On November 16, Coblentz partner Danna Kozerski will present during the Practising Law Institute’s 22nd Annual Commercial Real Estate Institute. Her session will focus on purchases, sales, and closing. For more details and to register, please click here.
On October 27, Coblentz partner Pamela Duffy will be a panelist during the Cal State LA Alumni Association and Pre-Law Society’s Alumni Law Panel. Pam and her co-panelists will share personal experiences and insights on navigating law school and careers in the legal field.
San Francisco voters will confront a number of tax measures on the November ballot. These measures are summarized below.
Current Law:
San Francisco imposes a number of taxes under the Business and Tax Regulations Code (the “SF Tax Code”) on businesses engaged in business within the City. Three general taxes—so called because the revenues from which go to the City’s General Fund—imposed by the City are (1) the Business Registration Fee, (2) the Payroll Expense Tax, and (3) the Gross Receipts Tax. Currently, the SF Tax Code includes a small business exemption from the Gross Receipts Tax for businesses with less than $1 million in gross receipts attributable to the City.
The City also imposes special taxes on certain businesses, the revenues from which are dedicated to specific purposes. Two such special taxes are (1) the Early Care and Education Commercial Rents Tax and (2) the Homelessness Gross Receipts Tax.
Proposed Changes:
Business Registration Fee. Effective beginning in the 2021-2022 fiscal year, Proposition F would amend the SF Tax Code to reduce the annual Business Registration Fee for businesses with $1 million or less in San Francisco gross receipts. The amendment would also provide for an increase in the Business Registration Fee for businesses benefiting from the increased ceiling for the small business exemption from the Gross Receipts Tax (discussed below). For most businesses with over $1 million to $1.5 million in gross receipts attributable to the City, the increase would be $230 to $245, depending on the activities of the subject business. For most businesses with over $1.5 million to $2 million in gross receipts attributable to the City, the increase would be $435 to $460, depending on the activities of the business.
Payroll Expense Tax. Proposition F would repeal the Payroll Expense Tax, effective as of January 2021.
Gross Receipts Tax. Under Article 12-A-1 of the SF Tax Code (the provisions governing the Gross Receipts Tax), Proposition F would make the following changes:
San Francisco currently imposes a transfer tax on each commercial and residential property transferred, which includes transactions involving leases with a term of 35 years or more and certain transfers involving legal entities that own real property in San Francisco. Under the current provisions of San Francisco’s Real Property Transfer Tax Ordinance (the “Transfer Tax”), the Transfer Tax rate is variable, depending on the purchase price or the fair market value of the property transferred.
Currently, the Transfer Tax imposed on applicable transfers of property with a purchase price or value between $10 million and $25 million is approximately 2.75 percent.[3] The current Transfer Tax rate for transfers involving property with a purchase price or value equal to or in excess of $25 million is approximately 3 percent. Proposition I would amend the SF Tax Code to double the Transfer Tax applicable to transfers within these two tiers of consideration or value. For transfers within the $10 million to $25 million tier, Proposition I would increase the Transfer Tax to $27.50 per $500 of value or consideration, or 5.5 percent. For transfers in the $25 million or above range, the measure would increase the Transfer Tax to $30.00 per $500, or 6 percent.
In June 2018, voters passed a measure very similar to Proposition J, but the funding to schools and education that the June 2018 measure proposed to provide has been indefinitely postponed due to pending litigation. Proposition J would change the City’s existing Parcel Tax from the current rate of $320 per parcel to $288 per parcel and make the revenues generated from the tax more specifically targeted toward educators’ compensation and educational improvements.
[1] The incremental increases in the Gross Receipts Tax rates vary across business activities, but the increased rate each year remains steady within each category of business activity. For example, businesses within the category of Real Estate, Rental and Leasing Services would be subject to an increase of .014 percent to .015 percent each year.
[2] For example, some businesses within the Retail Trade business activity category would initially experience a reduction in Gross Receipts Tax rate by .022 percent.
[3] The Transfer Tax for this value tier imposes a tax of $13.75 for “each $500 or fractional part thereof” for the entire value or consideration, so the actual tax paid may not be exactly 2.75 percent of the value or consideration.
This year has been, and continues to be, a rollercoaster for privacy laws and legislation in California. From CCPA to CPRA, and other new privacy legislation signed into law or vetoed by Governor Newsom, 2020 has shown a flurry of activity in the area of privacy rights, with more developments on the way. Here we provide a brief update of the status of privacy laws, existing and upcoming, and provide guidance to prepare businesses to comply with these varying regimes.
The CCPA went into effect on January 1, 2020 and enforcement began July 1, 2020. Promptly thereafter, California’s Supervising Deputy AG Stacey Schesser confirmed that initial compliance notice letters were sent to allegedly non-compliant businesses based on consumer complaints and publicly available information. Although the details of these compliance letters are not fully known, the AG has stated that its enforcement priorities include protecting minors and sensitive information such as health data, as well as use of the “Do Not Sell My Personal Information” link. Businesses, especially those “selling” information and handling sensitive data and data of minors, should evaluate their practices and take steps to comply with CCPA if they have not done so already.
Additionally, despite the CCPA’s own language that it should not be used as a basis to bring private claims (except with respect to a data breach), several class action lawsuits have been filed in the first few months of 2020 alleging violations of CCPA provisions. Allegations regarding the CCPA in these lawsuits range from failure to implement reasonable secure measures and safeguards, which resulted in unauthorized disclosures of unencrypted and unredacted personal information, to insufficient notice regarding the collection, use, and sharing of personal information. Violations of Unfair Competition law based on noncompliance with CCPA have also been consistently pleaded. How courts decide these cases remains to be seen, but in the meantime, we can expect to continue to see individuals and plaintiffs’ lawyers test the scope and boundaries of the new law.
Under the CCPA, certain HR data collected about employees and job applicants (“Employee data”), and certain data collected about individuals acting as points of contact in business-to-business relationships (“B2B” data) are exempted from most of the requirements of the statute. However, those exemptions were set to expire at the end of 2020, pending further legislation on these issues, unless some action was taken.
On August 30, 2020, the California legislature passed AB 1281, which extended the Employee and B2B data exemptions for another year, with the caveat being that if the California Privacy Rights Act (“CPRA”) ballot initiative (see below) passes, the CPRA’s provisions extend these exemptions automatically for another two years, until January 1, 2023.
Either way, the Employee and B2B exemptions are extended, which is good news for most businesses.
One of the many challenges to the CCPA’s broad reach is its intersection with other privacy laws such as the Health Insurance Portability and Accountability Act (“HIPAA”), particularly where the two statutes contain inconsistent provisions regarding standards for de-identification of personal information. To more closely align CCPA with HIPAA, Governor Newsom signed AB 713 into law on September 25, 2020. AB 713 exempts from the CCPA information that is de-identified under HIPAA, so long as it is derived from patient information that was originally collected, created, transmitted, or maintained by an entity regulated by HIPAA, the Confidentiality Of Medical Information Act, or the Federal Policy for the Protection of Human Subjects (Common Rule), and so long as the information is not re-identified. The new law only permits re-identification of such exempted information for specific, limited purposes. It also imposes disclosure obligations on businesses selling or disclosing de-identified health information, and, beginning January 1, 2021, requires contracts for sale or license of de-identified information (where one of the parties resides or does business in California) to include specific provisions stating that the information includes de-identified patient information, prohibiting re-identification of such information, and prohibiting further disclosure of the information to a third party unless the third party is bound by the same or stricter conditions.
AB 713 went into effect immediately and businesses that deal with de-identified information under HIPAA should take a close look at their practices to ensure their contracts, disclosures, and policies are compliant with the new amendment.
On October 12, 2020, the Attorney General proposed modifications to the finalized CCPA regulations. Consistent with the AG’s priorities to focus on the “sale” of personal information and protect minors’ data, the modifications provide guidance on: notice to opt-out of sale of personal information through offline methods; mechanics of requests to opt-out of sale of personal information; and proof a business may require from an authorized agent and a consumer to verify a request. The regulations also clarify the special rules that apply to businesses handling minors’ data. The comment period for the proposed modification is October 13, 2020 – October 28, 2020.
The proposed modifications are available at https://www.oag.ca.gov/privacy/ccpa/current
As if businesses did not have enough to deal with in terms of CCPA compliance, there may be a new set of data privacy requirements coming. CPRA, dubbed as “CCPA 2.0,” is on the ballots for the November election. The CPRA would amend and expand the CCPA, keeping certain provisions in place while revising or adding new provisions. Current polling shows strong support for this initiative and it appears likely to pass.
Select key provisions of CPRA include the following:
If the CPRA passes, all businesses, especially those collecting sensitive personal information or information of minors, will need to again re-evaluate their data mapping, collection, sharing, and use practices in light of the new law and make necessary changes.
While Governor Newsom signed AB 1281, extending the Employee and B2B data exemptions under the CCPA, he vetoed two other laws that would have imposed fairly onerous requirements on businesses collecting data of minors and certain genetic information.
No discussion of privacy laws would be complete without a check on the status of federal privacy law. A federal privacy regime has been in the works for quite some time, and the current state of affairs – including the COVID pandemic’s acceleration of remote work and online schooling and other activities, greater use and concern over the use of health data, invalidation of the EU–US Privacy Shield based on cybersecurity concerns, and the ban on TikTok – have brought privacy concerns front and center and prompted lawmakers to revisit this important topic. However, the path to national privacy legislation remains murky.
Implementing a federal law presents complex problems such as enforcement (whether federal, combined federal and state, or private), harmonizing the current patchwork of federal, state, and industry laws, and potential preemption of state laws, particularly where those laws provide higher standards of privacy protections such as in California.
Thus, while national privacy legislation appears inevitable, the timing of when it will arrive remains uncertain.
In sum, 2020 has given businesses a lot to deal with, including in terms of privacy laws and compliance, and there is much more to come. Stay tuned for further developments. If your company needs assistance with any privacy issues, Coblentz Cybersecurity and Data Privacy attorneys can help. Please contact Scott Hall at shall@coblentzlaw.com for further information or assistance.
San Francisco voters will again confront a formidable ballot on November 3, 2020, with 13 San Francisco propositions to consider in addition to state and federal offices and measures. The local propositions address an array of topics, including governance, affordable housing, taxes, and permits. Some of the key measures impacting San Francisco businesses are summarized below. Except where indicated, the measures require a simple majority vote to pass.
Proposition A (Health, Parks and Streets Bond): Proposition A would authorize issuance of general obligation bonds of up to $487.5 million for capital projects across three primary categories: mental health, substance abuse, and homelessness; parks, open space, and recreation facilities; and street maintenance and repair. The projects funded by Proposition A are recommended in the City’s 10-year capital plan and are generally viewed as supporting employment and economic recovery in the wake of the COVID-19 public health crisis. The Citizens’ General Obligation Bond Oversight Committee would review how bond funds are spent. According to the San Francisco Controller’s Office report, Proposition A is not anticipated to raise taxes and is consistent with the City’s current non-binding debt management policy to keep the property tax rate for City general obligation bonds below the 2006 rate by issuing new bonds as older ones are retired and the tax base grows. The measure was proposed by Mayor Breed and placed on the ballot by a unanimous vote of the Board of Supervisors. Proposition A is supported by various community groups, the San Francisco Democratic Party, and local and state officials. Opponents include the Libertarian Party of San Francisco and the San Francisco Taxpayers Association. As a bond measure, Proposition A requires a two-thirds majority to pass.
Proposition B (Department of Public Works): This Charter Amendment would make substantial changes to the Department of Public Works (DPW) at a time when complaints about the condition of San Francisco streets are widespread. It would create a new Public Works Commission to oversee the Department and a new Department of Sanitation and Streets to perform a number of functions currently within the jurisdiction of DPW. Functions to be transferred to the Department of Sanitation and Streets include street cleaning and maintenance and street tree maintenance. The new Department of Sanitation and Streets would also be overseen by a new Commission. According to the San Francisco Controller’s Office report, Proposition B would cost between $2.5 million and $6 million annually beginning in 2022 and would shift approximately half of DPW’s employees to the new Department of Sanitation and Streets. The Charter Amendment was submitted to the voters by the Board of Supervisors by a vote of 7-4. Proposition B’s supporters include the San Francisco Labor Council, the San Francisco Democratic Party, and various local public officials. Opponents include the San Francisco Taxpayers Association and the San Francisco Republican Party.
Proposition F (Business Tax Overhaul): Proposition F would amend the San Francisco Charter and City Ordinances in significant ways. These include eliminating the payroll expense tax, ultimately increasing the Gross Receipts Tax rates, and increasing the number of small businesses that are exempt from the Gross Receipts Tax. Overall rates for some businesses would increase, with the new rates phased in over a 3-year period effective in 2021. There would also be temporary tax decreases for certain industries that have been heavily impacted by economic impacts from COVID-19. The measure allows one-time spending of a projected $1.5 billion from two dedicated taxes (homelessness, child care) that are currently being assessed and impounded pending the resolution of litigation. It also authorizes two contingent taxes that would be imposed if the two dedicated taxes are invalidated by the courts. The San Francisco Controller’s Office projects that Proposition F would result in approximately $97 million in annual net new revenue to the General Fund and $1.5 billion in one-time revenues from the impounded dedicated taxes. Proposition F was placed on the ballot by a unanimous Board of Supervisors vote. It is supported by the San Francisco Democratic Party and various groups representing small businesses, child care and other non-profit organizations, and unions representing nurses, firefighters, health care and other workers. Its opponents include the San Francisco Chamber of Commerce, various pro-business groups, and the Libertarian Party of San Francisco.
Proposition H (Save Our Small Businesses Initiative): This Initiative Ordinance, submitted to the voters by Mayor Breed, would make numerous changes to the San Francisco codes governing storefront commercial uses and small businesses. It would, among other things, streamline and expedite the City permitting process for principally permitted storefront uses in the City’s Neighborhood Commercial zoning districts, allow eating and drinking uses in those districts to offer workspaces, and remove certain neighborhood notice requirements for new principally permitted businesses. It would also make changes to facilitate the use of outdoor spaces by eating and drinking establishments and other businesses. In addition, the conditional use requirement for certain commercial uses would be eliminated. According to the San Francisco Controller’s Office report, Proposition H would minimally to moderately increase City costs. Proposition H is supported by various small business associations, the San Francisco Democratic Party, the San Francisco Republican Party, and the Libertarian Party of San Francisco. Although limited formal opposition was submitted to the Department of Elections, groups including the San Francisco Tenants Union, the San Francisco Green Party, and other progressive voters’ organizations oppose Proposition H.
Proposition I (Real Estate Transfer Tax): Proposition I, an Initiative Ordinance submitted to the voters by five members of the Board of Supervisors, would increase the real property transfer tax on transfers of property valued between $10 million and less than $25 million from 2.75 percent to 5.5 percent, and the rate on transfers valued at $25 million or more from 3 percent to 6 percent. The San Francisco Controller’s Office estimates that Proposition I could result in an increase in annual net revenue of approximately $196 million, but also notes that the nature of real estate transactions and associated tax revenue is highly volatile and could result in tax avoidance strategies. Proposition I is supported by the San Francisco Democratic Party and various tenants’ rights and pro-housing organizations. It is opposed by the San Francisco Chamber of Commerce and various building owner and real estate organizations.
Proposition J (Parcel Tax for San Francisco Unified School District): This Initiative Ordinance, submitted to the voters by Mayor Breed, would impose an annual tax of $288 on each parcel in the City to generate $50 million in annual revenue to support the San Francisco Unified School District for salaries and educational improvements. The School District has faced the threat of budget cuts and layoffs in recent years, and Proposition J aims to address these budget shortfalls. If adopted, Proposition J would replace a very similar parcel tax approved by 61 percent of the voters in 2018. This existing parcel tax—which, at $320 per parcel annually, is higher than the $288 tax proposed under Proposition J—is currently on hold pending litigation asserting that the 2018 ballot measure required a two-thirds majority vote to pass. Proposition J would provide a workaround to these legal challenges by repealing the 2018 parcel tax and imposing a new parcel tax that is subject to two-thirds majority voter approval. Proposition J offers an exemption to the tax for property owners over the age of 65 in owner-occupied units. Proposition J is supported by various teacher and parent organizations, the San Francisco Labor Council, and the San Francisco Democratic Party. It is opposed by the San Francisco Taxpayers Association.
Proposition K (Affordable Rental Units): This Initiative Ordinance, submitted to the voters by a unanimous Board of Supervisors vote, would authorize the City of San Francisco to own, develop, construct, acquire, or rehabilitate up to 10,000 affordable rental units, fulfilling the requirement of the California Constitution that the City seek voter approval for public low-income rental housing. Article 34 of the California Constitution—which arose from public sentiment against public housing when it passed by voter referendum in 1950, now widely recognized as motivated by racism—requires majority voter approval before any city or other political subdivision of the state may construct, develop, or acquire “low-rent housing projects” using public funds. (Article 34 places no restrictions upon the development of affordable housing by non-governmental entities.) Proposition K would not designate funding or implement a plan for City-led affordable housing development, but voter approval would be the first step toward such development if a plan is created and funded in the future. Proposition K is supported by the San Francisco Democratic Party, various state and local officials, and various tenants’ rights and housing organizations. It is opposed by the Libertarian Party of San Francisco.
Proposition L (Business Tax Based on Executive to Employee Pay Comparison): Proposition L, submitted to the voters by a unanimous Board of Supervisors vote, would create an additional tax on San Francisco businesses whose highest-paid managerial employee has a salary exceeding the business’s median employee compensation by a ratio of 100 or more to 1. The increased tax would vary between those larger businesses subject to the Administrative Office Tax, and smaller businesses subject to the Gross Receipts Tax, with larger businesses paying an additional tax between 0.4 percent to 2.4 percent of their San Francisco payroll expense, and smaller businesses paying an additional tax between 0.1 percent to 0.6 percent of their San Francisco gross receipts. The San Francisco Controller’s Office estimates that the tax would result in between $60 million and $140 million in additional annual revenue, but notes that these estimates could vary based on changing economic conditions, fluctuations in executive compensation, and relocation risk associated with the tax increases. Proposition L’s supporters include the San Francisco Democratic Party, the San Francisco Labor Council, and various state and local officials. Its opponents include the San Francisco Taxpayers Association.
Measure RR (Caltrain Tax): This measure would authorize a 0.125 percent sales tax increase in San Francisco, San Mateo, and Santa Clara counties to provide $100 million of annual funding for the Caltrain rail system. Caltrain has historically received 70 percent of its funding from rider fares; however, with ridership down as much as 95 percent due to the COVID-19 pandemic, there is some uncertainty around Caltrain’s future financial stability. This funding would cover operational costs to allow Caltrain service to continue through the pandemic while fare revenue remains low, while also providing longer-term financial support for Caltrain to electrify its trains, offer affordable fare options for low-income riders, and expand train service in accordance with its 2040 Strategic Plan. Before a compromise was reached between the various agencies over the summer, the sales tax measure was nearly scuttled by political disputes over Caltrain’s governance; now, possible changes to the governance structure will be considered separately from the tax increase, and not through an electoral vote. Measure RR is supported by various pro-transit organizations and various government officials. It is opposed by the Silicon Valley Taxpayers Association. As a local tax measure, Measure RR requires a two-thirds majority to pass, calculated collectively across the three counties.
While the focus in November is on the top of the ticket, Californians also face a long list of ballot measures. Here we focus on three major measures that impact California real estate: Propositions 15, 19 and 21.
Proposition 15: Split Roll Tax for Commercial/Industrial Properties. Proposition 15 would remove certain limitations established under Proposition 13 (passed in 1978) that place a 2 percent cap on increases to assessed property values. The proposed “split roll” would assess property taxes on certain commercial and industrial properties based on fair market value rather than purchase price. Commercial and industrial properties with a fair market value of $3 million or less would be exempt from Proposition 15 reassessment, but if an owner of such a property owns other commercial or industrial properties in California, those properties would also count against the $3 million limit for the exemption. The proposed split roll would not change the overall property tax rate, nor would it apply to residential or agricultural property.
Proposition 15 was placed on the ballot through signature collection. Supporters (including the California Teachers Association, the SEIU and the Chan Zuckerberg Initiative) say that Proposition 13 provided a significant tax break over a long period of time to businesses and that there are other priorities now for cities, counties and school districts. Opponents (including business and taxpayer associations) cite the significant new tax burden on businesses from this and other proposed local measures, particularly in light of the challenging economic climate and businesses leaving the state.
Proposition 19: Change Assessed Value Calculations for Residential Property. California law currently allows certain homeowners—such as those who are over age 55, severely disabled, or victims of wildfires or other natural disasters—to transfer their assessed property values to replacement residences intra-county, and to certain other counties that have adopted local ordinances allowing for reciprocity. Proposition 19 would expand the exemption to all replacement residences state-wide for these specified groups of homeowners. California law currently also allows exemptions from reassessment for two types of transfers between parents and children: (i) transfers of principal residences and (ii) transfers of up to $1 million worth of assessed value of other real property. Proposition 19 would limit the exemption available for (i) and eliminate it for (ii). It would allow a limited exemption from reassessment only for a transfer of a principal residence between parent and child where the property continues as the recipient’s principal residence. If the property value at the time of transfer exceeds the transferor’s assessed value by less than $1 million, the transfer would be exempt from reassessment. However, if the property value exceeds the transferor’s assessed value by $1 million or more, then the recipient’s assessed value would be the current value of the property less $1 million.
This measure was placed on the ballot by the State Legislature. Supporters (including realtors and firefighters associations) say that Proposition 19 will incentivize seniors to downsize and free up new housing inventory and flatten wealth inequality, and that limiting property tax exemptions will provide important funds to local governments, state firefighting and other uses. Opponents (including taxpayer associations) claim that Proposition 19 is driven by realtors who are focused on increased commissions, and cite the new property tax laws as unduly burdensome.
Proposition 21: Expansion of Local Residential Rent Control. Proposition 21 is one of several measures proposed in recent years by the voters and in the Legislature to expand local rights to enact residential rent control. State law currently limits local rent control laws by exempting single-family housing units with separate, alienable title (such as condos, townhouses and single-family homes) and newly constructed housing completed on or after February 1, 1995. It also allows landlords to reset rent after a tenant vacates. For tenants in place, the Tenant Protection Act of 2019 limits annual rent increases statewide for most rental housing that is more than 15 years old, to the lesser of (i) 5 percent plus inflation, or (ii) 10 percent, excluding single-family housing units (unless the owner is a real estate investment trust, corporation, or LLC with a corporate member).
Proposition 21 would expand local rights to enact rent control by allowing local governments to: (1) enact rent control on all housing units except (a) housing first occupied within the last 15 years, and (b) homes owned by natural persons who own no more than two single-family housing units; and (2) prohibit landlords from raising rental prices by more than 15 percent cumulatively during the first three years following a vacancy.
Proposition 21 was placed on the ballot by signature collection. Supporters (including various tenant advocacy and social justice groups and the AIDS Healthcare Foundation) say that Proposition 21 would allow local control and allow cities to put measures in place to address the state’s homelessness and housing affordability crisis. Opponents (including the California Apartment Association and other real estate advocacy and investment groups) claim that it will constrain housing supply by creating a chilling effect on investment and will decrease tax revenues for city and state government.
