Early Care and Education Commercial Rents Tax- Draft Tax Collector Regulation

Draft Tax Collector Regulation to Clarify the Application of the Early Care and Education Commercial Rents Tax to Certain Leasing Activities

You may have received notice from from the Office of the Treasurer and Tax Collector related to the Commercial Rents Tax that voters passed in June 2018.

The ‘Early Care and Education Commercial Rents Tax Ordinance’ was passed by the voters on June 5, 2018 and becomes operative on January 1, 2019.

In addition to the existing gross receipts and payroll expense taxes, this measure imposes a new gross receipts tax of:

  • 1% on the amounts a business receives from the lease of warehouse space in the City;
  • 3.5% on the amounts a business receives from the lease of other commercial spaces in the City.

This tax generally does not apply to businesses exempt from the existing gross receipts tax or to amounts received from leases to non-formula retail sales establishments or industrial or arts spaces. In general, the tax will be administered in the same manner as the gross receipts tax in Article 12-A-1. Pursuant to the Tax Collector’s authority to adopt rules and regulations under San Francisco Business and Tax Regulations Code section 6.16-1, the Tax Collector intends to promulgate a regulation to clarify the application of the Early Care and Education Commercial Rents Tax to certain leasing activities.

Proposed Regulation Leases Passing on Costs to Tenants. All amounts received from the lease of commercial space in properties in the City, including without limitation, property taxes, insurance premiums, maintenance costs, and other charges passed on to tenants, are gross receipts that are subject to the Early Care and Education Commercial Rents Tax, to the extent not excluded from the definition of “gross receipts” under Article 12-A-1 of the Business and Tax Regulations Code.

The Treasurer and Tax Collector’s office is working through comments received by various industry taxpayers. Depending on what they receive back, they will decide what the next steps on finalizing a definition are.

They anticipate that landlords who utilize triple-net leases and the tenants who are on those leases, or other similar lease types, will have helpful feedback to help the Treasurer ensure that this definition is as responsive to the needs of industry and reflective of the law’s intention as possible.

We will provide more updates as they become available.

Recent Posts