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Monday, April 28, 2014

San Francisco Business Tax and Fee Changes Start in 2014


In 2012 San Francisco voters approved complex and sweeping changes to the city’s business tax and annual business registration fees, via Proposition E. The measure replaces the existing payroll-based tax with a tax based on gross receipts and increases business registration fees, beginning this year.

For businesses, the first filings impacted by the changes are the upcoming 2014 quarterly tax installment payment, due April 30, and the 2014 annual business registration fee, due May 31.

Small businesses with $1 million or less of gross receipts are exempt from the receipts-based tax, as are tax-exempt organizations without unrelated trade or business income.

New Tax Formula is More Complex
Under the old system, businesses operating in San Francisco paid a flat 1.5% payroll tax. Under the new, more complicated formula, businesses pay a progressive tax based on their gross receipts from business activity in San Francisco.

The gross receipt tax rates vary by industry and go up as the amount of annual gross receipts increases. There are seven different industry-related groups of tax rates. The groups are based on North American Industry Classification System (NAICS) codes, and the rates range from 0.075% to 0.65%, depending on the group and the amount of gross receipts (see table 1).

Industry Classification

TaxRate(range)

Low

High
(for gross receipts over $25 million)

Retail and Wholesale Trade, Certain Miscellaneous Services

0.075%

0.160%

Manufacturing, Transportation and Warehousing, Information, Biotechnology, Clean Technology, Food Services

0.125%

0.475%

Accommodations, Utilities, Arts, Entertainment and Recreation

0.300%

0.400%

Education, Health and AdministrativeServices

0.525%

0.650%

Construction

0.300%

0.450%

Financial, Insurance and Professional Services

0.400%

0.560%

Real Estate, Rental and Leasing 

0.285%

0.300%

Table 1 – Gross Receipt Tax Rates

Gross Receipts Tax Will Phase In Over 5 Years

The gross receipts tax will phase in and the payroll-based tax will phase out over the next five years. During this time, businesses will pay an increasing percentage of the receipts-based tax plus a decreasing payroll-based tax amount (see chart 1).

YEAR

2014

2015

2016

2017

2018

Gross Receipts-Based Tax Amount

10%

25%

50%

75%

100%

+

+

+

+

+

+

Payroll-Based Tax Amount

1.350%

1.250%

0.750%

0.375%

0.000%

Chart 1 – 5-Year Phase In

Administrative Offices Pay a Different Tax
In lieu of a gross receipts tax, companies with administrative offices in San Francisco will pay an annual administrative office business activities tax of 1.4% of their San Francisco payroll costs. This tax applies to companies with at least 1,000 employees in the U.S. and total combined gross receipts of more than $1 billion. Administrative services include executive office oversight, legal, accounting, personnel, and other companywide support services.

Business Registration Fees Will Increase
Each year businesses in San Francisco must apply for (or renew) their business registration certificate and pay an annual registration fee for the upcoming fiscal year, which starts July 1. The fee is due May 31. Proposition E changes the way the annual business registration fees are calculated and increases them, starting this year.

For the fiscal year beginning July 1, 2014, the business registration fee will continue to be calculated based on San Francisco payroll expense. As of the fiscal year beginning July 1, 2015, the fee will be calculated based on gross receipts.

The annual registration fees for 2014/2015 will range from $75 to $35,000 (see table 2). Previously the maximum business fee was $500. For 2015/2016 the fees will range from $90 to $35,000, except for retailers, wholesale trade and certain services. This group of businesses will have fees ranging from $75 to $30,000.

Exempt organizations do not have to pay the business registration fee, as long as they are not engaged in unrelated trade or business in the city.

SF Payroll Expense
(for the prior tax year)

Annual Registration Fee

$0 to $66.66

$75

$66.67 to $75,000

$150

$75,001 to $100,000

$250

$100,001 to $150,000

$500

$150,001 to $200,000

$700

$200,001 to $250,000

$800

$250,001 to $1,000,000

$300

$1,000,001 to $2,500,000

$800

$2,500,001 to $5,000,000

$5,000

$5,000,001 to $10,000,000

$15,000

$10,000,001 to $25,000,000

$25,000

$25,000,001 to $40,000,000

$30,000

$40,000,001 or more

$35,000

Table 2 – Fiscal Year 2014-2015 Business Registration Fees


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