San Francisco taxes - Filings and final payments due February 28, 2023

January 2023

In brief

Companies engaging in business in San Francisco (the city) must register in the city and pay an annual registration fee. The deadline for paying license fees for the 2023-2024 period generally is May 31, 2023. Additionally, general businesses may also be subject to up to four city taxes: the San Francisco Gross Receipts, Homelessness Gross Receipts, Commercial Rents and Overpaid Executive taxes. The 2022 filing and final payment deadline for these taxes is February 28, 2023. 

San Francisco’s doing business (nexus) standards include maintaining a fixed place of business within the city; performing any work, including solicitation, within the city for all or part of any seven days during the calendar year; or generating more than $2,090,000 in San Francisco-sourced gross receipts during the calendar year. Except in certain limited circumstances, tax filings must be made online, through the city’s website. Penalties and interest will accrue for missed payments and for late filings, and taxpayers should be aware of the potential for a higher bill should a missed or late filing occur.

For a discussion of the Los Angeles City Business Tax, due on February 28, 2023, access PwC’s prior Insight, available here.

Action item: The rules surrounding San Francisco taxes, as well as the city’s economic nexus standard, are unique and complex. Consideration should be given as to whether a filing obligation exists and how gross receipts should be apportioned to the city. 

In detail

San Francisco annual business registration fee

Every company engaging in business within San Francisco must apply for a registration certificate and pay the registration fee with the application. A company has 15 days after commencing business within the city to apply for the certificate. 

The annual business registration fee is based on San Francisco gross receipts for the immediately preceding tax year. Registration fees range from $54 to $41,951, or $44 to $35,955 for retailers, wholesalers, and certain services. The registration fee is due by May 31, 2023. Businesses subject to the Administrative Office Tax are subject to a different fee, as discussed below.

San Francisco has passed the First Year Free program, which waives the cost of initial registration fees, initial license fees, first-year permit, and other applicable fees for qualifying businesses. Enrollment is automatic when registering as a new business or new location with the City, if all the applicable criteria are met. In November 2022, the Board of Supervisors extended the program through June 30, 2023, increased the gross receipts threshold to qualify, and expanded the type of businesses that qualify. Businesses qualify for the tax and fee waiver if their receipts sourced to San Francisco are less than $5 million.

San Francisco Gross Receipts Tax

The gross receipts tax applies to every entity engaging in business within San Francisco and is measured by the entity’s gross receipts attributable to the city. Depending on the nature of a taxpayer's business, gross receipts are attributed to San Francisco based on either gross receipts attributable to customers in San Francisco, employee payroll incurred in San Francisco, or some combination thereof. The term “gross receipts” is broadly defined as “the total amounts received or accrued by a person from whatever source derived, including, but not limited to, amounts derived from sales, services, dealings in property, interest, rent, royalties, dividends, licensing fees, other fees, commissions and distributed amounts from other business entities.”

The gross receipts tax must be filed on a combined basis by any entity doing business in San Francisco, along with all of the entity’s unitary affiliates that are included in the same California combined corporate filing group. An additional level of analysis may be necessary when a combined group includes entity types other than corporations.

The gross receipts tax rates and apportionment methodologies depend on a taxpayer’s business classification, which generally is determined by the entity’s NAICS code. Due to Proposition F’s passage, gross receipts tax rates have changed and will continue to increase through 2024. A simplified table documenting some of those tax changes is below:

Tax Classification

2021

2022

2023

2024

Retail

0.053%-0.224%

0.053%-0.224%

0.079%-0.224%

0.105%-0.224%

Information

0.560%-0.784%

0.573%-0.832%

0.573%-0.832%

0.585%-0.879%

Admin & Support

0.735%-0.910%

0.788%-0.975%

0.788%-0.975%

0.814%-1.008%

Financial Services

0.560%-0.784%

0.600%-0.840%

0.600%-0.840%

0.640%-0.896%

 

For 2023, the 2022 tax rate table shown will still be in effect, as the City’s 2022 tax collections did not meet the legislative goal of reaching 90% of the tax collections from the Gross receipts tax achieved in 2021. For 2024, either the 2023 tax rate table, or the 2024 tax rate table above will be imposed, depending on if the total gross receipts reported by taxpayers in 2023 are 95% or greater than those reported in 2019. It is worth noting that rate changes for all tax classifications will take effect in 2025 regardless of whether revenue collection targets are hit by San Francisco. 

Observation: A key point to consider for 2024 is a possible increase in rate tables for companies with specific NAICS codes, making it important for taxpayers to self-determine their proper industry NAICS code. This has been a contested issue for many taxpayers under audit due to the lack of any rule-making body or set of rules that provides detailed guidance on how to determine a company’s applicable NAICS code. 

San Francisco Administrative Office Tax 

Every person engaged in business in San Francisco as an administrative office pays a tax and a fee based on payroll expense attributable to San Francisco. The registration fee ranges from $18,288 to $42,674 based on payroll expense attributable to San Francisco. The tax rate for 2023 is 1.4%. 

In order to be considered as engaged in business within the City as an administrative office, a person must be engaged in business within the City during the tax year and over 50% of its total combined payroll expense (including related entities) within the City for the preceding tax year must have been associated with providing administrative or management services exclusively to that person or related entities. In addition, that person must have over 1,000 employees, and the total combined gross receipts of that person and its related entities reported on federal income tax returns for the preceding tax year must have exceeded $1billion.

San Francisco Homelessness Gross Receipts Tax 

The Homelessness Gross Receipts Tax imposes an additional tax on most entities with gross annual San Francisco receipts of over $50 million. Entities currently paying a payroll tax under the alternative to the gross receipt taxes, i.e., the “administrative office” taxing regime also are subject to an additional payroll tax of 1.5%. For entities and combined groups with San Francisco-sourced gross annual receipts of over $50 million, the Homelessness Gross Receipts Tax imposes an additional rate ranging from 0.175% to 0.690%, depending on the line of business.

For a detailed discussion of this tax, access PwC’s prior Insight here.

San Francisco Commercial Rents Tax

The Early Care and Education Commercial Rents Tax (also known as ‘Universal Childcare for San Francisco’) imposes a 3.5% tax on commercial rents (1% rents from warehouses) in San Francisco. 

For a detailed discussion of this tax, click here.

San Francisco Overpaid Executive Gross Receipts Tax

Effective for the 2022 tax year, San Francisco imposes an additional tax on businesses with high executive pay, deemed the “Overpaid Executive Gross Receipts Tax.” The tax is triggered based on a taxpayer or combined group’s executive pay ratio. The ratio is the annual compensation of the highest-paid managerial employee of the company, wherever geographically located, as compared to the annualized median compensation paid to full-time and part-time employees based in San Francisco for the tax year. 

Compensation is defined to include “wages, salaries, commissions, bonuses, property issued or transferred in exchange for the performance of services (including but not limited to stock options), compensation for services to owners of pass-through entities, and any other form of remuneration paid to employees for services.”

If the executive pay ratio exceeds 100:1, then an additional tax will be imposed on apportioned San Francisco gross receipts ranging from 0.1% to 0.6%, depending on the computed executive pay ratio. For example, an entity with an executive pay ratio of greater than 200:1 would pay a 0.2% overpaid executive tax rate; greater than 300:1, a 0.3% overpaid executive tax rate; and so forth up to a maximum of 0.6%. Entities currently paying a payroll tax under the alternative “administrative office” taxing regime also will be subject to an additional payroll tax of between 0.4% to 2.4%, again depending on the climbing executive pay ratio of over 100:1, 200:1, and so forth, up to a maximum additional rate of 2.4%, for executive pay ratios greater than 600:1.

Observation: Entities with irregular stock recognition events could have material increases in the San Francisco Overpaid Executive Gross Receipts Tax. Careful analysis of expected stock compensation milestones should be taken into account for provision modeling purposes.

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Ed Geils

Ed Geils

Global and US Tax Knowledge Management Leader, PwC US

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