In the Nov. 6, 2018, California statewide elections, San Francisco voters approved Proposition C, the “Homelessness Gross Receipts Tax” (HGRT) Ordinance, effective Jan. 1, 2019. Tax revenues from the HGRT will be dedicated to providing homeless services within the city of San Francisco including housing, mental health services, shelters, and rental assistance.
The HGRT is an additional tax imposed on businesses that are currently paying a San Francisco gross receipts tax. The tax will be imposed at a rate between 0.175 percent and 0.69 percent of San Francisco's gross receipts over $50 million, depending on the type of business, and an additional 1.5 percent of the payroll expense in San Francisco for businesses that pay the administrative office tax. Rents subject to the San Francisco commercial rent taxes, recently approved in June 2018, are exempt from the HGRT. The tax is expected to impact 300 to 400 businesses out of the more than 13,000 current taxpayers.
The HGRT, receiving about 60 percent of the vote, is expected to be challenged under a state constitutional provision requiring certain taxes to pass a two-thirds threshold. Whether that provision applies is also the subject of litigation involving the recent commercial rent tax.
Takeaway
The new HGRT is projected to generate an additional $250 to $300 million in revenues in the first fiscal year. This represents a 28 to 33 percent increase in overall business tax revenues for San Francisco. Businesses with gross receipts or payroll derived within San Francisco should contact their tax advisor to determine whether the gross receipts tax applies, how the additional gross receipts tax could impact their total San Francisco gross receipts tax liability, and to consider available planning options.
