Three propositions passed in 2018 will impact San Francisco business taxes beginning January 1, 2019, and local businesses within the city aren’t the only ones that will be affected by the changes. 

With these new rules, businesses currently filing San Francisco business tax returns should consider whether they need to increase estimated tax payments made to the city to cover the new taxes. In addition, businesses that aren’t currently subject to San Francisco taxes but have customers there should now consider if they’re required to register and file annual returns with the city.

Proposition C

Two separate Proposition C ordinances passed will affect businesses differently.

Early Care and Education Commercial Rents Tax

In addition to the existing gross receipts and payroll taxes, this ordinance adds:

• An additional 1% tax on gross receipts from the lease or sublease of warehouse space in the city.
• A 3.5% tax on receipts from the lease of other commercial (or nonresidential) spaces in the city.

The Homelessness Gross Receipts Tax

The second will impose additional taxes on businesses as follows:

• Businesses with over $50 million in total taxable gross receipts attributable to San Francisco may be required to pay additional tax at a rate between 0.175%–0.69% depending on business activities.
• Businesses with over $1 billion in total gross receipts for federal tax purposes, that have at least 1,000 employees nationwide, and are classified as an administrative office under the existing ordinance, are now required to pay the annual homelessness administrative office tax rate which is 1.5% of San Francisco payroll. This is in addition to the existing 1.4% administrative office tax rate of San Francisco payroll, which results in more than a 100% increase in the San Francisco business tax for such taxpayers.

Proposition D

Expanding the Meaning of Engaging in Business Within the City

Another ordinance largely relates to new taxes specific to cannabis businesses but contains an economic nexus provision that may apply to any business.

New language added to the ordinance related to expanding types of businesses subject to tax is very broad and requires any business with more than $500,000 in total gross receipts assigned to San Francisco to register with the city, even if they have no physical presence of any kind. These businesses will now, at a minimum, be subject to registration fees, unless exempted.

Examples of businesses with no physical presence in the city that could be impacted by this new ordinance include, but aren’t limited to, manufacturers that ship products to purchasers in the city, or Software as a Service (SaaS) companies that have customers who “receive the benefit from the services” in the city.

These taxpayers weren’t previously subject to any San Francisco business tax registration or filing, but will be subject to tax on their total gross receipts assigned to San Francisco greater than $1,090,000 beginning in 2019.  

We’re Here to Help

To learn how these new ordinances may impact your San Francisco tax reporting and payment requirements, please contact your Moss Adams professional. Email statetax@mossadams.com or visit our services page.