Gross Receipts Tax (GR)
Gross Receipts Tax (GR)
The Gross Receipts Tax and Business Registration Fees Ordinance (2012 Proposition E) was approved by San Francisco voters on November 6, 2012. Until the passage of Proposition E, San Francisco levied a 1.5% tax on the payroll expense of larger businesses in the city. San Francisco was the only city in California to base its business tax on payroll expense. In 2012, voters approved a shift from the payroll expense tax to one based on gross receipts. The change was intended to promote economic growth, greater revenue stability, and better equity in the business tax system. One of the base-broadening objectives of the 2012 business tax reform was to improve the equity of the City’s business tax system. Under the old system, businesses with more than $250,000 in payroll paid a flat 1.5% rate, and business registration fee revenue was comparatively small. The new gross receipts tax system introduced a progressive rate structure, and a larger, progressive business registration fee.
What are Gross Receipts?
Gross receipts" means the total amounts received or accrued by a person from whatever source derived, including, but 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. Gross receipts include but is not limited to all amounts that constitute gross income for federal income tax purposes. Gross receipts, including advance payments, shall be included in a taxpayer's gross receipts at the time such receipts are recognized as gross income for federal income tax reporting purposes.
How are Gross Receipts Calculated?
Gross Receipts rates vary depending on a business’s gross receipts (top axis) and business activity. Taxpayers deriving gross receipts from business activities both within and outside San Francisco must generally allocate and/or apportion gross receipts to San Francisco using rules set forth in Business and Tax Regulations Code Sections 956.1 and 956.2. This table indicates the applicable apportionment and/or allocation methodology for each business activity. The Code is based on the 2012 NAICS classifications. For more information on the 2012 NAICS codes, go to www.census.gov/eos/www/naics.
|Business Activity||0-$1m||$1-$2.5m||$2.5-$25m||$25m +||Calculation Method|
|Retail Trade; Wholesale Trade; and Certain Services||0.075%||0.100%||0.135%||0.160%||Apportionment for Retail Trade and Wholesale Trade is 50% Sale Location and 50% Payroll Expense (Section 953.1(e)) Apportionment for Certain Services is Payroll Expense (Section 953.1(f))|
|Manufacturing; Transportation and Warehousing; Information; Bio-Technology; Clean Technology; and Food Services||0.125%||0.205%||0.370%||0.475%||Apportionment for this section is 50% Real, Personal, Tangible and Intangible Property, and 50% Payroll Expense (Section 953.2(g))|
|Accommodations; Utilities; and Arts Entertainment and Recreation||0.300%||0.325%||0.325%||0.400%||Apportionment for Accommodations is receipts derived from or related to properties located or used in the City (Section 953.3(e)) Apportionment for Utilities is 50% Real, Personal, Tangible and Intangible Property and 50% Payroll Expense (Section 953.3(f)) Apportionment for Arts, Entertainment and Recreation is Payroll Expense (Section 953.3(g))|
|Private Education and Health Services; Administrative and Support Services; and Miscellaneous Business Activities||0.525%||0.550%||0.600%||0.650%||Apportionment for this Section is Payroll Expense (Section 953.4(d))|
|Construction||0.300%||0.350%||0.400%||0.450%||Apportionment for this Section is 50% Real, Personal, Tangible and Intangible Property and 50% Payroll Expense (Section 953.5(c)) In addition, Real, Personal, Tangible and Intangible Property shall be reduced by the amounts paid to a subcontractor in the City. Person must submit itemized deduction list in order to claim. (Section 953.5(c))|
|Financial Services; Insurance; and Professional, Scientific and Technical Services||0.400%||0.460%||0.510%||0.560%||Apportionment for this Section is Payroll Expense (Section 953.6(e))|
|Real Estate and Rental and Leasing Services||0.285%||0.258%||0.300%||0.300%||Apportionment for this Section is receipts derived or related to properties located or used in the City. (Section 953.7 (c))|
Common Gross Receipts Tax Exemptions
Exemption provisions are listed in Section 954. The following are common exemptions only.
- Small Businesses with $1,120,000 million or less of gross receipts are generally exempt from the gross receipts tax
- A lessor of residential real estate who leases fewer than 4 units in any individual building (although they may still be required to file a return – see below).
- Income Tax Exempt Organizations (Sec. 954(a)) without unrelated trade or business income.
- Constitutionally and Legally Exempt organizations (Sec. 954(c) & (f))
- Gross Receipts Exempt from Local Taxation under Federal or State Law
Business and Tax Regulations Code section 954(c) excludes from the definition of “gross receipts” any “receipts from business activities if, and only so long as and to the extent that, the City is prohibited from taxing such receipts under the Constitution or laws of the United States or under the Constitution or laws of the State of California.” Thus, to the extent that federal or state law prohibits the City from taxing certain of your gross receipts, you should exclude such receipts from your Gross Receipts Tax base and from the calculation of your Business Registration Fee. However, you are still subject to the Gross Receipts Tax and Business Registration Fee on your gross receipts that are not exempted from local taxation under federal or state law.
- Lessors of Residential Real Estate (Residential Landlords)
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. 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. Click here for the more information.
The gross receipts tax and business registration fee applies to businesses located in the Presidio (other than those engaged in business in the City as an administrative office, as defined in Business and Tax Regulations Code section 953.8(b)) in the same manner as it applies to other businesses operating in San Francisco.
- San Francisco International Airport (SFO)
While owned by the City and County of San Francisco, the Airport property is physically located within unincorporated San Mateo County and other cities. Most of the Airport is located in unincorporated San Mateo County, but portions are within the boundaries of surrounding communities, including South San Francisco, San Bruno, Millbrae and Burlingame.
- Homeowners Association (HOA)
To the extent a Homeowners Association (HOA) is not engaged in business in San Francisco, it is not subject to business registration fees, the payroll expense tax, or the gross receipts tax. An HOA will not be considered to be engaging in business in San Francisco if its activities are limited to collecting dues or other remittances from owners to be used for the benefit of those owners and expending those dues and remittances for the benefit of those owners. To the extent the HOA is otherwise engaged in business in San Francisco, the dues or other remittances received from owners for the benefit of those owners will not be considered gross receipts from business activities that are subject to the gross receipts tax.
- Processing Credit/Debit Card Transactions for Third Parties
To the extent that your business is processing a credit card or debit card transaction between third parties, you should not include the full amount of the underlying transaction in your gross receipts, but may owe tax on a lesser amount depending on your specific facts as described in Article 12-A-1 of the Business and Tax Regulations Code.
- Air Commerce or Transportation
As noted in section 40116(b) of title 49 of the United States Code (“Section 40016(b)”), the Gross Receipts Tax in Article 12-A-1 of the San Francisco Business and Tax Regulations Code shall not apply to “the gross receipts from that air commerce or transportation” as that phrase is used in Section 40016(b). However, the gross receipts of an airline or other person engaged in the business of air commerce or transportation that are derived from anything other than the specific activities subject to the exemption in Section 40016(b) remain taxable unless otherwise exempt.
Tax Collector Regulations:
Notice of Tax Collector Hearing on "Gross Receipts Tax - Treatment Of Reimbursed Taxes" Regulation 2019-1. April 5, 2019 at 10:00am
Regulation No. 2016-1 Gross Receipts Tax - Exclusions of Certain Sales of Real Property (pdf)
Regulation No. 2016-2 Gross Receipts Tax - Payment to Construction Subcontractors (pdf)
Regulation No. 2016-3 Payroll Expense Tax and Gross Receipts Tax - Deadlines for Tax Incentives (pdf)
Regulation No. 2014-1 Gross Receipts Tax - Interpretations of Prior Law (pdf)
Regulation No. 2014-2 Business Tax - Single Member Entities Disregarded for Federal Income Tax Purposes (pdf)
Regulation No. 2014-3 Gross Receipts Tax - Agency Receipts (pdf)