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Law360 (June 17, 2020, 8:19 PM EDT) -- San Francisco's Board of Supervisors voted to suspend, for almost a year, a commercial vacancy tax that could raise an estimated $5 million annually, in response to the novel coronavirus pandemic's effect on businesses.
The board voted unanimously Tuesday to temporarily suspend imposing Proposition D through Dec. 31, 2021, instead of its original effective date, next Jan. 1. The measure, approved by San Francisco voters in March, will impose an annual tax on those who keep ground-floor commercial space vacant in certain commercial neighborhoods, according to a plan summary.
The suspension was sponsored by Democratic Supervisor Aaron Peskin, who introduced the original proposition.
"The suspension was in recognition of the fact that COVID-19 has effectively taken a hammer to the retail and restaurant industries" in San Francisco, Peskin's office told Law360 on Wednesday.
When the proposition goes into effect, for the first year, the tax will be $250 per linear foot, increasing to $500 in 2023 if the space was vacant in both 2022 and 2023. By 2024, the tax will increase to $1,000 per linear foot of space kept vacant in 2024 and the previous two years.
The ordinance defines vacant commercial space as space unoccupied, unused or uninhabited for more than 182 consecutive or nonconsecutive days in a calendar year. Commercial property is defined as that facing the street or a public right of way and within certain commercial districts in the city.
Last year, the San Francisco controller released a report that said the tax, if narrowly tailored, could help the city's economy to the extent that empty storefronts are caused by property owners' speculative or negligent behavior.
But the controller's report also warned that because properties can remain vacant because of larger economic conditions that property owners can't control, the tax may not solve issues of storefront vacancy and could reduce the value of commercial properties and discourage investment in those same commercial corridors.
The controller said the measure could raise $5 million annually and even more during economic downturns.
Revenue from the tax will go toward a fund to help small businesses, according to a summary.
The tax is meant to encourage the rehabilitation of vacant retail stores, according to the ordinance language.
San Francisco's measure is one of several that have been proposed throughout the country meant to combat vacancies caused by real estate speculation.
In November 2018, Oakland, California, voters approved a measure establishing a vacant property tax on both residential and commercial properties starting in 2019. Oakland's tax imposes an annual $6,000 charge on vacant residential, nonresidential and undeveloped properties and a $3,000 charge for vacant condominium, town house and duplex units.
In 2011, Washington, D.C., enacted a property tax rate for vacant commercial, residential and blighted properties, taxing vacant property at $5 per $100 of assessed value and blighted property at $10 per $100 of assessed value, according to the district's website.
San Francisco Mayor London Breed did not immediately respond to a request for comment Wednesday.
--Additional reporting James Nani, Daniel Tay and Paul Williams. Editing by Neil Cohen.
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