for public comment. >> members of the public, public comment will be limited to 3 minutes. if you could please state your name. >> stephen cornell, small- business advocate. some of you know i was on the commission a few years ago. we were tossing with this thing at that time. everybody hated it. it has been batted around. one of our big problems was, how do you spread it out? a lot of small businesses are ready to do it. i think it is a reasonable way to do it. i do have one question. is this an example of, you can

buy a dell computer at best buy so it has a physical presence here. but you can also buy it directly from dell. does that mean that all the things they ship into the city would be taxable? thank you. >> i should preface all of my comments by saying that ultimately, the treasurer's office is going after rule on these things. my understanding is it hinges on whether or not they have a physical nexus in the city. if they do, then they owe a business tax. they calculate it the same way any other business would chocolate tangible property. what is their share of sales and said francisco? you have that to factor against their total gross receipts. the answer is, if they were simply shipping boxes to best buy and to consumers without a

nexus, they would not be responsible for paying a tax. if they had a sales force that was drumming up business, then they would. president adams: any other public comment? >> micro business, i am in favor of what commissioner dooley said about the impact of raising the minimum fee. $25 to $150. i heard that would be bad for business, especially those that are startups or struggling to survive. perhaps there should be a exclusion for under certain gross revenues or something. president adams: thank you.

any other public comment? seeing none, public comment is closed. any other commissioner comments? i have one. on the two proposals, the first and would add a tear between the gross receipts level at 0- 100,000 and the next would be $100,000-$2.5 million. the second proposal is to add a tear between the business payroll of $0-$250,000. and then it is to hundred $50,000-$3.3 million. can we get a middle tier in there? is that possible? >> do you mien -- if we could go back to the presentation for a second. you are asking for, in the gross receipts proposal, and

additional tier? between where? >> if i could clarify for some of the comments that we made. i think it is actually in the second tier, to divide into two tiers. >> a lower tier from $100,000-$1 million. we have heard that and we are working on it. >> the rationale is there may be an inflection point for a lot of the businesses between those tears or they move from economies of scale where they are not profitable to where they are profitable. that happens to straddle that spot. probably some discussion about whether there is a point in between those, whether it is $1 million or $250,000.

it sounds like you are already working on that. that is the instant phase of a business where it is critical that we do not snuff them out. any other commissioner comments? >> and we do need -- we do not need to vote on this, do we? >> we are not necessarily voting on one proposal over another proposal. what we need from the commission right now and for staff, you have provided some comments and corrections to mr. egan, but you have an opportunity to give some direction to the mayor and board president chiu on a preferred direction to go in. or no direction. you are going in one of these two directions.

i have heard to add a tear -- a tier and a recommendation of some dedicated allocation. that would be a policy decision for the mayor and the board president in terms of how they would consider the requirements. to give the direction of what your job is, to give direction on the edge -- on the direction you would like to see this go in. the commissioners may want to have some discussion on this. commissioner dwight: i have been taking some notes about what our summary position might be. i am not presently speaking for all of the commissioners, but it seems there is general interest in support for the gross receipts tax conceptually as a replacement for the payroll tax. that is the overarching

statement that we might make from here. also, there is support for, and it sounds like there is research being done on considering a middle tier between the $100,000.20 $5 million in gross receipts. we have also requested that there be a consideration for dedicated allocation to support the osb because of the fact that it is currently rely solely on general fund allocation, which is not going to be enough to support this increase in activity, as all of these new businesses rush to our little desk in the other room. finally, we are supportive of

increasing the registration fee from its current low level to something higher. also the recommendations that i made says you consider how you will fund increase in complexity of administration, and given that it has to come from somewhere, and anticipates it so it does not have to come from someone else's budget. anyone else want to add on? in that regard, i would say if we need a motion, it would be a vote of support for the activities going on now, and a voice of our support score the work you are doing on the implementation side during your

-- implementation side. good parts i think it is appropriate to make a motion that the commission is providing this direction, and one other point, since one of the key points is job creation that they do also provide job creation, so i do not know if that is an additional you might want to add. >> i would add we are supportive of this effort, but we see if as a pro job measure and taxing prosperity is a dark birds, and

we should be taxing the outcome of prosperity, namely revenue of gross proceeds. let's tax the output side. >> i would like to add for the smallest businesses we should recommend not raising that any higher than 158 and perhaps phasing, because i know i can afford this, but there are some of this going to provide of hardship, and if we could have some time to phase out in, but would be very helpful rather than going to a much higher fees. >> we might add to the consideration of a tier below

that level, a smaller fee to apply to a certain class of businesses based on all lower level of gross receipts. >> we are talking about something silly all this time, but i am concern because all those half of city hall, so i just want to make sure small businesses do not give less with a bag in their hand. i am a small business owner superior -- a small-business owner. i do not want a deficit of four people in my neighborhood.

i am with you. somewhere down the line we pass the payroll tax. >> are you ready for me to give this a try? >> you can do that. >> and i have one question. if there is a direction of the gross receipts, with the modeling be a phased and with business registration fee as well? what were you thinking around that? >> it is an interesting question, because you would be paying the gross receipts tax and a payroll tax, but we do not envision you paying two

registration fees, so the question of when we switch you over away from the payroll one is an interesting question. we would probably want to do it in the last possible year. it is not a huge revenue. it is not something we thought about. certainly allowing a phase in is something we can accommodate in that process, but we would be open to ideas. >> i want to make a motion. i am going to make a motion but the commission supports t