Tax Alert

San Francisco to Impose Gross Receipts Tax and Business Registration Fee
(April 5, 2013)

In November 2012, the voters of San Francisco approved Proposition E, which imposes a gross receipts tax that will replace the existing 1.5 percent payroll expense tax. The new gross receipts tax will apply to corporations, partnerships, S corporations, and individuals engaging in business within the city limits. The gross receipts of tax-exempt entities engaged in an unrelated trade or business will also be subject to the tax. The new tax will be phased in and the old payroll expense tax phased out simultaneously from 2014 through 2018.

Banks and financial corporations subject to the California bank franchise tax will not be subject to the gross receipts tax. If a bank subsidiary or other financial corporation is not subject to the bank franchise tax, it will be subject to the San Francisco gross receipts tax even if it is a member of a unitary group with a bank or financial corporation.

Businesses have been assigned to one of seven industry classifications. There is a separate rate for each classification, and the apportionment methods differ by classification. The rate can be as high as .65 percent of apportioned gross receipts. There are a number of exemptions and exclusions from the gross receipts tax, including small businesses with San Francisco gross receipts less than $1 million.

In addition, beginning in 2014, every person or entity who “engages in business” in San Francisco will be required to apply for a registration certificate and pay an annual registration fee ranging from $75 to $35,000.


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