It’s been more than a year since a new San Francisco tax on stubbornly empty storefronts, touted by its biggest champion as a “behavior changer,” has been on the books. Voters approved the levy in 2020 just before COVID shut down the city. The tax was then delayed until 2022 in recognition of the pandemic’s crushing effect on small businesses.
To date, the tax has been ignored by hundreds, if not thousands, of property owners and lessees who have failed to submit the required tax filings, according to data from the city treasurer. The treasurer acknowledges it could take years to assess if the tax is doing what it was meant to do: force landlords to lower rents and fill their spaces.
The tax imposed in the first year is $250 per linear foot of frontage. That figure goes up to $500 per linear foot in 2023 and $1,000 per foot in 2024.
The city estimates 3,300 street-level properties in 44 commercial districts are covered by the tax, based on property tax and other city data. But that’s likely to rise.
Because the tax is so new, the city is still figuring out how many storefronts are eligible, according to Amanda Fried, director of policy and communications for the Office of the Treasurer and Tax Collector, which updates the count daily.
As of June 14, the city had received $673,747 in taxes across 96 tax returns that admitted to a vacancy for more than half of 2022 — a tiny fraction of the nearly 2,100 returns that have come in so far.
Not only is the tax new, but also it’s unusually complicated. It requires property owners, tenants, and if applicable, subtenants to submit a tax form. Requiring tenants and subtenants to file is meant to act as a check on owners who claim their properties have not been vacant for more than half the year.
That’s just one of several twists in the ordinance that has complicated the rollout. And that means we are a long way from knowing if this tax will work as intended.
Sup. Aaron Peskin sponsored the legislation after watching storefront vacancies pile up in North Beach, part of his District 3, in the previous decade.
At the time, Peskin said that the tax “was not designed to be a revenue generator for San Francisco, but a behavior changer for certain problematic landlords.” (His prediction about revenue generation has borne out.)
When asked if the threat of a tax is changing landlord behavior, Fried declined to take a position, saying that it is “a consideration for policy makers and the public” to make. Peskin’s office did not respond to several requests for comment.
Neighborhood merchants contacted by The Frisc haven’t seen signs of the tax working either. “I have not heard of a single success story,” said Ryen Motzek, president of the Mission Merchants Association, meaning a building owner lowering rent to fill a space and avoid the tax. Still, Motzek supports the tax because he “doesn’t think it’s right for building owners to just sit on property and add to blight.”
Rachel Herbert owns three cafes in the city — Dolores Park Cafe, Duboce Park Cafe, and Precita Park Cafe — and serves on the Small Business Commission. She is not convinced a vacancy tax can be effective. Instead, she favors streamlining the process and lowering costs of opening a new business in the city, along the lines of Mayor London Breed’s latest proposal. Like Motzek, Herbert is not aware of any vacancy tax success stories.
In the meantime, the environment for small business success in the city remains tricky, be it from post-pandemic change or online commerce or bureaucratic hurdles, as The Frisc reported last month.
Walk on the void side
An afternoon stroll through the city’s commercial districts in various neighborhoods suggests that the number of tax filings reporting a commercial vacancy should be higher than 96 by now.
Motzek of Mission Merchants estimates there are 55 storefront vacancies on Mission Street between Duboce Avenue and Cesar Chavez Street right now. High rents are but one factor, he says, pointing to dirty streets and vandalism as additional reasons for so many vacancies.
Christian Martin, interim executive director of the Ocean Avenue Community Benefit District, tells The Frisc that its last count put the number of street-level commercial vacancies at 24 out of 148 properties.
Mission and Ocean are just two of the 44 neighborhood districts where the tax applies. (Chinatown and Union Square, in Peskin’s district, are two of the exempt neighborhoods.)
Fried says the treasurer conducted extensive outreach, including multiple written notices to every property owner and registered business in the affected commercial districts, a webinar, and connections through neighborhood merchant associations. For owners who didn’t submit a filing by the February 28 deadline, the next step is the treasurer sending a bill that assumes properties without returns fell under the tax — that is, were vacant for more than half of 2022.
The burden of proof will then fall on the property owner to show that their space was occupied for at least 182 days during the year, or is otherwise exempt because of a pending permit application or construction in progress.
The treasurer’s investigators will also conduct audits of the tax filings that claimed no vacancy for more than half of 2022.
Fried expects it will take at least three years for property owners and tenants to be in full compliance, which means that the change in behavior, as Peskin hoped for, will come slowly, if it comes at all.
Correction: A previous version of this story misstated how the commercial vacancy tax rate is calculated. It is in fact by linear foot, and has been corrected.
Wendy Thurm is a writer and former lawyer. Her work has been widely published, including in the New Yorker, San Francisco magazine, and The Athletic. Wendy writes a thrice-weekly baseball newsletter at hangingsliders.substack.com.