Businesses with operations in San Francisco are now subject to a new tax and registration structure. The new Gross Receipts Tax and Business Registration Fees Ordinance, which went into effect in 2014, is a significant change to the method in which payroll taxes are calculated and remitted to the city. Under the new regulations, a new gross receipts tax will be phased in while simultaneously the payroll expense tax will be phased out over a five-year period. While this period started last year, many companies are still becoming familiar with the new tax reporting structure and changing rules. It’s important to note that businesses with less than $1M in gross receipts will be exempt from the new tax and instead be required to pay a business registration fee.
Who Is Required to Pay?
The new regulations provide a detailed explanation of which companies and individuals are required to participate in the new program. While many of our clients are based outside of San Francisco, it’s likely there will be some impact because of the business activities that are covered under the new tax structure. Below is a summary of the company types and activities that create nexus and trigger a filing requirement, including:
- Companies that maintain a business in San Francisco (including any residence from which a business is conducted)
- A company that owns or rents any property for a business purpose in San Francisco
- Organizations that maintains tangible personal property for sale in the ordinary course of business in San Francisco
- Businesses that employ or loans capital on property in San Francisco
- Companies that solicit business for all or part of any seven days during a tax year in San Francisco
- Company employees who perform any work or render any services in San Francisco for all or part of any seven days during a tax year
- Employees that utilize streets for business purposes in San Francisco for all or part of any seven days during the tax year
Additional qualifying activities include exercising any corporate or franchise powers or liquidating any business within the city. The applicable gross receipts tax rate depends on the business activity associated with the gross receipts earned.
Final Payments for Q4 2014
The current due date for the City of San Francisco Payroll Expense Tax and Gross Receipts Tax statement is February 28. However, because the last day of February falls on a weekend this year, the deadline has been extended to Monday, March 2. If the statement and payment are not submitted by midnight on the due date, interest and penalties (if any) will be levied by the City of San Francisco. If you are not able to make the deadline, a 60-day extension may also be available. Alternatively, businesses with taxable payroll expenses under $150,000 and taxable gross receipts under $500,000 for the 2014 calendar year are not required to file a return for 2014 gross receipts and payroll expense tax.
The registration fees permitting a company to do business for the 2015-2016 fiscal year is due on June 1, 2015. In determining the registration fees your company needs to remit, please be sure to consider the following:
- The rates for calculating the business registration fee change each year based on gross receipts and payroll size. For example, annual registration fees for year end June 30, 2015 is based on payroll expense for the prior year. The fees will range from $75 to a maximum of $35,000 for companies with payroll expenses over $40M. The fees range from $15,000 to $35,000 for companies with payroll expenses over $20M. For registration years after June 30, 2015, annual fees are determined by gross receipts from the prior year and fees can range from $90 to a maximum of $35,000 for companies with gross receipts over $200M in the prior year. Clearly, the amount companies can expect to pay will vary greatly both by the year, incurred payroll expense and annual gross receipts.
- Business taxpayers with multiple affiliated corporate entities will need to register as either a water’s-edge or worldwide combined group, depending on how the group files its California corporate income tax return.
Tax Statement Fee
Quarterly payments must be paid for the 2015 gross receipts and payroll expense tax. Payments will be due on April 30, July 31, and October 31 with the remaining quarterly balance due with the annual statement on the last day in February 2016.
For additional information on the new gross receipts tax, click here to review a summary video prepared by the City of San Francisco.
The new gross receipts tax significantly changes the way companies with business activities in San Francisco pay their annual taxes. The new structure and calculation/allocation methods can be very confusing. For this reason, it’s essential to work with a provider who understands the new regulations and can properly guide you through the transition period. For additional information, please contact JLK Rosenberger at 949-860-9902, or click here for email. We look forward to speaking with you soon!