San Francisco Raised Its Small Business Exemption to $5 Million. You Still Renew Every Year.

2026-10-20 · RKube Services

San Francisco's Prop M raised the Gross Receipts Tax small business exemption to $5 million, but businesses still pay a registration fee, renew every year and, if on extension, file by November 30, 2026.

For years the magic number in San Francisco was $2.25 million. Stay under that in San Francisco gross receipts and the City's Gross Receipts Tax didn't touch you. Voters changed that in November 2024 with Proposition M, and the 2025 tax year was the first one filed under the new rules. The exemption is now $5 million.

That's a big jump. A café, a design studio or a three-person consulting shop in the Mission or SoMa that used to sit just over the old line may owe nothing in Gross Receipts Tax now. It still owes a registration fee, it still renews every year, and if it went on extension last spring, its return is due November 30, 2026.

This guide walks through what changed for businesses in San Francisco, CA, using the Treasurer and Tax Collector's Proposition M page and the 2025 Annual Business Registration and Tax Form instructions. The numbers below are for tax years 2025 and 2026.

What Prop M changed for small businesses

Prop M rewrote most of the City's business tax at once. The parts a small owner in San Francisco or Oakland, CA, with City customers will notice:

• The small business exemption for the Gross Receipts Tax and the Overpaid Executive Tax rose from $2,250,000 to $5,000,000 of San Francisco gross receipts, starting with the 2025 return filed in 2026.
• The number of business activity categories dropped from 14 to 7, grouped by NAICS code.
• Most businesses now allocate 75% of gross receipts by where the receipts are earned in the City and 25% by payroll. Before, apportionment leaned on the share of payroll in San Francisco.
• The annual business tax return and the registration renewal became one filing, due together.
• About $10 million a year in permit and license fees, mostly for restaurants and nightlife, was waived starting March 31, 2026. The Treasurer says roughly 91% of restaurants will no longer get an annual license bill at all.

Two other exemptions did not move to $5 million. The Commercial Rents Tax, which falls on landlords who lease commercial space, keeps a lower threshold of $2,325,000 and its rates didn't change. The Homelessness Gross Receipts Tax only starts above $25 million, so it rarely matters for a small company.

The seven categories

Your category decides your rate. Here is how Prop M groups activities by NAICS code:

Most small businesses in San Francisco land in Category 1 (shops, restaurants, salons) or Category 5 (software, consultants, agencies, clinics). The gap between them is wide. Category 1 starts at 0.100% on the first $1 million. Category 5 starts at 1.000%.

2025 and 2026 rates for the first three brackets

The rates are graduated. Each slice of gross receipts is taxed at the rate for its bracket, the way income tax brackets work. For a small business, only the first three brackets matter:

Rates step up again in 2027 and 2028. Category 1's first bracket, for example, goes to 0.104% in 2027 and 0.107% in 2028. The Treasurer's page has the full schedules.

The $5 million line is a cliff

The exemption doesn't work like a standard deduction. If your combined San Francisco gross receipts are $5,000,000 or less, you owe no Gross Receipts Tax. Go over it and the tax applies to all of your receipts from the first dollar.

Take a retail store in Category 1. At $4.9 million of San Francisco gross receipts for 2025, it pays no Gross Receipts Tax. Its only cost is the 2026-27 registration fee for the $2.5 million to $5 million tier, which is $1,885 plus the $4 state fee.

Push the same store to $5.1 million and the math changes:

• First $1,000,000 at 0.100%: $1,000
• Next $1,500,000 at 0.130%: $1,950
• Remaining $2,600,000 at 0.180%: $4,680
• Gross Receipts Tax: $7,630
• Registration fee for the $5 million to $7.5 million tier: $800, plus $4

That's about $8,434 against $1,889 one tier down. Notice the registration fee itself falls above $5 million, because the tax takes over the job the fee was doing. The Treasurer's own sample of a restaurant with $6 million of San Francisco receipts shows $10,050 for 2026, which is the same arithmetic ($9,250 of tax plus the $800 fee).

Now try a Category 5 consulting firm at $6 million. The first $2.5 million is taxed at 1.000% ($25,000) and the next $3.5 million at 1.500% ($52,500), for $77,500 of tax. Same receipts as the restaurant, more than eight times the tax. If you're a professional services firm near the line, the cliff is worth planning around.

Who counts as "combined"

The $5 million test uses combined San Francisco gross receipts, and that word matters for owners with more than one entity. Under the instructions, a business and its related entities file on a combined basis, and related entities generally means the companies included in the same California combined report. A single-member LLC that's disregarded for tax purposes is treated as part of its owner, even though it still files its own Form 568 with the California Franchise Tax Board.

So two related companies at $3 million each don't get two exemptions. If they're in the same California combined report, the City sees $6 million.

The 2026-27 registration fee

Every business that does business in San Francisco renews its registration each year, even when it owes no tax. The fee for April 1, 2026 through March 31, 2027 was set by 2025 San Francisco gross receipts:

The state adds $4 to each fee. The table keeps going for larger businesses, up to $60,000 above $200 million.

These amounts are higher than the 2025-26 fees because 2025-26 was a nine-month transition period (July 1, 2025 to March 31, 2026) while the City moved renewal to the same date as the tax return.

The November 30, 2026 extended deadline

The first joint return and renewal under Prop M was due March 2, 2026. If you asked for an extension, two things had to happen by that date: you filed the request, and you paid generally 110% of your prior-year liability for each tax, plus a registration fee figured on 110% of your most recently reported San Francisco gross receipts or payroll.

The return itself is due November 30, 2026. The extension moves the filing date only. Payment was still due March 2, so if your actual 2025 tax ends up higher than what you paid, interest and penalties run from March 2.

A few details from the instructions:

• If you expected to qualify for the small business exemption, you couldn't use the online extension form. You had to request a paper one.
• Late returns show a $58 administrative fee and a $100 late filing penalty on the form, before any late payment penalty and interest.
• If you're exempt from some City taxes but not others, you file and enter zeros for the exempt ones. Only businesses fully exempt under the specific Code sections the instructions list skip the return.

If you moved under $5 million because of the new allocation rules, the November return is where that shows. Check that your receipts are sourced the way Prop M now requires, 75% by where you earn them in the City for Categories 1, 4, 5 and 6, before you file.

Quarterly estimates going forward

The City also collects estimated business tax quarterly, on April 30, July 31 and October 31. Each payment is generally 25% of your annual liability. If you're on extension, it's 25% of your required extension payment.

Here's the part that helps a business that just dropped under the new exemption. The payment portal shows an amount based on your previous filing, but you may pay the lesser of that amount or 25% of your current-year business taxes, and the Treasurer says that can be $0. A Category 1 shop that owed tax under the old $2.25 million line and doesn't under the new one shouldn't keep paying last year's quarterly number.

What we'd check this fall

If you do business in San Francisco, these are worth a look before November 30:

1. Your category. A business that sells products and services may have receipts in more than one category, and the rates are very different.
2. Your combined group. Compare it with your California combined report, not just the entity you think of as "the business."
3. Where you sit against $5 million after the 75/25 allocation, for both 2025 and 2026.
4. Your October 31 estimate. If you no longer owe Gross Receipts Tax, the 25% of current-year tax may be zero.
5. Whether you lease commercial space to tenants, since the Commercial Rents Tax threshold is still $2,325,000.

Common questions

Do I still renew my San Francisco registration if I'm under $5 million?

Yes. Every business doing business in the City renews each year and pays the fee for its receipts tier, even when it owes no Gross Receipts Tax.

Does the $5 million exemption apply to my total sales or only San Francisco sales?

The test is San Francisco gross receipts after allocation and apportionment, combined across related entities. A company with $20 million of total sales and $3 million allocated to the City is under the line.

I'm on extension. Do I owe anything on November 30?

The return is due then. The payment was due March 2, 2026. If you underpaid, pay the balance with the return to stop more interest.

Is the Overpaid Executive Tax a concern for a small company?

Rarely. Prop M exempts businesses with 1,000 or fewer US employees and $1 billion or less in federal gross receipts.

This guide is general information about San Francisco business taxes for tax years 2025 and 2026, not tax or legal advice for your business. Check the Treasurer and Tax Collector's current instructions before filing.

We keep the books and handle City and state filings for small businesses in San Francisco, CA and across California: rkubeservices.com.