San Francisco Payroll Tax Guide: Gross Receipts, Homelessness and Executive Pay Taxes After Prop M

Not in the old sense. San Francisco stopped levying its standalone Payroll Expense Tax after voters approved Proposition F in 2020, and the City's own description of its current business taxes no longer lists one. Today San Francisco taxes businesses mainly through the Gross Receipts Tax, the Homelessness Gross Receipts Tax, the Overpaid Executive (Top Executive Pay) Tax, the Administrative Office Tax for certain large companies, and the annual business registration fee.

Payroll still matters, though. For several business categories, San Francisco gross receipts are partly measured by payroll for employees working in the city. The Administrative Office Tax and one version of the Overpaid Executive Tax are calculated on San Francisco payroll. And every SF employer runs California payroll taxes (withholding, unemployment insurance, the Employment Training Tax and State Disability Insurance) through the Employment Development Department.

The structure changed again in 2025. Proposition M, approved in November 2024, rewrote the gross receipts system starting with tax year 2025. This guide reflects the rules as we checked them in October 2026.

Proposition M kept the same family of taxes but changed how they are measured and who pays. According to the City Controller's analysis and the Ballot Simplification Committee digest, it:

• Raised the small business exemption from the Gross Receipts Tax from $2.25 million to $5 million of San Francisco gross receipts, indexed for inflation.
• Cut the number of business activity categories from 14 to 7 for the Gross Receipts and Homelessness Gross Receipts taxes.
• Shifted the calculation of San Francisco gross receipts for most activities away from payroll and toward sales.
• Reset rates in 2025, with scheduled increases in 2027 and 2028. The digest puts the new gross receipts rate range at 0.1% to 3.716%, depending on category and receipts tier.
• Changed the business registration fee range to roughly $55 to $60,000, indexed.

The practical effect for a startup: the exemption is now much higher, and the place your customers are located matters more than where your engineers sit. A SaaS company with most of its team in San Francisco but customers nationwide will often report less San Francisco gross receipts than it did under the payroll-weighted rules.

The Gross Receipts Tax applies a rate to your San Francisco gross receipts once you are above the small business exemption. The rate depends on your business activity category and rises with the amount of receipts. Under Prop M, most tech companies sort into one of the consolidated categories covering information, financial and professional services, and the City publishes the rate tables for each year.

San Francisco gross receipts are determined by sourcing rules for each category. For most service and software businesses after Prop M, sourcing is driven largely by where customers receive the benefit, with payroll playing a smaller role than before. That means your billing data needs customer locations, not just a state.

For example, a seed-stage SaaS company with $3 million of total revenue, of which $400,000 comes from San Francisco customers, is well below the $5 million exemption and owes no Gross Receipts Tax. It still has to register and, depending on its facts, file an annual return. A Series B company with $40 million of revenue and $8 million of San Francisco receipts is above the exemption and needs a real calculation each year.

The Homelessness Gross Receipts Tax (from Proposition C of 2018) is an additional tax on larger businesses. Before Prop M it applied above $50 million of San Francisco gross receipts. Prop M lowered that threshold to $25 million and set rates between 0.162% and 1.64%, depending on category. Most startups will not reach it, but a growth-stage company with a large Bay Area customer base can.

The Overpaid Executive Tax (Proposition L of 2020, now described by the City as the Top Executive Pay Tax) applies when the highest-paid managerial employee earns more than 100 times the median compensation of the company's San Francisco employees. Under current law most affected businesses pay between 0.02% and 0.12% of San Francisco gross receipts, rising to 0.021% to 0.129% by 2028. Businesses that pay the Administrative Office Tax instead pay it on San Francisco payroll, at 0.08% to 0.48%, rising to 0.086% to 0.514% by 2028. Businesses under the $5 million small business threshold are generally exempt.

Two competing measures on the June 2, 2026 ballot would have changed this again. Proposition C would have raised the small business exemption to $7.5 million and moved the 2028 Top Executive Pay Tax increase to 2027; Proposition D would have sharply raised Top Executive Pay Tax rates and measured the pay ratio across all employees worldwide. Voters rejected both, so the Prop M rules above still apply to 2026 returns.

Under the old Payroll Expense Tax, option exercises and RSU vesting were included in payroll expense, which could produce large city tax bills in a pre-IPO year. That specific exposure is gone with the payroll tax, but equity still shows up in San Francisco tax in three ways.

First, compensation including equity feeds the Overpaid Executive Tax ratio, so a large equity grant to a CEO can push a mid-sized company over the 100-to-1 line. Second, for any category where San Francisco gross receipts still use a payroll component, equity compensation for SF-based employees can count. Third, the Administrative Office Tax is payroll-based for the large companies that owe it.

At the state level, equity compensation is wages for California withholding and payroll tax, and California taxes nonresidents on equity income earned while working in the state. Your payroll provider should be tracking work location for every employee who holds options. Our guide to tax planning for SF founders' equity covers the personal side in more detail.

Every business engaging in business in San Francisco must hold a Business Registration Certificate and renew it each year; the fee is based on your San Francisco gross receipts and business category. The annual business tax return and registration renewal, covering the Gross Receipts, Homelessness Gross Receipts, Overpaid Executive and Administrative Office taxes, is due by the last day of February for the prior calendar year. Because February 28, 2026 fell on a weekend, 2025 returns and payments were due March 2, 2026. A qualifying extension moves the filing deadline to November 30, but not the payment deadline. Larger taxpayers also make quarterly estimated payments during the year. Check the Treasurer and Tax Collector's current calendar, since dates and safe-harbor rules are set by ordinance and can change.

The mistakes we see most often:

• Not registering because the only San Francisco connection is a few employees or a coworking desk.
• Not filing because the company is under the small business exemption, when a return or registration was still required.
• Using pre-2025 category definitions or payroll-weighted sourcing on a 2025 or 2026 return.
• Ignoring the Overpaid Executive ratio after a large founder grant.

San Francisco cross-checks state employment and business data to find unregistered businesses, and back taxes come with penalties and interest.

We prepare San Francisco registrations, annual business tax returns and estimates for Bay Area clients alongside their federal and California returns, because the inputs overlap: California apportionment, payroll by location and customer sourcing all come from the same books. For most early-stage companies, the job is confirming the small business exemption each year and filing what is required. For growth-stage companies, it is modelling the Gross Receipts, Homelessness and Overpaid Executive taxes before a large hire, equity grant or office move.

This guide is general information checked in October 2026, not tax advice for your specific facts. San Francisco's business tax rules have changed twice in two years, so confirm the current rates with the Treasurer and Tax Collector or your advisor before filing.