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Understanding Payroll Tax & Gross Receipts Tax

Entities with employees who perform work in SF or generate revenues in San Francisco.

This tax applies to any entity with employees who work in San Francisco or generate revenues in San Francisco. Therefore, when you register for a San Francisco Business License, you will become obligated for these local taxes.

The Gross Receipts Tax has a small business exemption for businesses with no more than $1 million in gross receipts and businesses with less than $150,000 of payroll. This exemption also applies to residential rental property owners with fewer than four units in a building.

Businesses will pay the payroll tax for the last time in 2017 and begin paying only the gross receipts tax in its place in 2018.

 

A person is considered to be engaging in business within San Francisco if that person (or any employee, representative, or agent of that person) performs any of the following in San Francisco:

  • Maintains a fixed place of business (including any residence from which business is conducted)
  • Owns or rents any real or personal property for a business purpose
  • Maintains tangible personal property for sale in the ordinary course of business
  • Employs or loans capital on property
  • Solicits business for all or part of any seven days during a tax year
  • Performs any work or renders any services for all or part of any seven days during a tax year
  • Utilizes streets for business purposes for all or part of any seven days during the tax year

Qualifying activities also include exercising corporate or franchise powers or liquidating any business within the city.

Even if you are exempt, it is important to understand the criteria that trigger these taxes so that as you grow, you will be aware of when you will be obligated to start paying them.

You are also eligible to “exempt” portions of your payroll tax, for example, work performed outside San Francisco. So, for example, if you have employees who work two days per week from their home in Oakland, you would be able to “exempt” that portion of their payroll since the work was not performed in San Francisco. In some cases, these exemptions can even mean the difference between having to pay or not having to pay if they deliver you below the $150,000 threshold, for example. In short, you want to pay attention to this and navigate smartly for your business. Need help understanding this or with calculations? ZumiFi performs these services for our clients, so give us a call!

Understanding Payroll Tax & Gross Receipts Tax

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