The San Francisco Gross Receipts Tax Just Got Harder to Get Right
The San Francisco gross receipts tax stack is no longer something your CPA firm can copy-paste from last year. Proposition M, the SF Prop M business tax reform approved by voters in November 2024 with 70% support and effective January 1, 2025, rewrote the entire local business tax structure. At BusAcTa Advisors, we prepare San Francisco business tax returns behind US CPA partners with Bay Area clients, and the 2025 and 2026 filings are where most out-of-state firms have stumbled hardest.
Here's the honest part. Prop M moved the small business exemption, collapsed 14 business activity categories into 7, shifted apportionment to 75% sales weighting, lowered the homelessness gross receipts tax threshold from $50 million to $25 million, and cut the SF overpaid executive tax rates to roughly 10% of what they were. Two follow-on ballot measures (Props C and D) both failed in June 2026, so the Prop M structure stands. Your firm needs to know which clients fall in, which fall out, and which need to file for the first time.
This is general information about San Francisco's business tax landscape, not tax advice for any specific filer. Always confirm rates, thresholds, and filing deadlines against the SF Office of the Treasurer and Tax Collector before your firm signs off.
The San Francisco Business Tax Stack: What You're Actually Filing
Answer first: San Francisco runs three layered gross receipts taxes plus a business registration fee, all reported on a single Annual Business Tax Return. The historical San Francisco payroll tax (the payroll expense tax) that your clients may still ask about was phased out years ago and replaced by the GRT. The only remaining payroll-based tax is the Administrative Office Tax, which only large multi-location HQs elect.
Here's what your client may owe in any given year:
All four are filed together on the San Francisco business tax filing (the Annual Business Tax Return), due the last day of February for the prior tax year. Estimated payments are due April 30, July 31, and October 31. Business Registration Fee is now consolidated into the same filing window.
The Gross Receipts Tax After Prop M: The 3 Changes Your Firm Must Catch
Three Prop M changes drive almost every filing question your offshore prep team will get on Bay Area clients in 2026, and the SF gross receipts tax rates 2026 your firm uses now reflect all three:
Small business exemption more than doubled. The exemption rose from $2.25 million in SF gross receipts to $5 million. Many of your firm's smaller Bay Area clients no longer have a filing obligation, and your team can confirm their exemption with one quick check. Some may still want to file to lock in zero-liability documentation.
Categories collapsed from 14 to 7. The new NAICS-based categories include retail trade and wholesale; manufacturing; transportation, warehousing, and utilities; information; financial services; real estate and rental; and professional, scientific, and technical services. Picking the wrong category is the most common error we catch in your firm's review workpapers.
Apportionment shifted to 75% sales / 25% payroll. Previously most categories used 50% sales / 50% payroll, or 100% payroll. The shift to market-based sourcing means companies with low SF payroll but high SF sales now owe more, and companies with high SF payroll but customers elsewhere owe less.
The apportionment shift to 75% sales is the single change most likely to surface a new filing obligation for an out-of-state client. If your client sells into San Francisco at any scale, run the calculation under the new sourcing rule before assuming no filing is needed.
How many of your firm's clients were previously below the SF threshold but now sit above it due to the apportionment shift? It's worth pulling the projected 2026 SF gross receipts for every client with material California exposure.
The SF Homelessness Gross Receipts Tax: Why More Clients Now Pay
This is the change with the largest impact on the mid-market. The SF homelessness gross receipts tax (HGRT) used to apply only to businesses with $50 million in combined gross receipts. Prop M dropped the HGRT $25 million threshold to apply in a single business activity category, and the rates moved from 0.175% – 0.69% to 0.164% – 1.640%.
What that means practically: your firm's mid-market clients with $25 to $50 million in SF gross receipts who never paid the HGRT before will likely pay it starting with the 2025 return. The HGRT is filed alongside the GRT and uses the same 7 business activity categories. Combined liability, GRT plus HGRT, can be substantial for service businesses sitting in the top tier. Have you pulled your firm's Bay Area client list to identify everyone newly in scope?
Certain entities your firm may file for remain exempt from HGRT, including specific nonprofits, banks and insurance companies, and receipts already subject to the Early Care and Education Commercial Rents Tax. Your reviewer should confirm exemption status before assuming a filing isn't required.
The SF Overpaid Executive Tax: Reduced, but Still Active
The SF overpaid executive tax (OET) used to be where large tech and finance employers got hit hardest. Prop M cut the rates to roughly 10% of what they were, dropping the band from 0.1% – 0.6% down to 0.02% – 0.129%. The tax still triggers when a business pays its highest-paid managerial employee more than 100 times the median compensation of its San Francisco employees.
Prop M also added a meaningful exemption your firm should know: a business is exempt from the OET if it has both (a) 1,000 or fewer total US employees and (b) $1 billion or less in gross receipts reported on its federal income tax return. Most of your firm's mid-market clients now sit safely below this threshold, so your OET review for them is straightforward.
The labor-backed Proposition D, which would have nearly doubled OET rates starting in 2027, failed in the June 2026 ballot. The Prop M reduced rates remain the law for 2026 and 2027 filings, but watch the 2028 ballot for renewed pressure.
If your client doesn't qualify for the OET exemption, the pay-ratio math still matters. Your team should review the highest-paid managerial employee's total compensation against the SF-based median annually, and document the calculation in your workpapers.
SF Economic Nexus: How Out-of-State Clients Get Pulled In
The San Francisco economic nexus standard is one of the most aggressive among major US cities. San Francisco's economic factor presence standard pulls a business into the GRT regime when it has $500,000 or more in SF gross receipts, even with no physical presence in the city.
Combined with the 75% sales-weighted apportionment, this means your out-of-state e-commerce, SaaS, and professional service clients can have a material SF filing obligation without ever setting foot in California. Many of your firm's interstate clients fit this profile.
How does your offshore workflow surface this exposure at onboarding? Our team runs an SF revenue check on every California-active client at intake, projects 12-month SF gross receipts under the new sourcing rules, and flags any client crossing the $500,000 threshold for a registration review.
Filing Mechanics, Estimated Payments, and the 110% Safe Harbor
Three operational items run through every SF filing your firm will sign:
Annual return due last day of February. Combines GRT, HGRT, OET, and Business Registration Fee onto one return. Aligns with California state deadlines under Prop M's consolidation.
Estimated payments quarterly. Due April 30, July 31, and October 31. Residential landlords with less than $5 million in gross receipts are generally exempt from estimated payments.
110% safe harbor extension. A new Prop M provision lets your client pay 110% of the prior year's liability by the original due date and extend the filing nine months to November 30. This is a major win for complex returns that need extra preparation time.
The 110% safe harbor is the operational change we recommend your firm adopt immediately for any client with a non-routine SF filing. It removes time pressure from the February deadline without triggering underpayment exposure, provided your client's actual liability lands within reasonable distance of the safe harbor payment.
Every state has its own quirks, and SF layers a city-specific stack on top of California's. You can see how we handle Bay Area returns inside the broader review process on the how it works page. Our offshore tax preparation service covers SF returns alongside the California state return, and many firms pair it with our bookkeeping services so the underlying revenue sourcing data feeds the SF apportionment calculation directly.
For current rate tables, business activity category lists, and the official Prop M guidance, see the San Francisco Office of the Treasurer's Prop M reform page, which the city updates as regulations and clarifications are issued.
Getting the San Francisco Gross Receipts Tax Right in 2026
The San Francisco gross receipts tax overhaul under Prop M is the most significant local business tax change any US city has implemented in the last decade. Some of your clients dropped out of the filing obligation entirely. Others, previously below the radar, now owe meaningful HGRT for the first time. And many out-of-state clients selling into SF have a brand-new economic nexus exposure they didn't have under the old apportionment.
If you want to see how we handle SF return preparation, economic nexus mapping, and the 110% safe harbor decision for CPA partners' Bay Area client books, book a scoping call with BusAcTa Advisors, and we'll walk your reviewer through the workflow before you commit to anything.
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Written by
Viral Patel, CPAViral Patel, CPA, CA, is co-founder of BusAcTa, where he leads operations and quality assurance. With 10+ years in U.S. individual, corporate, and partnership tax, he built BusAcTa's delivery model around one standard: offshore work that holds up to the same review a domestic senior would apply. He holds credentials in both the U.S. (CPA) and India (CA).
