Sales Tax Reform: City of San Francisco Modifies Sales Tax Rules

January 2019 | Article

By Laura Robichaud

New Propositions C and D passed by the City of San Francisco will have an impact on certain companies that do business in San Francisco. As an additional note of caution, if a business has nexus in San Francisco, then they will most likely have nexus in the state of California as well

Proposition C had two separate parts that passed and are effective February 28, 2019:

  1. Early Care and Education Commercial Rents Tax: This ordinance adds an additional tax to the existing gross receipts and payroll taxes already in place. On gross receipts from the lease or sublease of warehouse space in the city, there will be an additional 1 percent tax on top of the current 3.5 percent tax on receipts from the lease of other commercial (or nonresidential) spaces.
  2. Homelessness Gross Receipts Tax: For businesses with more than $50 million in total taxable gross receipts attributable to San Francisco, depending on business activities, an additional tax between the rate of 0.175 percent to 0.69 percent will be due.

Businesses located in San Francisco with more than $1 million in total gross receipts for federal tax purposes and at least 1,000 U.S. employees whose activities are classified as an administrative office under the new ordinance will be required to pay an annual homelessness administrative office tax, which is equal to 1.5 percent of San Francisco payroll. This is in addition to the already existing 1.4 percent administrative office tax rate of San Francisco payroll.

New Proposition D is a result of the SCOTUS decision in the Wayfair case. Proposition D expands the meaning of engaging in business within the city of San Francisco. Any business with more than $500,000 in total gross receipts assigned to San Francisco must register with the city, even if they have no physical presence of any kind. As a result, these businesses will be subject to registration fees, unless exempted.

Please contact your Eide Bailly professional or a member of our State and Local Tax team to discuss your specific situation.

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