Feature
by José Cisneros
Q. What are the income cutoffs and categories for the different taxes a rental property owner is obligated to pay?
A. There are three important categories of city-collected fees and taxes with which residential property owners should be familiar. They are the business registration requirement, payroll expense tax and parking tax.
Business Registration Certificate
Every person or entity doing business in the City and County of San Francisco must possess a valid Business Registration Certificate from the Office of the Treasurer & Tax Collector.
There are important exceptions to the business registration requirement that directly affect property owners. Specifically, the Business and Tax Regulations Code exempts any person who receives rental income from: a cooperative housing corporation (as defined by the IRS), a residential structure of less than four units or a residential condominium.
A person receiving rental income solely from one of these three sources is deemed by the law not to be engaging in business—and therefore is exempt from the registration requirements.
Payroll Expense Tax
The Treasurer’s Office collects the payroll expense tax from businesses in San Francisco. All businesses are required to file a Payroll Expense Tax Statement for their business annually by February 28 for the prior calendar year and must also renew their Business Registration Certificate for the next fiscal year (July 1 to June 30) if they plan to conduct business within that new fiscal year. While all registered businesses must file this statement, not all businesses must pay the tax. The Payroll Expense Tax is assessed at 1.5% of total payroll, but there are numerous exemptions. For example, businesses with total payroll below $166,667 are exempt, as are nonprofit organizations and many other entities.
Parking Tax
Most residential property owners are exempt from the city’s parking tax. The general rule is that a property owner is exempt from the parking tax on the rental of any parking space which is a part of a residential premises, provided the occupant of the parking space is a resident of the premises. However, if a property owner rents a parking space to a nontenant (or to a tenant living in a residence different from the parking location), the owner is obligated to remit a parking tax to the city on the rental price. For more information, please call the taxpayer assistance hotline at 415-554-4400.
Q. When do you have to pay the business registration fee?
A. New business owners must register for their initial certificate within 15 days of conducting business. Existing business owners must renew their registrations each year by the deadline of February 28 (or February 29 during leap years) for the upcoming fiscal year. Business Registration Certificates are issued on an annual basis and are valid for the city’s fiscal year calendar, which begins on July 1 and ends June 30 of the following year. Businesses within San Francisco that have less than $1 of estimated tax on payroll expense (including businesses with no employees) will pay the minimum registration fee of $25. There is a sliding scale of registration fees depending on the amount of payroll expense incurred in San Francisco.
The Treasurer’s Office offers a variety of ways to register a business. I urge you to visit our website at www.sfgov.org/tax for more information, contact our taxpayer assistance hotline at 415-554-4400 or visit the office in person at City Hall Room 140, 1 Dr. Carlton B. Goodlett Place, San Francisco.
Q. I’m thinking about buying or taking ownership of a large apartment building. What do I need to know before I buy?
A. The San Francisco Business Tax and Regulations Code, Section 6.21-1, provides that no person shall purchase or acquire an interest in a business subject to the payroll expense tax, hotel tax or parking tax without first obtaining either a receipt from the tax collector showing that all of the seller’s taxes on the business have been paid, or a certificate stating that no amount is due. This requirement also includes voluntary transfers of ownership where no form of currency or payment is exchanged. If a buyer purchases or acquires an interest in a business owing any taxes, interest or penalties, the buyer shall withhold from the purchase price and pay to the tax collector a sufficient amount to satisfy said taxes, interest and penalties. A buyer who purchases or acquires an interest in a business in violation of this law shall become personally liable for the amount of taxes, interest and penalties owed on the business.
Q. What are the tax benefits of a 1031 exchange? How can I qualify?
A. A 1031 tax-deferred exchange allows you to rollover the proceeds received from the sale of an investment property into the purchase of one or more other similar investment properties. Capital gains may be deferred in this type of transaction, which is derived from federal-tax law. I advise anybody interested in such an exchange to contact a federal-tax professional for more information.
Q. You recently launched a new initiative called Bank on San Francisco, which has been receiving a great deal of media attention. What is Bank on San Francisco?
A. We are extremely excited about Bank on San Francisco. It is the first program of its kind in the country to bring together banks and credit unions to offer suitable products to those who currently have no checking or savings account, and to support newly banked clients with financial management education.
Before Bank on San Francisco, many San Franciscans lacked a simple service that most of us take for granted—a safe place to keep and access money. Shockingly, 50,000 households—15% of all households in San Francisco—are unbanked. What is even more disconcerting is that the percentage jumps to 50% when we are talking about the African American community and the Latino community. When I heard these numbers, I knew I had to do something to rectify this situation and make sure everyone has access to basic financial services.
Q. Why is it so important for everyone to have a bank account?
A. Without a bank account, you are forced to rely on check cashers, who can charge between 2% and 10% just to cash your paycheck. Then you have to pay your bills using money orders—an additional expense. Studies show that a low- to moderate-income family can spend as much as $800 a year just to access their money and pay everyday bills. These are the families who can least afford to be spending money on something most of us get for free through a checking account. Families with bank accounts are more likely to save and build assets, establish credit and move up the economic ladder.
Your money isn’t safe if you carry cash or keep cash in your home. In addition to the increased risk of being a victim of a crime, you have no way to access and safeguard your money in the event of an emergency or a natural disaster. Imagine if you had to evacuate your home in the event of a disaster, and all of your savings were in your home, all of your checks were mailed to your home and you couldn’t access any money remotely. This was the scenario faced by 70% of New Orleans residents evacuated to the Astrodome during Hurricane Katrina. Being unbanked is a national issue, and San Francisco is one of the first cities in the country to take serious steps to address this issue.
Q. How does Bank on San Francisco affect property owners?
A. Any landlord knows the problems caused by bounced checks or late rent payment. We have been working with some large housing providers in the city to encourage payment of rent by direct deposit. Banks or credit unions help residents open accounts, and in some cases provide a debit card machine, so tenants can pay their rent on the first of the month without the need to pay for and obtain a money order. This system also saves time and money for the property owner.
I would like to encourage property owners in San Francisco to reach out to my office and ask for materials to help promote this program. We have posters and flyers in three languages—English, Chinese and Spanish. Any building with a communal space or a shared laundry room could post a Bank on San Francisco poster and help get the word out about the program. We can also arrange financial training classes for your tenants and help people sign up for accounts.
Q. What are the features of a product offered through Bank on San Francisco?
A. We developed baseline criteria that address the main barriers faced by those who are currently unbanked. To be a bank or credit union participating in Bank on San Francisco, financial institutions had to agree to offer a product that met all of our criteria. This includes: opening accounts for people who have no California ID and may not have a social security number, but do have a Mexican Matricula card or a Guatemalan Consular ID; opening accounts for people who have had problems managing an account in the past and are now on the national ChexSystems register; offering an account with no or low monthly fees and no minimum balance requirement; and a commitment to market these accounts in low-income neighborhoods. We have also built in a strong financial management component to the program to help these new accounts stay open and be successful.
Q. What banks or credit unions are participating in the program?
A. I am proud to announce that fourteen banks and credit unions have signed on to participate in Bank on San Francisco. They are: Bank of America, Bank of the West, Citibank, Mission Area Federal Credit Union, Mission National Bank, Northeast Federal Credit Union, Patelco Credit Union, Spectrum Federal Credit Union, Sterling Bank and Trust, United Commercial Bank, US Bank, Washington Mutual, Wells Fargo and West America Bank. We are confident that with this wide range of institutions, a suitable account can be found for most clients.
Q. Traditionally the role of the city treasurer has been focused on tax collection and investing. Why have you decided to branch out into this new area?
A. Well, first of all, we are still very much in the business of collecting taxes and investing the city’s money. However, as treasurer, it is also my job to protect the financial interests of all residents of San Francisco. All too often, the financial needs of lower income families are ignored, which is bad for the entire city. I want to see people stop giving their money to check cashers, and start keeping and saving that money for themselves and their families.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. José Cisneros is the treasurer for the City and County of San Francisco. Copyright © 2006 by SF Apartment Magazine. All rights reserved.