June 1, 2020
State and Local Tax Update on San Francisco
Posted by Alex Thacher
Below you’ll find an overview of some local tax issues and relief opportunities for companies doing business inside the city of San Francisco (SF).
Based on our more than 20 years as state and local tax (SALT) professionals, we believe the SF Business Tax remains one of the most difficult returns for companies to file correctly due to the city’s unique tax regime. Currently, the SF Business Tax is comprised of: Gross Receipts Tax (GRT), Payroll Expense Tax (PET), Commercial Rents Tax (CRT), and the Homelessness Gross Receipts Tax (HGRT). All are separately taxed on a business taxpayer and are not pass-through taxes.
Additionally, SF provided numerous forms of COVID-19 related tax relief for SF-based taxpayers, including an extension of time to file and pay the annual Business Registration Renewal fee.
The Tax Issues
San Francisco requires that any taxpayer with a physical presence within the city for seven or more days, or greater than $500K in sales to San Francisco customers, register with the city and file an annual Business License Tax return and an annual Business Registration Renewal. When registering with the city, taxpayers select a “classification” based on NAICS activity codes, and it is this classification that determines the taxpayer’s GRT apportionment methodology and applicable tax rates.
Most GRT classifications also require the utilization of the percentage of SF payroll expense over total payroll expense to apportion the company’s gross receipts. Additionally, the amount of SF gross receipts reported on the SF GRT return is used to determine a taxpayer’s Business Registration Renewal fee and whether or not the company is also required to file and pay SF’s HGRT. This flow of information can result in even a single error significantly impacting one or more of the SF Business Tax returns.
Lastly, many taxpayers doing business in the city are not aware of these various taxes — especially the CRT and HGRT, which were new this year and were required to be filed by qualifying taxpayers with the 2019 PET & GRT returns that were due March 2, 2020.
The Tax Opportunities
Working with an SF SALT expert to perform an analysis of your SF tax classification can result in significant GRT savings, as a change may impact your SF apportionment methodology and may even reduce your company’s applicable tax rates. Additionally, taxpayers that further analyze within vs. outside of SF payroll expense often are surprised by how much time employees are spending outside SF during the year, which not only reduces the company’s PET liability but can also reduce their GRT liability due to the related SF apportionment reduction for certain classifications.
As a result, there are likely significant SF tax refund opportunities available through a classification and/or payroll expense analysis.
Armanino’s SALT team is here for you and wants to help ensure you are only paying your fair share to the city. Reach out with any questions or if you would like an initial review of your local tax returns. And for the latest regulatory updates and other information on keeping your organization running through disruption, visit our COVID-19 Resource Center.
Alex is the National Practice Leader of Armanino’s State & Local Tax (“SALT”) Practice and has over 18 years of deep technical experience in multi-state income/franchise tax, sales/use tax, local taxes, and credits and incentives. Alex has served clients across sectors including technology, retail, media and entertainment, utilities, pharmaceuticals, manufacturing, telecommunications, government contractors, e-commerce, software, construction, engineering and financial services.
Alex’s technical expertise includes unitary and consolidated filings; mergers and acquisitions consulting and due diligence; the development, evaluation and implementation of restructuring plans; apportionment reviews and planning; ASC 740 and ASC 740-10 reviews; audit representation; transaction analysis; residency audits; nonresident withholding; Wayfair nexus studies; and voluntary disclosure negotiations.
Alex earned his BA from Boston College and his JD from the University of Connecticut School of Law, where he served as the Administrative Editor of the Connecticut Journal of International Law. Alex is admitted to the New York State Bar, the District of Columbia Bar, the Connecticut Bar, and the United States Tax Court. Alex is a California Tax Education Council (CTEC) Registered Tax Preparer and a Registered Lobbyist with the City of Los Angeles.