According to data released by the city of San Francisco, taxpayer response to a long-term plan to implement the retail vacancy tax, which began last year, has been low.
Only 74 owners and tenants paid their taxes, or 2.6 percent of the roughly 2,800 potentially taxable properties that year were listed as vacant for more than 182 days, San Francisco Chronicle reports.
The tax applies to about three dozen shopping areas near uptown, excluding the city center. A low response does not necessarily indicate that there are no empty storefronts along the city’s retail corridors.
Amanda Fried, director of policy and communications for the Treasury Secretary and Office of the Inland Revenue, clarified that the figures represented taxpayers who voluntarily reported vacancies, not audited information on the actual number of vacant properties.
Some of the currently vacant storefronts are tax-exempt, and the number of taxpayers is expected to increase as the data is updated. While about 2,400 businesses have filed tax returns, most are exempt, there are likely thousands more that have yet to file property returns in designated areas.
The retail vacancy tax is based on a property’s street frontage and starts at $250 per foot in the first year, increases to $500 in the second year, and reaches $1,000 in the third year.
In 2022, the tax generates $667,847 in revenue, within the city’s projected range of $300,000 to $5 million. Proceeds collected will be distributed to the Small Business Assistance Fund.
Landlords mostly pay the tax, but tenants may be liable if the leased space is vacant. However, there is an exemption if the tenant operated for 182 days before closing. Vacant properties in the process of building permits are also exempt. The exact number of exempt buildings is currently unavailable.
The city hopes to achieve full compliance and awareness of the tax within three years, as is common with new taxes.
The measure’s sponsor, Director Aaron Peskin, initially aimed to influence landlord behavior rather than generate revenue. Critics argue the tax is ineffective in addressing retail vacancies, which have surged during the pandemic.
Kazuko Morgan, a retail broker at Cushman & Wakefield, highlighted that landlords are generally eager to rent out their space, while the number of taxpayers is likely to be low because retail areas near residential areas have performed relatively well during the pandemic.
The city plans to continue communicating with property owners and tenants about the tax while conducting further outreach efforts. Also, San Francisco voters approved a vacancy tax on residential properties last fall, although real estate groups have sued to block its implementation.
— Dana Bartholomew