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California Local Taxes: Due Date Reminder

by Alex Thacher

San Francisco Gross Receipts Tax and Payroll Expense Tax - Due March 2, 2020

There have been significant changes to the San Francisco Gross Receipts Tax (SFGRT) and Payroll Expense Tax (PET) in the last year that may subject new taxpayers to the 2019 SFGRT and PET and may also increase current taxpayers’ SF tax liabilities.

Most notably, SF voters approved Proposition D, which adopts economic nexus provisions that subject taxpayers with no physical presence in SF to the SFGRT and PET if they have $500,000 of gross receipts into SF.

SF voters also approved Proposition C, which created two new gross receipt taxes, in addition to SFGRT, to be included in the filing of the SFGRT and PET combined return.

  • Homelessness Gross Receipts Tax - Taxpayers with taxable gross receipts of over $50 million are subject to an additional gross receipts tax ranging from 0.175% to 0.69%. In addition, taxpayers subject to the administrative office tax will pay a 1.5% tax based on their San Francisco payroll expense.
  • Early Care and Education Commercial Rents Tax - Taxpayers leasing commercial space (taxpayer is the lessor, NOT the lessee) in San Francisco are subject to an additional tax on the gross receipts from leasing or subleasing property in the city equal to 1% of warehouse receipts and 3.5% of other commercial space receipts. Unless specifically outlined in the rental agreement, this tax is the responsibility of the landlord and should not be passed on to its tenants.

One thing that seems to not be going anywhere is the PET. The PET was scheduled to be phased out completely as of 2018, yet SF continues to impose a rate of 0.38% due to lower than projected SFGRT revenues. The 0.38% PET rate for 2019 is consistent with the 2018 rate for now, and it remains unknown when the PET will be permanently phased out. The 2019 SFGRT and PET small business exemption limits are:

  • $1,120,000 or less gross receipts to be exempt from SFGRT
  • $300,000 or less of payroll expense to be exempt from PET

San Francisco Business Registration Renewal & Fee - Due April 1, 2020

SF also requires that taxpayers doing business within the city must register and pay a fee related to the taxpayer’s SF gross receipts reported on the SFGRT return.

Taxpayers are required to register and pay this fee within 15 days of creating nexus within SF (i.e. physical presence or >$500K in SF gross receipts). The fee is based on tiers of SF gross receipts. It ranges from $83 to $38,971 and is adjusted annually by the SF Controller. The business registration is required to be renewed annually and paid on or before April 1, 2020.


Los Angeles Business License Tax - Due March 2, 2020

Los Angeles remains aggressive in pursuing taxpayers that may be subject to the Los Angeles City Business Tax (LACBT). Los Angeles may deem taxpayers as “doing business” within the city if they have an employee in the city or if the taxpayer regularly solicits business within the city limits.

Don’t let the name mislead you – this is a tax that is generally based on a taxpayer’s gross receipts deemed earned within the city limits. Tax rates vary depending on the applicable tax classification, but generally range between 0.1% and 0.6%.

However, even pre-revenue or zero gross receipts taxpayers remain subject to this tax, as Los Angeles requires such companies to use headcount or expenses within the city as basis for the tax rather than gross receipts.

A small business exemption is available to taxpayers with global receipts less than $100,000 during the calendar year.


Other California Localities

It should be noted that there are numerous cities throughout California that also impose business license taxes similar to those imposed by San Francisco and Los Angeles. For example, San Jose, Oakland, Berkeley, Mountain View, Napa, San Mateo, Santa Monica, etc.

These business license taxes are generally based on gross receipts, less city/industry specific exclusions, deemed earned within the city, usually taxed at a rate between 0.1% and 0.6%. Alternatively, some California localities impose tax based on payroll and/or headcount, with the most recent of these being Mountain View.


Talk to an Expert

Armanino’s State and Local Tax (SALT) professionals have extensive experience with California business license taxes, including San Francisco and Los Angeles. We know the laws in these localities and how they relate to different industries, and we are current on the most recent changes. If you have any questions or concerns about your local taxes, contact our SALT experts. We can help you understand the impact of these changes on your unique tax situation.

January 24, 2020

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Author
Alex Thacher - Partner, Tax - San Jose, CA | Armanino
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