Proposition M (2024) - Business Tax Reform

Business Registration Fees for the registration year beginning July 1, 2025 and ending March 31, 2026. This is a nine-month period to align the business registration renewal deadline with other business tax deadlines.

Business Registration Fees for the registration year beginning April 1, 2026 and ending March 31, 2027. 

Category 1:

NAICS Codes: 42 (Wholesale Trade), 44 and 45 (Retail Trade), 532 (Rental and Leasing Services), 71 (Arts, Entertainment, and Recreation), 722 (Food Services and Drinking Places), 811 (Repair and Maintenance), 812 (Personal and Laundry Services) but not 812930 (Parking Lots and Garages), and 813 (Religious, Grantmaking, Civic, Professional, and Similar Organizations)

Category 2:

NAICS Code: 721 (Accommodation)

Category 3:

NAICS Codes: 531 (Real Estate), 5612 (Facilities Support Services), 5617 (Services to Buildings and Dwellings), 812930 (Parking Lots and Garages)

Category 4:

NAICS Codes: 11 (Agriculture, Forestry, Fishing and Hunting), 21 (Mining, Quarrying, and Oil and Gas Extraction), 22 (Utilities), 31 through 33 (Manufacturing), 48 and 49 (Transportation and Warehousing), 524 (Insurance Carriers and Related Activities), 541714 (Research and Development in Biotechnology (except nanotechnology)), 5611 (Office Administrative Services), 5613 (Employment Services), 5614 (Business Support Services), 5615 (Travel Arrangement and Reservation Services), 5616 (Investigation and Security Services), 5619 (Other Support Services), 92 (Public Administration)

Category 5:

NAICS Codes: 51 (Information), 5222 (Nondepository Credit Intermediation), 5223 (Activities related to Credit Intermediation), 533 (Lessors of Nonfinancial Intangible Assets (except Copyrighted Works)), 54 (Professional, Scientific, and Technical Services) but not 541714 (Research and Development in Biotechnology (except nanotechnology)), 55 (Management of Companies and Enterprises), 562 (Waste Management and Remediation Services), 61 (Educational Services), 62 (Healthcare and Social Assistance), and all other business activities not otherwise exempt and not elsewhere subjected to a gross receipts tax rate.

Category 6:

NAICS Codes: 521 (Monetary Authorities-Central Bank), 5221 (Depository Credit Intermediation), 523 (Securities, Commodity Contracts, and Other Financial Investments and Related Activities), 525 (Funds, Trusts, and Other Financial Vehicles)

Category 7:

NAICS Code: 23 (Construction)

Gross Receipts Tax rates vary depending on the gross receipts and category of a business. 

The Homelessness Gross Receipts Tax  imposes a gross receipts tax on business activities with San Francisco gross receipts of more than $25 million.

Homelessness Administrative Office Tax Rate: 1.5%

Overpaid Executive Tax rates vary and are based on the compensation ratio of the highest-paid managerial employee, within or outside of San Francisco, to the median employee based in the City.

Additional Gross Receipts Tax Rates

Additional Administative Office Tax Rates

Businesses with gross receipts within and outside of San Francisco determine their San Francisco gross receipts generally using Allocation and Apportionment. This table indicates the applicable methodology for each business activity category. 

Allocation:  

Gross receipts are allocated to San Francisco depending on what generated the gross receipts.  For example, gross receipts from the sale of tangible personal property are allocated to the City if the property is shipped or delivered to a purchaser in San Francisco; gross receipts from services are in the City if the purchaser receives the benefit of the services in San Francisco; gross receipts from intangible property (other than financial instruments, to which a different rule applies) are in the City if the intangible property is used in the City; and gross receipts from real property are in the City if the real property is located in San Francisco.

To provide further guidance, the Office of the Treasurer & Tax Collector is currently drafting regulations on gross receipts sourcing set to be released in February 2025.

Apportionment:

Gross receipts generally are apportioned to San Francisco by multiplying total gross receipts by the portion of the business's total payroll in San Francisco divided by the business’s total payroll.

Legislation that was contingent upon the passage of Proposition M eliminates approximately $10 million in certain permit, license, and other fees. An ordinance was recently approved by the Board of Supervisors that outlines approximately $10 million in relief for businesses by waiving 49 permit, license, and other fees. The fee relief will particularly benefit the restaurant and nightlife sectors. The waivers will take effect in 2026.

View ordinance and summary.

Proposition M includes a requirement that the Office of the Treasurer & Tax Collector establish an AWD program that allows taxpayers to obtain advance determinations regarding their tax liability or other tax issues.

The Office of the Treasurer & Tax Collector reviewed and received input on a program proposal in 2024 and anticipate beginning to accept applications in Spring, 2025. The VDA program ordinance also contains authorization for our office to charge a fee for an AWD ($250 for applications filed on or before December 31, 2025).

View ordinance and summary.

The Office of the Treasurer & Tax Collector recently introduced a VDA program ordinance, which will authorize the Tax Collector to waive certain taxes, penalties, and/or interest when taxpayers voluntarily disclose and pay unpaid back taxes and interest for the previous six years in exchange for a waiver of penalties, and a waiver of taxes, penalties, and interest for tax periods prior to that look back period.  This program will go into effect 30 days after approval of the ordinance, which is anticipated to be Spring, 2025.

View ordinance and summary.

The Office of the Treasurer & Tax Collector held a series of Interested Party meetings in 2024 to share our initial thoughts and gather input on Sourcing rules from the business community. The Office carefully reviewed the feedback gathered from these meetings, along with written comments, and are currently drafting Sourcing regulations set to be released in February 2025. Following their release, a formal regulatory process will begin, providing ample opportunities for public input.

• Full text of Proposition M. 
• Rate Adjustment for Category 2 (Accommodation) Ordinance
• License Fee Elimination Ordinance and Summary
• Voluntary Disclosure Agreement and Advanced Written Determination Ordinance and Summary

With San Francisco's business tax structure facing challenges, Mayor Breed and Board President Peskin asked the Treasurer, Controller, and Chief Economist to review the City's current business tax structure and develop recommendations for reforms. In 2023, the Treasurer and the Controller submitted recommendations to the Mayor and President Peskin for Business Tax Reform, which resulted in Prop M being submitted for voter consideration and passed. 

• Summary of final business tax reform final proposal 
• Report on recommended reforms to the business tax system
• Report on vulnerabilities of San Francisco’s business tax system in the context of our post-pandemic recovery

Learn more at the project's website.

Before 2014

In the years immediately prior to tax year 2014, 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 levy its entire business tax on payroll expense. Under the old system, businesses with more than $250,000 in payroll expense paid a flat 1.5% rate, and business registration fee revenue was comparatively small.

2014

Proposition E was approved by San Francisco voters on November 6, 2012, and became operative in tax year 2014. 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. The new gross receipts tax system introduced a progressive rate structure, and a larger, progressive business registration fee.

2020

Proposition F was approved by San Francisco voters on November 2, 2020, generally applying starting in 2021. Proposition F completed the City’s transition from a Payroll Expense Tax to a Gross Receipts Tax. Proposition F fully repealed the Payroll Expense Tax and increased the Gross Receipts Tax rates across most industries while providing relief to certain industries and small businesses.