The San Francisco commercial rent tax is a city levy on landlords who collect rent from commercial tenants, charged at 3.5 percent of gross rental receipts for most commercial space and 1 percent for warehouse space. Formally called the Early Care and Education Commercial Rents Tax, it was created by Proposition C in 2018 to fund childcare and early education programs, and updated by Proposition M in November 2024, which raised the small business exemption to $2,325,000 in total citywide gross receipts.1Treasurer & Tax Collector. Proposition M (2024) – Business Tax Reform It sits on top of the city’s general gross receipts tax, which is a separate obligation.
What Rent and What Property the Tax Covers
Article 21 of the San Francisco Business and Tax Regulations Code governs the tax.2American Legal Publishing. Business and Tax Regulations Code It applies to any business collecting rent or other payments for the use of commercial property in the city, including office space, retail storefronts, industrial buildings, and warehouse or storage facilities. Subleasing creates the same obligation. If you sublease space you rent, you owe the tax on what you collect from your subtenant.3Treasurer & Tax Collector. Commercial Rents Tax (CR) – 2024 and Prior Years
Taxable rent means the full consideration a tenant pays for occupancy, not just base monthly rent. Percentage rent, common-area maintenance charges billed as part of lease payments, and similar amounts all count toward gross receipts for this tax.
The Two Rates
The commercial rents tax has two tiers:4Treasurer & Tax Collector. Commercial Rents Tax
- 3.5 percent of gross receipts from leasing or subleasing most commercial space.
- 1 percent of gross receipts from leasing or subleasing warehouse space.
A landlord collecting $100,000 a month in office rent would owe $3,500 a month in commercial rents tax. The same landlord would also owe the city’s general gross receipts tax on that rental income at the rate applicable to their business activity category, which for real estate rental has historically run roughly 0.285 to 0.3 percent.5Ballotpedia. San Francisco, California, Proposition C, Commercial Rent Tax for Childcare and Early Education (June 2018) Proposition M included scheduled rate adjustments for the commercial rents tax in 2027 and 2028, so watch for updated guidance from the Treasurer’s office as those years approach.1Treasurer & Tax Collector. Proposition M (2024) – Business Tax Reform
Who Doesn’t Owe the Tax
The biggest exemption is for small landlords. If your total San Francisco gross receipts come to less than $2,325,000, you owe no commercial rents tax at all.4Treasurer & Tax Collector. Commercial Rents Tax That threshold was raised by Proposition M in 2024; older guidance citing a $1.25 million cutoff is outdated.
Article 21 also exempts tax-exempt organizations under Section 501 of the Internal Revenue Code or the equivalent California Revenue and Taxation Code provisions, as long as their exempt status remains in effect.6American Legal Publishing. San Francisco Business and Tax Regulations Code – SEC. 2105 Exemptions and Exclusions
Exemptions also work from the tenant side. Rent collected from a tax-exempt nonprofit or from a federal, state, or local government entity doesn’t count toward your taxable gross receipts. A landlord renting part of a building to a city agency and part to a private company would exclude the government rent and pay only on the private-company rent.6American Legal Publishing. San Francisco Business and Tax Regulations Code – SEC. 2105 Exemptions and Exclusions Rent already subject to the city’s transient occupancy tax under Articles 7 or 9 (hotel and short-term rental situations) is also excluded, preventing double taxation. The Proposition C ballot summary noted that the tax would generally not apply to amounts received from leases to non-formula retail establishments, industrial spaces, or arts-related spaces, though those carve-outs appear in the broader ballot measure language rather than in the core exemption section of Article 21.7San Francisco Department of Elections. Title and Summary for Gross Receipts Tax Measure
Can the Landlord Pass It to the Tenant?
The tax is imposed on the landlord as the party receiving the rental income. Landlords with triple-net leases or other expense pass-through provisions may be able to shift some or all of the cost to tenants, depending on how the pass-through clause is written. This is a lease negotiation question, not a tax law question, so the answer sits entirely in your lease. Tenants signing or renewing commercial leases in the city should look closely at whether the pass-through language is broad enough to capture this tax.
Filing Deadlines and Payment
You file the commercial rents tax as part of your annual San Francisco business tax return, not as a standalone form. For the 2024 tax year, the annual return was due February 28, 2025, with an extension to April 29, 2025, available for the return itself. Payment was still due by February 28 regardless of any filing extension.8Treasurer & Tax Collector. File Annual Business Tax Returns (2024) Expect a similar structure in subsequent years.
Three estimated payments are due during the year:
- April 30
- July 31
- October 31
Making the quarterly payments on time avoids a lump-sum bill at year-end and reduces your penalty exposure.3Treasurer & Tax Collector. Commercial Rents Tax (CR) – 2024 and Prior Years Filing and payment both happen through the San Francisco Treasurer & Tax Collector’s online portal, and you’ll need your San Francisco Business Account Number to log in.
Penalties for Late Payment
The penalty structure escalates fast. Miss a payment deadline and the city adds 5 percent of the unpaid tax for the first month. Each additional month or partial month adds another 5 percent, up to 20 percent in aggregate. If the tax stays unpaid for 90 days after the city notifies you of the delinquency, another 20 percent penalty is added on top.9American Legal Publishing. San Francisco Business and Tax Regulations Code – SEC. 6.17-1 Penalties and Interest for Failure to Pay
A landlord who ignores a delinquency notice for three months could face a combined penalty of 40 percent of the original tax owed. Interest accrues on top of that. Staying current on quarterly estimates is the simplest way to avoid the whole problem.
Records to Keep
When preparing the annual return, separate rent received for warehouse space from rent received for other commercial uses, since the two carry different rates. Lease agreements are your primary documentation, establishing the start date, square footage, payment terms, and tenant identity for each occupancy. The Treasurer’s office may also require you to identify the NAICS code for each tenant’s business to confirm proper categorization.
Keep lease agreements, rent rolls, bank deposit records, and correspondence related to commercial tenancies for at least three years from the date you file the return covering that period. If the city suspects underreporting of 25 percent or more, the audit window stretches to six years. For multi-tenant properties, organizing records by tenant and by space type from the start of each year saves significant work at filing time.
Federal Tax Treatment
Local taxes paid in connection with a trade or business are generally deductible on your federal income tax return. Commercial landlords report rental income and expenses on Schedule E (Form 1040) for individual filers, or on the corresponding business return for entities such as partnerships or S corporations.10Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss The commercial rents tax you pay during the year typically appears as a deductible expense on that return, reducing your federal taxable income. Confirm the correct line item and any limitations with a tax professional familiar with your situation.