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Proposed initiative to overhaul San Francisco business taxes | Pillsbury – SeeSalt Blog

The proposed initiative (available here) is being disseminated for the purpose of approving by vote on November 5, 2024, the regulation amending the Code of Business Conduct and Tax Regulations in force from January 1, 2025.

The proposal would initially reduce total business taxes by nearly $100 million a year, making it one of the largest tax cuts in San Francisco history. It would lower taxes and fees for small businesses while potentially increasing taxes for retailers and biotech companies. The proposal would partially shift the city’s gross income tax allocation methodology from payroll expenses and focus more on sales. The proposal would make major changes to the rate tables that would reduce the tax’s impact on wholesalers, construction, arts and entertainment, hotels, real estate and financial services. Ten million dollars in licensing fees would be waived for some small businesses. All these various changes are proposed to stimulate the city’s economy.

The proposal includes:

  1. Modification of gross income tax rates, qualification of the taxpayer’s business activities for gross income tax purposes and the method of attributing the taxpayer’s gross receipts to the City for gross income tax purposes;
  2. Increasing the gross income tax exemption cap for small businesses to $5,000,000;
  3. Providing gross receipts tax credits for grocery retailers, tenants of certain buildings, and a stadium admission tax and substantially similar local taxes paid;
  4. Adjusting the homelessness gross income tax to the gross income tax, except for rates, credits and certain exceptions, but without changing existing allocations of homelessness gross income tax revenues;
  5. Reducing gross receipts tax rates for executives by 80% and modifying entities subject to the gross receipts tax for overpaid executives;
  6. Modification of company registration fees;
  7. Making other changes to city business taxes and filing requirements; AND
  8. Increasing the limit of the City’s funds by the total revenue collected pursuant to Art. 12, 12-A-1, 28 and 33 of the Business Code and Tax Regulations for four years from the election on November 5, 2024.

The more significant changes include:

  • Reducing the tax incentive for employers to encourage employees to work remotely by changing the split method to 75%/25% for sales/payroll;
  • Simplifying the overall tax structure by reducing rate categories from fourteen to seven;
  • Administrative changes requiring the Tax Collector to conduct a public process and promulgate regulations regarding the collection of gross proceeds; and creating a process for taxpayers to request and receive advanced determinations by June 30, 2025.
  • Procedural changes: extension of the deadline for submitting certain returns to November 30, which in turn extends the time for issuing assessments and submitting applications for refunds.

Below is a brief summary of some of the revised sections, full references to which can be found in the attached proposed initiative.

KNOT. 6.9-4. EXTENSION OF THE DEADLINE FOR SUBMITTING A RETURN AND PAYING TAX.

Subsection (b)(2) effective January 1, 2025, for certain tax returns, including the gross receipts tax, persons may request from the tax collector an extension of the deadline for filing one or more such returns, which would extend the deadline to file such return by November 30 of the calendar year in which the return was originally due in accordance with Art. 6 section 6.9-1.

KNOT. 6.11-2. DETERMINATION OF DEFICIENCY; APPEAL ARRANGEMENTS; ATTENTION AND SERVICE.

Subsection (a)(3), effective January 1, 2025, for purposes of serving a notice of deficiency pursuant to Section 6.11-2 for certain returns, including gross receipts tax, the return due date will be November 30 of the calendar year in which to which such tax refund was originally due.

KNOT. 6.15-1. RETURNS.

Subsection (h)(3), effective January 1, 2025, for certain taxpayers, including the gross receipts tax, the date from which the filing deadline is determined under subsection (a) of this Section 6.15-1, and the date in connection at which a claim is deemed to have accrued under subsection (d) of this section is the later of:

(A) payment of such amount;

(B) November 30 of the calendar year in which the refund of such tax was originally due; Or

(C) the date on which an amount claimed on a return, amended return, or refund claim filed timely under subsection (g) of this Section 6.15-1 was denied pursuant to this subsection (g).

KNOT. 6.25-1. PREVIOUS ARRANGEMENTS.

Subject to annual appropriations for costs in excess of any fees collected, by June 30, 2025, the Tax Collector shall develop a program to make advance arrangements, including the gross receipts tax (Section 12-A-1), available to certain taxpayers for: (a) a business category for a specific business activity; (b) whether a person or amalgamated group may use an alternative apportionment formula under Sections 957, 2108, 2807, 3007 and 3306; and (c) such other matters as the Tax Collector, in his sole discretion, deems appropriate. The Customs Officer may charge a fee for advance determination applications to cover some or all of the costs of issuing such advance determinations.

KNOT. 952.4. NAICS CODE.

References in sections 953.20 through 953.26, 960.1, and 960.3 of Article 12-A-1 to individual numerical NAICS codes are intended to apply the definitions and descriptions adopted in this system as of January 1, 2022.

KNOT. 956. DIVISION AND DIVISION OF ALL PERSONS OBTAINING GROSS INCOME FROM BUSINESS ACTIVITIES BOTH IN THE CITY AND OUTSIDE THE CITY.

All persons receiving gross receipts from a business, whether within or outside the City, shall allocate and/or distribute their gross receipts to the City for taxable years beginning on or after January 1, 2025, in the manner set forth in Sections 953.20 through 953.26, inclusive. and applying the rules set forth in Sections 956.1 and 956.2, as applicable. Subsection (c) in applicable sections 953.20 through 953.26 provides the amount of taxable gross receipts from the applicable category of business activity subject to the gross receipts tax to be three-fourths of the amount determined under Section 956.1 plus one-fourth of the amount determined under Section 956.2.

KNOT. 956.1. ALLOCATION OF SERVICES REVENUE.

Subsection (e) provides that gross receipts from services arise in the City to the extent that the purchaser of the services has received benefits from the services in the City. The Tax Collector shall promulgate regulations explaining whether a purchaser of services has obtained benefits from services in the City for purposes of this section 956. 1 letter e). When publishing such regulations, the tax collector will comply with the requirements of Art. 6 art. 6.16-1 of this Code of Trade and Tax Regulations, including, but not limited to, the requirement that the Tax Collector conduct a public hearing and provide an opportunity for public comment prior to the adoption of the regulations. Additionally, in promulgating such regulations, the Tax Collector will review and consider procurement rules and safe harbor regulations adopted by the State of California and other jurisdictions.

KNOT. 956.2. DISTRIBUTION OF REVENUE ON THE BASIS OF SALARY.

Subsection (e) sets forth revised criteria for determining compensation payable in the City.

The proposed measure was filed on May 6 by two business leaders. Supporters must collect approximately 10,000 petition signatures by July 8, 2024 for the measure to qualify for the November 5 ballot.

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