Reed Smith Client Alerts

On November 6, 2018, San Francisco voters passed, by a simple majority, Proposition ("Prop") C, which imposes a gross receipts tax ("GRT") - the Homelessness Gross Receipts Tax (the "Tax") - on businesses located in San Francisco (the "City") that receive more than $50 million in total San Francisco taxable gross receipts. There is current litigation disputing the validity of the Tax because the Tax passed by a simple majority instead of a two-thirds supermajority. Despite the on-going litigation, the City is requiring taxpayers to remit the Tax for the tax year beginning on January 1, 2019. Accordingly, taxpayers must determine (1) whether to file a refund claim for the 2019 tax year, or (2) waive their refund right in exchange for a 10 percent credit against their 2019 Tax liability.


In 2012, San Francisco voters passed Prop E, which amended the City's business tax system to include a GRT.1 Pursuant to Prop E, the City gradually phased in the new GRT over a five-year period, beginning in the 2014 tax year.2 The City's GRT is "a privilege tax imposed upon persons engaging in business within the City" and "measured by the person's gross receipts from all taxable business activities3 attributable to the City."4

In 2018, the City placed Prop C on the ballot and on November 6, 2018 San Francisco voters passed it by a simple majority vote of 61.34 percent.5 Prop C imposes the Tax on all businesses located in San Francisco that receive more than $50 million in total San Francisco taxable gross receipts, effectively doubling the GRT rates for those businesses.6 Unlike Prop E, Prop C is a special tax, not a general tax, because the funds are to be placed in the "Our City, Our Home Fund", rather than the general fund.

Quickly after the passage of Prop C, a dispute arose regarding whether special voter initiatives, like Prop C, must be passed by supermajority vote to be valid.7 The uncertainty regarding the voting requirements stems from a 2017 California Supreme Court decision, California Cannabis Coalition v. City of Upland.8 While the San Francisco Superior Court recently upheld the validity of Prop C, holding that special tax voter initiatives do not need a supermajority to pass, that decision is currently being reviewed by the California Court of Appeal, First Appellate District.9