Thursday, April 18, 2013

Planning for Implementation of the San Francisco Gross Receipts Tax

UPDATE - April 18, 2013

BOMA San Francisco Members:

Please review the following advisory from BOMA San Francisco member Manuel Fishman with Buchalter Nemer to help you plan and implement the upcoming San Francisco Gross Receipts Tax.  

The San Francisco Gross Receipts Tax is a reality. It will be phased in over the course of the next 5 years (beginning in 2014), and gradually replace the current 1 ½% payroll tax as the principal method for taxing persons engaged in business in San Francisco.  

Many questions remain unanswered, including the scope of various exemptions and the characterization of various services and charges routinely included as part of a lease. For example, is a security deposit a gross receipt to the landlord when paid or when a default occurs? Is an improvement allowance a gross receipt to the tenant or simply an advance that is repaid as rent to the landlord? Will vendors pass through the gross receipts tax to building owners? 

With less than nine months remaining in calendar year 2013, and with property owners and managers beginning the budget planning process for 2014, there are several action items that owners and managers of commercial properties should consider:

1. The new Ordinance taxes business activities that generate gross receipts “in the City”. While the Ordinance is complex, as an owner of a commercial building, the determination of whether a gross receipt is “in the City” is simple: “gross receipts from the sale, lease, rental or licensing of real estate are in the City if the real property is located in the City”, and gross receipts from services are in the City “to the extent the purchaser of the services received the benefit of the services in the City.” The Ordinance defines a “gross receipt” broadly, and in the context of real estate, the term includes all rent and the “payment for any services that are part of the lease or rental … paid to, on behalf of, or for the benefit of” the landlord. This should be the starting point for your consideration.

2. The rate of taxation is based on the dollar amount of gross receipts that you receive, and there is a $1,000,000 gross receipts small business exemption that may be applicable to you (but if your gross receipts exceed this exemption, the tax is payable from the first dollar earned).   Please click here for the rate chart.

3. Review your standard form lease to determine whether your lease allows you, as the landlord, to pass through the full amount of the gross receipts tax to your tenants as additional rent. Discuss with your legal counsel the best way to address this issue in your lease form. Stay attuned to changes in the market place as tenants seek to shift this cost to their landlords.

4. Discuss with your listing agent changes in the way brokerage commissions should be paid to separately allocate the commission earned by the listing agent to the listing agent and the commission earned by the procuring agent to the procuring agent, in order to avoid a “double dip” of a gross receipt to the listing agent (meaning that one party pays a gross receipt on money it receives that it simply pays over to a second party). Similarly, discuss with your property management and construction management team the way to address “tenant reimbursements” for build out of improvements to leased premises so that the money is actually paid to the contractor performing the work and does not result in a double dip to the landlord for money that is simply paid over to the contractor.

5. Discuss with your controller and finance officer how to maintain separate charges for real property taxes, parking taxes and gross receipts taxes that you, as the landlord pay. Develop an accounting system that can be incorporated into and shown on the monthly rent statements and annual reconciliation statements. The Ordinance provides an exclusion from gross receipts for “any federal, state or local tax imposed upon a person for which that person is reimbursed by means of a separately stated charge to a lessee” [i.e. think real property taxes] and for taxes that a taxpayer collects “from or on behalf of a taxpayer’s customers and remits to the appropriate governmental entity” [i.e. think parking taxes]..

6. Investors in real estate need to give consideration to how gross receipts are determined in the context of distributions and sale proceeds from a building.

7. Remember that over the next 5 years, landlords will need to keep records for both gross receipts and payroll taxes, and pay a certain amount under each of these taxes until the end of the phase-in period.

8. Remember that San Francisco business registration license fees will start to increase significantly in 2015. Check the new rates by visiting the San Francisco Treasurer’s Office web site:

9. The tax will be payable in quarterly installments (based on the concluding quarter’s gross receipts). Check the web site of the San Francisco Treasurers office for updates on the availability of the 2014 business tax reporting form. As of now, a tax reporting form is not available

BOMA has held one member update program on the implementation of the gross receipts tax, and will schedule a second program later this summer. Stay in touch with BOMA for additional updates.

This Advisory has been prepared as a matter of general information on behalf of the BOMA San Francisco Government Affairs Policy Advisory Committee by attorney Manuel Fishman. This Advisory is not considered legal advice, and members should consult with legal counsel before acting on the information contained herein. Mr. Fishman can be reached at:


Manuel Fishman speaking to BOMA Members

UPDATE - February 27, 2013

The sample lease language to use during the interim period before the Gross Receipts Tax phase in begins in 2014 and the presentations from the briefing on February 15th, are now available:

Click here to view sample lease language to use during the interim period.
Click here to view the presentation overview.
Click here to view the presentation from the San Francisco's Treasurer's Office.


UPDATE - February 15, 2013

Today's Gross Receipts Tax briefing was well-attended.  Thank you to the BOMA San Francisco member organizers and presenters Manuel FishmanKathy Mattes and Tom Gille.  A special thanks to San Francisco City Controller Ben Rosenfield, Treasurer Jose Cisneros and to Greg Kato with the Treasurer's office for presenting to BOMA members.

Please click here to 'like' our facebook page and view pictures of the event.

Original Post - February 15, 2013

BOMA San Francisco will hold a briefing for members only on Friday, February 15th to relay pertinent information on how the Gross Receipts Tax structure will impact the industry.

This event will feature the following representatives:

City and County of San Francisco
  • San Francisco Treasurer Jose Cisneros
  • San Francisco Controller Ben Rosenfield 
BOMA Industry Representatives
  • Manny Fishman, Buchalter Nemer
  • Kathy Mattes, CBRE 
  • Tom Gille, CAC Real Estate Management Co., Inc.
Collectively, the representatives will go over the necessary record keeping that will be required to satisfy the Tax Collectors requirements for this new law. In addition, they will explain the details of the requirements for owners, property managers and third party providers of property management services 

You will leave this briefing prepared for the switch to this new tax system when it begins to phase in starting in 2014. 

Seating IS limited and registration required.

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