On May 6, 2024, the San Francisco Controller and Treasurer released their proposed final tax reform ordinance language. To become effective, San Francisco voters will have to pass a measure on the November 5, 2024 ballot by a 50% vote. The changes would apply to tax years 2025 forward.

The following are a list of the significant proposed changes:

• Creates seven new business classifications and rate schedules, a reduction from the current 14
• Changes the apportionment formula for almost all industries (except real estate and accommodations) to 75% market-based sales allocation and 25% payroll apportionment ; current law provides for either 100% payroll apportionment, or a 50% sales and 50% payroll formula, for almost all industries
• Requires the Tax Collector to issue regulations concerning market-based sourcing and composition of the payroll apportionment factor, following a public comment process
• Provides for an extension of the annual filing deadline from the last day of February to November 30, if certain requirements are met
• Eliminates the “80/20 rule,” which currently:
  • Requires taxpayers to report all receipts under a single classification if more than 80% of their receipts are derived from activities under a single classification
  • If a taxpayer earns less than 20% of its receipts from activities falling under a single classification, they can include those receipts under their highest taxed classification
• Reduces the tax rates for the Overpaid Executives Gross Receipts Tax by approximately 80% for 2025, with rate increases for later years
• Exempts taxpayers with both less than 1,000 employees and less than $1 million of federal consolidated income from the Overpaid Executives Gross Receipts Tax
• Increases the small business exemption to $5 million in gross receipts
• Simplifies the Homelessness Gross Receipts Tax by aligning rates schedules with the Gross Receipts Tax
• Conforms references to the North American Industrial Code System (NAICS) classifications to the updated 2022 NAICS code (current law is based on the 2012 version), providing further guidance for new and emerging industries
• Provides or modifies various tax credits for opening an office in a designated area, stadium operators, supermarkets and grocery retailers, and signing a lease on a “Qualified Building”
• Modifies the tax rates for the Administrative Office Tax and the applicability criteria by applying a three-year test
• Hedges against General Motors’ litigation challenging the Administrative Office Tax by attempting to retroactively repeal the Administrative Office Tax in the event that it is found unconstitutional

Here is a link to the final language of the reform proposal.

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