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Q: What is (and is not) considered "Payroll Expense"? What is considered taxable? A: As interpreted by the Tax Administrator, San Francisco's Business Tax Ordinance gives the following definition of taxable Payroll Expense: "The total compensation paid, including salaries, wages, commissions and other compensation to all individuals who, during any tax year, perform work or render services in whole or in part in San Francisco. Employee contributions to qualified cash or deferred arrangements under Section 401(k) of the Internal Revenue Code ("401(k) plans") must be reported as taxable payroll expense. Employers' portions of federal and state payroll taxes, health insurance, pension plans, etc., are not taxable." (find this brochure online at http://www.sfgov.org/tax/bustax.htm)
Q: If my business is not completely within San Francisco, how do I properly apportion my San Francisco payroll expense? A: As interpreted by the Tax Administrator, the Business Tax Ordinance of the City and County of San Francisco provides that payroll expense attributable to the City and County of San Francisco (and thus subject to the tax) shall be determined as follows: 1. Employees who perform work or render services exclusively in San Francisco: 100% of their payroll expense is attributable to San Francisco. 2. Employees who perform work or render services partly within and partly outside San Francisco; the most appropriate method of computing their payroll expense attributable to San Francisco is to use the percentage of the total number of working hours employed within San Francisco compared to the total number of working hours employed within and outside San Francisco. An optional method for salesmen and deliverymen who spend all their time in the field is to compute an overall percentage of San Francisco sales compared to total sales serviced by such individuals. 3. Employers who have payroll expense consisting of employments within and outside the boundaries of San Francisco may use a representative test period or conduct a survey based on factual data to arrive at a formula with which to calculate the percentage of payroll expense attributable to San Francisco. Any formula so established will be subject to review and correction by the Tax Collector's audit staff. The data supporting the formula should be maintained as a part of office records for audit and review purposes.
Q: My business is _____. Aren't I exempt from business tax? A: The following types of businesses are exempt from paying business tax, and in most cases are exempt from having to register with the Office of the Treasurer & Tax Collector. EXEMPTIONS FROM BUSINESS TAX: 1. Activities on which taxation is prohibited by the Constitution or laws of the United States or State of California are exempt. 2. Receipts of any organization having a formally recognized exemption from income taxation pursuant to Section 501(c) or 501(d) or 401(a) of Title 26 of the U.S. Code as qualified by Sections 502, 503, 504 and 508. 3. Transactions between affiliated corporations, which own at least 80% of the voting and non-voting stock of the other, are exempt. 4. Business Class 03-Hotels, Apartments, etc. Structures under this classification containing 3 units or less are exempt. 5. Taxpayers whose computed tax is $2,500 or less are exempt under the Small Business Exemption. However, such taxpayers are still subject to pay the registration fee. Effective January 1, 1995, taxpayers are required to file an annual statement, by the given deadline, in order to be eligible for the exemption. 6. Skilled nursing facilities licensed under Title 22, Calif. Adm. Code, Div. 5, are exempt effective January 1, 1983.
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