February 19, 2016
While most people spend most of their time and energy to ensure that they are accurately reporting and implementing tax planning strategies to minimize income taxes, there are also a variety of miscellaneous taxes that also require proactive planning. In order to avoid any unforeseen tax liabilities, we recommend that our clients review the following summary of miscellaneous taxes so that they may plan for them accordingly.
SF Payroll Tax & Gross Receipts Tax
The City of San Francisco imposes a Payroll Tax on compensation for work or services performed in San Francisco. Payroll includes compensation paid to individuals and compensation paid for services earned by owners of passthrough entities (e.g. LLC’s or S corporations).
Please note that, as of January 1, 2014, the City of San Francisco imposes a new gross receipts tax on taxable business activities attributable to the city. This tax will phase in over a 5-year period and eventually replace the payroll tax. These tax rates vary contingent on the type of business and amount of gross receipts. The City of San Francisco requires that the SF Payroll/Gross Receipts Tax and Business Registration Fee be submitted by the last day in February.
The complexity of San Francisco tax calculations primarily lies in the determination of which items are considered San Francisco payroll or receipts. For those who intend to start a San Francisco-based business, we highly recommend consultation with our firm so that we may best explain how these taxes will specifically affect your business.
Sales and Use Tax
The Sales and Use Tax is levied upon purchases made outside of one’s state of residence on taxable items that will be used, stored or consumed in one’s state of residence and on which no sales tax was collected. The State of California requires that use tax be paid on items such as furniture, art, gifts, toys, clothing, vehicles, mobile homes, and aircraft.
Many of our clients are required to pay use tax after purchasing goods online or purchasing while traveling. Tracking these purchases and the any associated use tax liability can be very difficult and laborious. It is for this reason that the State of California has created a “safe harbor” method to estimate use tax which is based on your income level. This method is detailed below:
Adjusted Gross Income (AGI) Range Use Tax
Less than $20,000 $7
$20,000 to $39,999 $21
$60,000 to $79,999 $49
$80,000 to $99,999 $63
$100,000 to $149,999 $88
$150,000 to $199,999 $123
A taxpayer with AGI of $200,000 and over would calculate use tax by multiplying AGI by 0.070% (0.0007). The amount of use tax can be reported annually on your personal California tax returns. At lower AGI levels, the ease of calculating use tax based on “safe harbor” really makes sense given the amount of time it would take to correctly track it over the course of a tax year. However, for taxpayers with AGI $200,000 and above, the use tax figure can be large and less accurate.
The Sales and Use Tax is an area that California has scrutinized quite closely in recent years. While there are strategies that can be implemented to minimize sales and use tax exposure, these require careful planning and consideration. We encourage all clients to discuss their personal situations with us to determine the best approach for minimizing use and sales tax exposure.
Individual counties in California impose a property tax at rates of just over 1% on the assessed value of real property. In addition to this 1% tax, you may see other voter-approved assessments on your property tax bill. Due to Proposition 13 (passed by voters in 1976), the assessed value of a property can only be increased by a maximum 2% per year unless the property is sold or transferred. Careful planning and consideration should be done whenever one is contemplating a transfer of property, whether the property is transferred to an entity owned by a taxpayer or to a family member. Special rules apply with regards to whether or not the property is reassessed and can differ from county to county. Property taxes are typically levied on a semi-annual basis. Associated late payment penalties can be severe (10% of your payment).
The City of San Francisco also imposes a separate Business Property Tax. Form 571-L must be filed annually by businesses no later than May 7th. Examples of business assets that are required to be reported include office equipment, furniture, fixtures, and leasehold improvements.
We hope this information will be helpful in planning for miscellaneous taxes. We will be more than happy to answer and discuss any questions you may have regarding miscellaneous taxes.