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The city fathers of San Francisco see a juicy, untapped tax target — law firm partnerships — and they appear to be going for it. On Wednesday, the Board of Supervisors’ Finance Committee debated the merits of a November ballot measure that would extend S.F.’s controversial 1.5 percent payroll tax to the partnership distributions that go to lawyers, doctors, accountants and other professionals. It would also restore a gross receipts tax on commercial real estate. The whole flap got continued for a week, but during Wednesday’s hearing three of the supervisors — Aaron Peskin, Chris Daly and Jake McGoldrick — stood firmly behind the proposals. Supervisor Tony Hall seemed solidly behind the business community in opposing them, while Supervisor Sophie Maxwell was noncommittal. A payroll tax on partner incomes could provide a windfall of up to $15.8 million for the city, according to published reports. But it would represent a big, new expense for law firms, whose partners have long been exempt. Advocates of extending the tax say partner distributions are akin to salaries, rather than business profits. No attorneys spoke at Wednesday’s meeting, but James Mathias, vice president of public affairs for the San Francisco Chamber of Commerce, said in a quick interview that many lawyers who belong to the chamber have voiced concern. “They are opposed,” he said. “Everyone I’ve talked to. It’s not just the big firms; it’s the small firms too.” However, Mathias said, attorneys are intentionally keeping a low profile on the proposal. “They would prefer this issue be dealt with as a piece of legislation by the business community,” he said, “and not a fight by one firm against the city.” Another chamber spokesman noted that law firm partners hesitate to get actively involved because of the public’s overall poor perception of the legal community. They worry, he said, that they could affect the issue negatively if people see supposedly wealthy lawyers fighting taxation. That could be true. Law firms got their fair share of bashing from some of the supervisors at Wednesday’s meeting. Supervisor McGoldrick, who introduced the proposal, said that several of the city’s largest companies, including law firms, have “escaped paying their fair share” of the taxes, which are used to support city services and infrastructure. Why, he asked, should partners at big firms not pay taxes, as do small legal foundations? “This is about equity and fairness,” he said. “This supports business as a whole and creates a level playing field.” Supervisors Daly and Peskin, chairman of the Finance Committee, took pot shots at lawyers by arguing that the need to extend the payroll tax was created by a lawsuit settled by the city last year. That suit, filed by 59 companies, claimed that the city’s old two-tiered tax system — imposing a payroll tax or a gross receipts tax, whichever was higher — was unfair. After a court shot down Los Angeles’ similar system, the city decided to settle for $70 million and got rid of the gross receipts tax. But the supervisors said Wednesday that resulted in a $270 million shortfall, necessitating a restructured tax system to restore the gross receipts tax on real estate and extend the payroll tax to partnership profits. Controller Edward Harrington said Wednesday that about 1,200 partnership arrangements will be affected. He didn’t break the figures down to how many were law firms. Peskin indicated that not all lawyers frown on the proposal. “Some of you from San Francisco’s largest law firms,” he said, “have privately shared with me that you think this is just and reasonable.” Mathias, of the chamber of commerce, submitted a letter signed by representatives of 14 organizations — including the Downtown Association of San Francisco and the Hotel Council of San Francisco — opposing the proposal. “At this time of economic decline and uncertainty,” it said, “it is irresponsible to place an increased burden on businesses that could very well result in diminishing returns.” There was some talk that major corporations and law firms might bolt from San Francisco for local communities south and east if the tax is imposed, or, as in the case of East Coast law firms, refuse to open branches in the city at all. “It’s pretty safe to move your company to the suburbs where you don’t have this tax,” said John Cope, past president of the Hotel Council. The city that “used to be the financial capital of the West now more resembles Disneyland,” he said, noting the many corporate departures in recent years. “We are not the economic center of the area anymore. We are a shell.” Officials at the Bar Association of San Francisco could not be reached for comment. But Russell Roeca, the State Bar’s San Francisco representative, said, “I think it’s outrageous that the city thinks it’s going to charge lawyers an income tax.”

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