San Francisco businesses may benefit from new compliance programs created in early 2025 as part of reforms resulting from the city’s recently passed Proposition M initiative.
The city’s Voluntary Disclosure & Compliance Program (VDCP) and the Advance Written Determination (AWD) Program are part of a broader effort to modernize San Francisco’s business tax system and promote a more predictable environment for taxpayers.
Voters approved Proposition M in November 2024, triggering a comprehensive overhaul of how business taxes are structured and administered within the city. These changes are designed to simplify compliance, improve revenue collection, and align San Francisco’s practices with those in other jurisdictions.
For the majority of taxpayers, Proposition M shifted how businesses assign their gross receipts to San Francisco (the basis for their business tax obligations to the city). For many industries, the calculation moved from a payroll-based apportionment formula to a heavier reliance on a market-based apportionment formula. The proposition also resulted in the creation of the VDCP and AWD programs.
San Francisco’s Voluntary Disclosure & Compliance Program
The Voluntary Disclosure & Compliance Program offers eligible businesses the opportunity to come forward to resolve past-due tax obligations. Businesses that do not currently hold a San Francisco business registration and have not been previously contacted by the Office of the Treasurer & Tax Collector regarding noncompliance may qualify.
This may include, for instances, companies with remote workers in San Francisco that did not understand they had a nexus (and the associated filing obligations) under the city’s business tax structure.
Under the program, participants must disclose and pay back taxes and interest for the prior six years. In exchange, certain penalties and interest may be waived. This program opened for applications on January 1, 2025, and will continue through December 31, 2027.
The potential waiver of prior-year penalties is not the only benefit the program offers. Because past tax obligations as a result of non-filing do not have a statute of limitations, the six-year lookback period offers an attractive route for taxpayers to eliminate San Francisco Business Tax obligations exceeding the lookback period.
For businesses undergoing mergers or acquisitions, the VDCP may also serve as a tool for resolving historical San Francisco Business Tax liabilities identified during due diligence.
The Advance Written Determination Program
The Advance Written Determination Program allows taxpayers to request formal, advance rulings on how San Francisco’s tax laws apply to their specific circumstances, specifically related to tax apportionment and business activity classification(s). This program is intended to provide businesses with more certainty and reduce the risk of surprises during audit or filing season.
A $250 fee will apply to applications submitted on or before December 31, 2025. After that date, fees will be adjusted to reflect the actual cost of issuing determinations.
Business-Friendly Tax Changes
These new programs and regulatory changes reflect San Francisco’s broader effort to foster a more business-friendly environment while ensuring tax compliance. If your business operates in or derives revenue from San Francisco, now is a good time to discuss with your advisors how these developments may affect your business.
Reviewing your registration status, historical filing practices, and the potential benefits of advance guidance can help you take full advantage of these new opportunities.
Our state and local tax team is available to assist you with evaluating VDCP eligibility, subsequently complying with the VDCP program if accepted, and preparing advanced rulings under the AWD program. Please contact us to learn more.
