Tax News Update    Email this document    Print this document  

July 17, 2018
2018-1423

San Francisco voters approve additional commercial rent tax based on gross receipts, significantly increasing City taxes on rental commercial real estate

San Francisco commercial real estate lessors will see a significant increase in their gross receipts tax starting on January 1, 2019. On June 5, 2018, San Francisco voters passed Proposition C, which imposes a new gross receipts (GRT) tax on taxpayers leasing commercial real estate within San Francisco as described in NAICS Code 53. The new GRT is called the Early Care and Education Commercial Rents Tax and will be imposed at rates of 1% for gross receipts related to "warehouse space" and 3.5% for gross receipts related to all other "commercial space." The new GRT is in addition to the GRT the City already imposes on commercial real estate lessors, which ranges from 0.285% to 0.3%. Proceeds from the new GRT are slated to be used to fund childcare and early education programs.

Proposition C defines "warehouse space" as "commercial space" used for commercial storage, which includes a facility that stores within an enclosed building: contractors' equipment, building materials, or goods or materials used by other businesses at other locations. "Warehouse space" also includes volatile material storage, wholesale storage and a storage yard, as defined in Section 102 of the San Francisco Planning Code.

It also defines "commercial space" as any building or structure that is not "residential real estate." "Residential real estate" is defined as real property that is primarily used for dwelling, sleeping or lodging other than as part of the business activity of accommodations. Commercial space does not include any building or structure, or portion of a building or structure that is used for the following purposes:

— "Industrial use" as defined in Section 102 of the San Francisco Planning Code

— "Arts activity" as defined in Section 102 of the San Francisco Planning Code

— "Retail sales or service activities" or "retail sales or services establishments" as defined in Section 303.1(c) of the San Francisco Planning Code that are not formula retail as defined in 303.1 (b) of that code.

Proposition C, which is codified as new Article 21 of the San Francisco Business and Tax Regulations Code, adopts portions of the terminology and structure of the City's current GRT regime imposed by Article 12-A-1 of that code. As such, gross receipts are calculated on a combined basis and are reported in the same manner as a return filed for the City's current GRT. Returns will be due February 28 of each year. This new, additional commercial rent GRT generally will not apply to businesses exempt from the current GRT, such as small businesses, or other rental amounts specifically excluded under Proposition C. Click here for the text of Article 21.

———————————————

Contact Information
For additional information concerning this Alert, please contact:
 
State and Local Taxation Group
• Allan Holzer(213) 977-3290;
• Charles Horn(415) 984-7862;
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 1996 – 2024, Ernst & Young LLP

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

EY US Tax News Update Master Agreement | EY Privacy Statement