Lately we’ve been sharing a lot about new economic nexus standards and measures passed in the recent election. But states aren’t the only entities with new taxes and fees; San Francisco recently passed legislation requiring companies engaging in business in the city to pay a variety of fees and taxes. Filings are due February 28, 2019, so it’s important to understand how your company might be affected.
Initiatives passed in November’s election, including Proposition C’s homeless tax and Proposition D’s tax on the cannabis industry, implement payroll expenses, gross receipts taxes and a new economic nexus standard for entities doing business within the city. Here’s an overview of the details.
Mandatory Business Registration Certificates
Any company that engages in business in San Francisco needs to apply for a registration certificate each year, along with a registration fee. The application is due 15 days after beginning business within the city. Fees range from $90 to $35,000 depending on San Francisco gross receipts for the previous taxable year.
New: Expanded Economic Nexus Standard
Proposition D was known for raising taxes on cannabis businesses, but the initiative included more than that; it also included language expanding the economic nexus standard. The new regulations apply the state’s market-based perspective to San Francisco.
Depending on the type of business, companies that fulfill the $500,000 economic nexus threshold may need to file for the above mandatory registration – even if they don’t meet previous qualifying factors like paying payroll or owning/renting property within the city. If you haven’t previously had nexus in San Francisco, it may be worth taking the time to determine if you do now.
Continued Payroll Expense Tax
This tax isn’t completely new as there was a flat 1.5 percent payroll tax before 2014. Then an ordinance was passed in an attempt to phase out the payroll tax over a course of five years, but it was contingent on specific revenue requirements being fulfilled. Although the tax was supposed to be phased out by this year, shortfalls in the gross receipts tax mean that the payroll tax is still in effect.
As it is currently, the payroll tax, “Applies to all compensation paid to individuals working in the city. Compensation paid includes items such as board of directors fees, fringe benefits for employees, bonus compensation, medical expenses paid on behalf of employees, certain income earned by pass-through entity owners, and fees paid to contractors on 1099s.”
San Francisco’s payroll expense tax is calculated for each organization conducting business there, although if you’re part of a combined group it can get complicated (entities other than corporations may require more analysis).
Phased-In Gross Receipts Tax
This tax was gradually phased in beginning in 2014, and is now in full effect. It is applicable to any entity that conducts business in San Francisco and is measured by – you guessed it – gross receipts attributed to the city. These can be received by:
- Company sales and services provided
- Employee payroll
- Property deals and rent
- Interest and royalties
- Dividends and commissions
- Licensing and other fees
- Distributed amounts from other business entities
New: Increased Commercial Rent Tax
Voters passed this new measure back in June. It raises commercial rents within the city by 3.5 percent, which is a steep increase considering historically it was 0.3 percent. This tax also raises the city’s tax liabilities for commercial landlords; there’s a good chance these increased fees will be passed on to renters as allowed by existing agreements.
New: Homeless Gross Receipts Tax
Known as Measure C in November’s election, this new legislation imposes the following to designate funds for the city’s homeless:
- A tax on most entities that receive more than $50 million in gross annual San Francisco receipts
- An additional payroll tax of 1.5 percent for organizations that currently fall under the “administrative office” taxing regime
- Depending on the industry, an additional gross receipts tax ranging from 0.175 to 0.69 percent for entities and combined groups with more than $50 million in gross annual San Francisco receipts
Are you curious how any of these measures or taxes may affect your business? Contact us today! We’d love to answer your questions about how economic nexus and other multi-state tax issues from any city or state across the country may apply to your organization.
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects. To learn more, contact us today at www.MilesConsultingGroup.com.
