Does San Francisco Have a City Income Tax?

Understanding tax obligations in San Francisco is important for residents and business owners. The city’s approach to taxation can directly impact personal finances and business operations, making clarity on the subject necessary for compliance and financial planning.

The Status of a City Personal Income Tax

San Francisco does not impose a personal income tax on its residents. This is a consistent rule across the state, as California law prohibits counties and cities from levying their own direct taxes on personal income. Residents of San Francisco are, therefore, only subject to state and federal income taxes on their earnings.

The prohibition on local income taxes ensures a uniform system throughout California, where the state’s Franchise Tax Board is the sole authority for collecting income tax. This structure prevents a patchwork of varying local tax rates and regulations that could complicate tax filing for individuals.

Overview of San Francisco Business Taxes

While personal income is not taxed locally, San Francisco has a multifaceted business tax system. The primary tax is the Gross Receipts Tax, which applies to the total revenues of a business from activities within the city. This tax is not based on profit but on overall revenue, with rates that vary depending on the business’s industry classification.

The city also imposes other targeted taxes, which are reported on the San Francisco Annual Business Tax Return. These include:

• A Payroll Expense Tax on businesses with significant payroll costs.
• A Commercial Rents Tax applied to businesses leasing commercial space.
• A Homelessness Gross Receipts Tax for certain businesses.
• An Overpaid Executive Gross Receipts Tax for businesses meeting specific revenue and compensation thresholds.

Effective January 1, 2025, the small business exemption for the Gross Receipts Tax was increased, exempting most businesses with total San Francisco gross receipts under $5 million.

Determining Your Business Tax Liability

A business’s requirement to pay San Francisco taxes is triggered by “engaging in business” within the city. This includes maintaining a physical location, having employees perform work in the city, or soliciting business within its boundaries. Any entity meeting these criteria must register with the San Francisco Office of the Treasurer & Tax Collector within 15 days of commencing operations.

Upon registration, a business receives a Business Account Number for all tax filings and permit applications. The initial registration fee is based on estimated gross receipts and payroll, while annual renewals are based on the prior year’s actual figures. Tax liability for business taxes applies once a company surpasses specific revenue or payroll thresholds, like the $5 million gross receipts threshold.

All businesses operating in the city must complete the annual registration process, regardless of whether they end up owing taxes. This involves correctly identifying the business’s industry classification to apply the right tax rates.