Tax insight

San Francisco regulatory and legislative update

Insight
5 minute read
January 08, 2026

What happened?

The San Francisco Office of the Treasurer & Tax Collector published its final sales sourcing regulation, SF Regulation 2025-1 on October 24, 2025. The regulation provides detailed guidance on allocating taxable gross receipts from services, intangible property, and sales of financial instruments, effective for tax years starting January 1, 2025. The finalized regulation closely resembles California Regulation 25136-2 (finalized September 5, 2025), and integrates California’s special industry sourcing rules for franchisors (CA Reg § 25137-3), motion picture and television producers and networks (CA Reg § 25137-8), print media (CA Reg § 25137-12), and regulated investment company (RIC) service providers (CA Reg § 25137-14). For industries outside these special sectors, San Francisco (City) adopts the same definitions and ordering of sourcing methods as in the California regulation, with slight city-specific modifications. Taxpayers now have a definitive sourcing regulation available for the 2025 San Francisco Business Tax (SFBT) filings.

Additionally, on October 31, 2025, San Francisco Labor unions submitted a measure entitled "Strengthening the Overpaid Executive Tax Rates Ordinance” for the June 2026 Ballot. This measure aims to increase the Overpaid Executive Tax (OET) rates beginning in 2027 to almost double the rates in effect in 2024, prior to the Proposition M negotiated rate reductions (see attached our prior Insight).

Why is it relevant?

The regulation codifies reasonable approximation methods, including population and GDP-based methods, establishes presumptions for where the benefit of services is received and where intangibles are used, and requires consistent use of any chosen approximation method, with special sourcing rules for asset managers based on investor or beneficiary domicile.

With respect to the OET, in 2027, taxpayers could face significant OET tax increases if the measure passes.

Actions to consider

Taxpayers should reassess their historic service and intangible income sourcing methodologies and determine whether new sales sourcing methodologies are required to align with the new presumptions contained in the final regulation. This may require reevaluating existing records, such as customer contracts and books-and-records, to determine whether they substantiate where the “benefit received” of services is provided or intangibles are used, or whether reasonable approximation methods need to be considered.

OET taxpayers should model the tax impact of the new tax rates and rules to assess the long-range financial impact of the proposed changes should the ballot measure pass.