San Francisco’s payroll expense tax will not be phased out in 2018 as planned. The Gross Receipts Tax Ordinance was originally planned to swap the payroll expense tax for a gross receipts tax via a phasing process beginning in 2014. Under that original plan, as the gross receipts tax increased, the payroll expense tax would decrease and be eliminated entirely in 2018. However, according to the San Francisco Treasurer and Tax Collector, revenue from the gross receipts tax has been lower than expected, and the payroll expense tax will be kept in force for 2018 with a 0.380% rate.
The payroll expense tax applies to all compensation paid to employees for services performed inside San Francisco, including wages, salaries, bonuses, and other benefits or property given in exchange for those services. The gross receipts tax is similarly applicable to a company’s gross receipts earned in relation to operations inside San Francisco. The ordinance provides small business exemptions of $1,120,000 for the gross receipts tax and $300,000 for the payroll expense tax.
If you have operations and/or employees who engage in work inside San Francisco city limits, you should be prepared to continue reporting and paying both taxes as applicable. For additional information, visit https://sftreasurer.org/py2018.
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