Brass Tax
written by
José Cisneros
Everything you need to know about the four business tax laws passed in 2018.
I’ve had the honor of serving as San Francisco’s Treasurer since 2004. My team has deftly ushered in several huge changes—the transition to a Gross Receipts Tax, the creation of the universal college savings program Kindergarten to College, the modernization of several major IT systems in the Department, and a sea-shift change in the business landscape with the rise of short-term rentals and independent contractors.
Did you know that we collected $241 million in property taxes in just 12 days (with no lines!) before the end of 2017 as property owners scrambled to get ahead of federal tax changes?
And then came 2018. Voters passed an unprecedented four new local taxes.
The following taxes were passed in the June 2018 election:
Prop C “Early Care and Education Commercial Rents Tax”
Prop G “Parcel tax for San Francisco Unified School District”
The following taxes were passed in the November 2018 election:
Prop C “Additional Business Taxes to Fund Homeless Services”
Prop D “Additional Tax on Cannabis Businesses,” effective January 1, 2021
We’ve been working hard to implement the will of the voters and begin collecting each of these new taxes on schedule. But now it’s your turn. We recognize that taxpayers and their agents need good quality information about these new taxes, so they can prepare and begin filing and paying.
You’ve already begun paying the parcel tax for San Francisco Unified School District. It was passed in June, and we had it on the bills that went out in October. We worked with SFUSD to make sure that seniors exempt from the other SFUSD parcel taxes would also be exempt from this new tax, and would not have to reapply.
Now to the business tax changes. I owe Marc Benioff, CEO of SalesForce, and Jack Dorsey, CEO of Twitter and Square, a debt of gratitude. Their feuding about the interpretations of Gross Receipts taxes helped the entire city better understand our tax structure. But don’t worry—as we worried during the implementation of the Gross Receipts and Payroll Expense Taxes passed in 2012—we will host taxpayer seminars on all the business tax measures, and we will publish educational materials and instructions. Taxpayers should continue to consult our website for regular updates: sftreasurer.org
So, what are the top 10 things you need to know to file and pay your San Francisco business taxes in 2019?
The Gross Receipts and Payroll Annual Filing will now be called the “Annual Business Tax Filing.” We thought it was a bit easier than saying the “Gross Receipts, Payroll, Commercial Rents, and Homelessness Annual Filing.”
Residential Landlords or Lessors of residential real estate in San Francisco must file a return every year if they lease four or more units in an individual building. Remember, each individual building is treated separately, and each building should be registered with a separate Business Account Number.
Residential Landlords with less than $1,120,000 in gross receipts and less than $300,000 in payroll expenses are exempt from making quarterly payments during the tax year.
The Payroll Expense Tax rate for 2018 is 0.380% and it is not going away unless there is a legislative change to eliminate it. Gross Receipts tax rates range from .075% to .650%, based on your business activity.
Many businesses that file and pay Gross Receipts and Payroll Taxes may owe additional taxes on the lease of commercial space in San Francisco.
Businesses with more than $50 million in Gross Receipts will pay an additional Homelessness Gross Receipts Tax.
Yes, we are still collecting the taxes even though there is some pending litigation. Taxes received will be deposited to a segregated city account, where interest will accrue until spent or refunded.
Though there are now up to four separate taxes being collected at once, businesses will file and pay the new taxes at the same time and in the same manner as the Gross Receipts and Payroll Expense Taxes. If applicable, this includes making three quarterly estimated payments throughout the year.
When you file by February 28th, 2019, we will ask you to report your gross receipts from the lease of warehouse and commercial space during tax year 2018. We will use this information to include your estimated payments in your quarterly billing. However, there will be no penalties for underpayment or late payment of the estimated taxes for the Commercial Rents Tax or the Homelessness Gross Receipts Tax during tax year 2019.
To qualify for a 60-day extension to file your 2018 Annual Business Tax Return, you must complete and submit a request for extension as well as pay 100% of your 2018 Annual Business Tax liability on or before February 28, 2019.
If you need more help, visit sftreasurer.org to see our video tutorials, read our
instructions, or ask us more detailed questions. While we can’t give you tax advice, we will try to give you all the tools you need for a stress-free tax filing and payment experience.
Early Care and Education Commercial Rents Tax Ordinance
The Commercial Rents Tax became operative on January 1, 2019. This tax generally applies to businesses leasing commercial space in the city and does not apply to businesses exempt from Gross Receipts and Payroll Expense Taxes.
In addition to the existing Gross Receipts and Payroll Expense Taxes, this measure imposes a new gross receipts tax of:
1% on the amounts a business receives from the lease or sublease of warehouse space in the city;
3.5% on the amounts a business receives from the lease or sublease of other commercial spaces in the city.
Commercial space is any building or structure, or portion of a building or structure, that is not residential real estate, as defined in section 954.1 of Article 12-A-1. For the purposes of this tax, commercial space does not include any building or structure, or portion of a building or structure, that is used for:
Industrial Use, as defined in Section 102 of the Planning Code
Arts Activities, as defined in Section 102 of the Planning Code
Retail Sales or Service Activities or Retail Sales or Service Establishments that are not Formula Retail uses as defined in Sections 303.1(b) and 303.1(c) of the Planning Code
The annual filing due February 28, 2019 for Gross Receipts and Payroll Expense taxes will ask businesses to report their gross receipts from the lease of warehouse space and commercial space during tax year 2018. Estimated payments for tax year 2019 will be billed accordingly, subject to revision by taxpayers to reflect actual taxable gross receipts for that quarter. There will be no penalties for underpayment or late payment of the estimated taxes for the Commercial Rents Tax during tax year 2019.
Homelessness Gross Receipts Tax Ordinance
The Homelessness Gross Receipts Tax is operative as of January 1, 2019. This tax generally applies if you have more than $50,000,000 in total combined taxable gross receipts, or if you are subject to the administrative office tax.
In addition to the existing Gross Receipts and Payroll Expense Taxes, this measure imposes an additional gross receipts tax of 0.175% to 0.69% on combined taxable gross receipts over $50 million. Businesses or combined groups that pay the administrative office tax will pay an additional tax of 1.5% on their payroll expense in San Francisco.
These additional taxes would not apply to:
certain nonprofit organizations
and businesses exempt from local taxation, such as banks and
insurance companies;
receipts that are exempt from the gross receipts tax; and
receipts subject to the city’s Early Care and Education Commercial Rents Tax.
Persons projected to be subject to the Homelessness Gross Receipts Tax (based on their 2018 gross receipts tax returns) will see an estimated payment amount for tax year 2019 on their quarterly bills. There will be no penalties for underpayment or late payment of the estimated taxes for the Homelessness Gross Receipts Tax during tax year 2019.
Filing the Annual Business Tax Return
Do you lease residential real estate in
San Francisco? You must file a return for each building unless both of the following are true:
your taxable payroll expense in the city attributable to that building is
less than $300,000; and
you lease fewer than four units in that individual building.
Do you engage in any business other than leasing residential real estate (e.g., leasing commercial real estate, retailing, etc.)? You must complete a return under a separate Business Account Number for the portion of the business that is not leasing residential real estate.
Do you lease units subject to rent
control? Follow the prompts in the
online filing—those receipts are subject
to a 50% exclusion.
For more information, visit sftreasurer.org.
José Cisneros is the City and County of San Francisco Treasurer.