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San Francisco's Prop E Passes, Will Pay Off for Startups

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By Andrew Chow, Esq. on November 13, 2012 11:49 AM

FindLaw columnist Eric Sinrod writes regularly in this section on legal developments surrounding technology and the Internet.

Tax reform can and does happen at the ballot box. Indeed, startup companies in San Francisco should soon feel the benefit of the recent passage of the city's Proposition E.

Proposition E implements a tax on gross receipts, phasing out San Francisco's prior payroll tax. This will be very beneficial for startup companies that have paid staff but have yet to earn much revenue.

Furthermore, given that business tax trails only property tax for bringing in dollars to the city of San Francisco, by taxing gross receipts instead of payroll, there will likely be more regularity and less fluctuation in terms of dollars flowing into city coffers.

Proposition E passed with more than 70 percent of the vote, according to Business Insider -- an overwhelming victory. The proposition was backed by Ron Conway, a venture capitalist, and had broad-based, political, cross-party support.

San Francisco in recent times has become home to a new startup culture. However, when start-ups are taxed based on payroll and not gross receipts, there is a real possibility that the startups might go elsewhere. Now that the tax will focus instead on gross receipts, startups hopefully will remain in San Francisco and will pay their fair share as their revenues grow.

In the humble opinion of your faithful blogger, San Francisco voters did the right thing by passing Proposition E!

Eric Sinrod is a partner in the San Francisco office of Duane Morris LLP ( where he focuses on litigation matters of various types, including information technology and intellectual property disputes. His Web site is and he can be reached at To receive a weekly email link to Mr. Sinrod's columns, please send an email to him with Subscribe in the Subject line. This column is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this column are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.

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