San Francisco’s New Gross Receipts Tax Effective January 1, 2014
Last November, San Francisco voters passed Proposition E, The Gross Receipts Tax and Business Registration Fees Ordinance (“Gross Receipts Tax”). The changes go into effect on January 1, 2014, but it is important to be aware of the new tax and how it will affect your business. In short, a phasing out of the current payroll tax will begin in 2014, and by 2018, all businesses in the City of San Francisco (“City”) will file Gross Receipts Tax returns and pay the annual Gross Receipts Tax, which will be measured by the business’s gross receipts from all taxable business activities attributable to the City. In 2014, affected businesses will pay the Gross Receipts Tax at 10% of the rates approved by voters. This increases to 25% in 2015, 50% in 2016, 75% in 2017, and 100% in 2018.
The Gross Receipts Tax consists of eight different tax schedules and up to four progressive rates. They are as follows:
- Retail Trade; Wholesale Trade; and Certain Services
Gross Receipts Rate $0 - $1,000,000 0.075% $1,000,001 - $2,500,000 0.100% $2,500,001 - $25,000,000 0.135% $25,000,000 + 0.160% - Manufacturing; Transportation and Warehousing; Information;
Biotechnology; Clean Technology; and Food Services
Gross Receipts Rate $0 - $1,000,000 0.125% $1,000,001 - $2,500,000 0.205% $2,500,001 - $25,000,000 0.370% $25,000,000 + 0.475% - Accommodations; Utilities; and Arts, Entertainment and Recreation
Gross Receipts Rate $0 - $1,000,000 0.300% $1,000,001 - $2,500,000 0.325% $2,500,001 - $25,000,000 0.325% $25,000,000 + 0.400% - Private Education and Health Services; Administrative and
Support Services; and Miscellaneous Business Activities
Gross Receipts Rate $0 - $1,000,000 0.525% $1,000,001 - $2,500,000 0.550% $2,500,001 - $25,000,000 0.600% $25,000,000 + 0.650% - Construction
Gross Receipts Rate $0 - $1,000,000 0.300% $1,000,001 - $2,500,000 0.350% $2,500,001 - $25,000,000 0.400% $25,000,000 + 0.450% - Financial Services; Insurance; and Professional, Scientific
and Technical Services
Gross Receipts Rate $0 - $1,000,000 0.400% $1,000,001 - $2,500,000 0.460% $2,500,001 - $25,000,000 0.510% $25,000,000 + 0.560% - Real Estate and Rental and Leasing Services
Gross Receipts Rate $0 - $1,000,000 0.285% $1,000,001 - $2,500,000 0.285% $2,500,001 - $25,000,000 0.300% $25,000,000 + 0.300% - Administrative Office Business Activities
Gross Receipts Rate Measured by Payroll 0.0140%
Under the ordinance, “gross receipts” includes, but is 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.” S.F. Bus. and Tax Regs. § 952.3. Furthermore, “gross receipts includes but is not limited to all amounts that constitute gross income for federal income tax purposes.” Id. This means that federal gross income likely will be the starting point for San Francisco’s Gross Receipts Tax calculation purposes, but the entire universe of what constitutes “gross receipts” is unclear.
"Gross receipts” does not include: any federal, state, or local taxes imposed on retail sales, nor tax refund amounts; amounts received from a related entity; investment receipts; nor allocations or distributions that are derived from pass-through entities. Id.
Businesses with gross receipts of less than $1 million annually are exempt from the Gross Receipts Tax, but will have to pay a business registration fee. Id. at § 954.1. The Ordinance also provides exemptions for Internal Revenue Code-exempt organizations; banks and financial corporations; insurance companies; for-hire motor carriers of property; persons engaged in intercity transportation as a household goods carrier; and charter-party carriers operating limousines without an office in the City. Id. at § 954.
Finally, the Ordinance includes provisions for allocation and apportionment of gross receipts from business activities both within and outside the City. Id. at § 956. This requirement could potentially be quite burdensome on the taxpayer, because even if the taxpayer did not file a California consolidated return, it must file a consolidated return for all related entities within the City.
If you need assistance analyzing your assessment or filing an assessment appeal, please feel free to contact one of the Winston & Strawn lawyers listed below.
| Chicago (312) 558-5600 | San Francisco (415) 591-1000 |
| Robert F. Denvir | Charles J. Moll III |
| Alan V. Lindquist | Troy M. Van Dongen |
| Bradley R. Marsh | |
| Jocelyn M. Wang |