Information for Lessors of Residential Real Estate (Residential Landlords)

The following document provides helpful information for persons engaged in the business activity of a lessor of residential real estate.  It provides information on business registration requirements, small business exemptions and exclusions from the Gross Receipts Tax, and payroll expense attributable to a business. 

Once you have evaluated your business registration requirements for each of your buildings where the business activity of leasing residential real estate occurs, and registered each building that requires a business registration certificate, you must file and remit Gross Receipts Taxes and Payroll Expense Taxes for each separately registered entity, if required.  

Separate Registration and Business Tax Treatment of Individual Buildings Where Leasing Residential Real Estate Units Occurs

For purposes of the Gross Receipts Tax, Payroll Expense Tax, and Business Registration Fee, a lessor of residential real estate is treated as a separate person with respect to each individual building in which it leases residential real estate units. This applies only to leasing residential real estate units within a building, and not to any business activity related to other space, either within the same building or other buildings, which is not residential real estate. The Tax Collector is authorized to determine what constitutes a separate building and the number of units in a building. Click here for the Ordinance governing lessors of residential real estate.

NOTE: Each registered building will have a separate Business Account Number (BAN) and Personal Identification Number (PIN) for use in entering the online filing system.  This information has been provided in correspondence from our office.  

 

Example:

Corporation A is:

  • a lessor of 6 residential units in Building B;
  • a lessor of 5 residential units and 1 commercial unit in Building C; and
  • sells widgets.

All activities listed above are in San Francisco. Corporation A will be treated as 3 separate taxpayers, each requiring a separate Business Account Number and return.

Business Account 1: 6 residential units in Building B;

Business Account 2: 5 residential units in Building C; and

Business Account 3: Commercial unit in Building C and the widget sales combined.

Registration Exemption for Certain Persons Receiving Rental Income

A person receiving rental income in connection with the operation of a cooperative housing corporation, as defined in Section 216(b) of the Internal Revenue Code of 1986, as amended; one residential structure consisting of fewer than four units; or one residential condominium is not, by reason of that fact alone, required to obtain a business registration certificate.  If the same person engages in other business activities or incurs payroll expense, a business registration certificate may be required. 

Exemptions and Exclusions from the Gross Receipts Tax

For purposes of the Gross Receipts Tax, a lessor of residential real estate is a "small business enterprise" and is exempt from paying the Gross Receipts Tax if and only if the lessor leases fewer than 4 units in any individual building (although they may still be required to file a return – see below). "Residential real estate" means real property where the primary use of or right to use the property is for the purpose of dwelling, sleeping or lodging other than as part of the business activity of accommodations.

If you are a lessor of residential real estate, you may exclude from total gross receipts in any tax year 50 percent of the total amount received from the rental of real property to tenants in occupancy at any location in San Francisco that is subject to limits on rent increases pursuant to the Residential Rent Stabilization and Arbitration Ordinance, San Francisco Administrative Code, Chapter 37.1 et seq.

Filing Exemption for Businesses Below the Minimum Filing Amount

  • If you lease fewer than four units in an individual building; AND
  • The payroll expense attributable to that building (calculated without taking the small business tax exemption) is less than $150,000; then
    • You do not need to file a Gross Receipts Tax and Payroll Expense Tax return. 
  • Alternatively, if you lease four or more units in an individual building; OR
  • The payroll expense attributable to that building (calculated without taking the small business tax exemption) is $150,000 or more; then
    • You must file a Payroll Expense Tax and Gross Receipts Tax return, even if you would otherwise qualify for a small business exemption from the Gross Receipts Tax and/or Payroll Expense Tax.

Failure to file a return may result in penalties, interest and fees. 

Payroll Expense Tax

A lessor of residential real estate is treated as a separate person with respect to each individual building in which it leases residential real estate units.  Therefore, payroll expense incurred by what was previously a single taxpayer must be allocated among the individual buildings, and among the person’s other business activities combined, as applicable.   After allocation, each building shall determine if it is subject to an annual filing requirement or small business tax exemption under the Payroll Expense Tax.  

 

Summary of Requirements for Lessors of Residential Real Estate

What is a Lessor of Residential Real Estate?

  • A lessor of residential real estate is a lessor of real property where the primary use of or right to use the property is for the purpose of dwelling, sleeping or lodging other than as part of the business activity of accommodations.

Registration Requirements:

  • If you receive rental income from a residential structure with fewer than four units, you are not, by reason of that fact alone, required to register.
  • For purposes of the Gross Receipts Tax, Payroll Expense Tax, and Business Registration Fee, a lessor of residential real estate is treated as a separate person with respect to each individual building in which it leases residential real units.

Filing Requirements:

  • If you are a lessor of residential real estate in San Francisco, you must file a return, unless both of the following are true:
    • Your taxable payroll expense in the City, computed without regard to the small business tax exemption, is less than $150,000; and
    • You lease fewer than 4 units in any individual building.

Rent Control Exclusion Requirements:

  • If you are a lessor of residential real estate, you may exclude from total gross receipts in any tax year 50 percent of the total amount received from the rental of real property to tenants in occupancy at any location in San Francisco that is subject to limits on rent increases pursuant to the Residential Rent Stabilization and Arbitration Ordinance, San Francisco Administrative Code, Chapter 37.1 et seq.