On February 5, 2024, the Offices of the Controller and Treasurer & Tax Collector for the City and County of San Francisco published a report outlining tax reform recommendations in time to inform a potential ballot measure for the upcoming November 2024 election. The report recommends significant changes to San Francisco’s gross receipts tax.

Specifically, the report recommends consolidation of the business tax by merging the Homelessness Gross Receipts Tax into the Gross Receipts Tax, and reducing the Overpaid Executive Tax rate by 90% and the Commercial Rents Tax rate by 25%. The report further recommends simplifying the various gross receipts tax rates and creating uniform apportionment rules by reducing the current 14 Gross Receipts Tax rate schedules to five.

Apportionment Changes: Under the current structure, all industries, except Real Property, apportion San Francisco Gross Receipts using either 100% payroll apportionment or a 50% sales/50% payroll apportionment method. The report proposes a 75% sales/25% payroll method for all industries, except Real Property.

Tax Rate Changes: The report proposes sharp increases in tax rates, rivaling the sales tax rates in some states. The top tax rate for the Financial Services classification is a whopping 5.5%. Advanced Services—which covers a wide range of business activities including Information (software), Professional Services, Insurance, Administrative and Support Services, Private Education & Health Services, and “FinTech”—is subject to a top tax rate of 2.5%. Wholesale and Retail Trade would be subject to a rate of 2.5%, despite the low margins often earned by this industry. The Real Property classification is hit with the lowest top tax rate of 2.0%. The proposed top tax rate for the default classification, covering “All Other” activities, is 2.25%.

The full report is available here: Recommended Reforms to the Business Tax System.

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