San Francisco voters pass changes to city’s business taxes

Historically, San Francisco has imposed various business taxes on specific taxpayers including the San Francisco gross receipts tax, the homelessness gross receipts tax and the overpaid executive gross receipts tax. In California’s recent election, voters in the City of San Francisco approved Proposition M, the “Local Small Business Tax Cut Ordinance,” which includes many significant changes to these San Francisco business taxes effective Jan. 1, 2025.

Proposition M components

Proposition M includes many changes to the city’s business tax regime including but not limited to:

Gross receipts tax:

• Reduce the number of business industry classifications from 14 to seven;
• Increase the exemption threshold for most businesses to $5 million;
• Change the calculation of gross receipts so it is based more on sales (e.g., 75%) and less on payroll (e.g., 25%);
• Adjust the tax rate.

Homelessness gross receipts tax:

• Applicable to business activities with San Francisco gross receipts over $25 million for most categories;
• Reduce the number of business industry classifications from 14 to seven;
• Adjust the tax rate.

Overpaid executive gross receipts tax:

• Modification to the calculation of the tax;
• Changes in the applicability;
• Adjust the tax rate.

Various other administrative and procedural changes including:

• Increase the business registration fees for some taxpayers;
• Adjust the administrative office tax rate for certain large businesses and corresponding business registration fees;
• Apportionment rule changes;