CA: Voters Approve General economic Nexus Provisions; Litigation Pending

Recently, San Francisco voters approved Proposition D, which establishes a marijuana business tax on receipts from sales of cannabis products and generally adopts economic nexus provisions for purposes of several City taxes. Specifically, under Proposition D, beginning January 1, 2019, the definition of “engaging in business within the city” is expanded to persons with annual gross receipts exceeding $500,000 assigned to the City. The new economic nexus standard applies for purposes of the City payroll expense tax, gross receipts tax, commercial rents tax, marijuana business tax, and business registration fee. In other City of San Francisco news, Proposition C, which was also approved by voters in November, is facing potential legal challenges. Recall, Proposition C increases the City’s gross receipts tax on persons, entities, or combined groups engaged in business in the City that have over $50 million of gross annual receipts sourced to San Francisco. The revenues from the tax increase (estimated to total $300 million) are to be used to fund homeless services. Proposition C passed with about 60 percent support, but there is some uncertainty over whether a ballot initiative placed on the ballot by voters that raises “special taxes” needs a 2/3 majority vote to pass. In light of the pending litigation, the City has announced that revenues from the new homelessness gross receipts tax will be held in a segregated account pending the outcome of the litigation. Please contact Jon Guiliano at 415-963-7286 with questions on both these initiatives.