San Francisco is one of the best places in the world to build a company. It's also one of the most expensive to stay legally compliant in — and the gap between those two facts trips up a surprising number of founders, including ones who've built companies before.

Between SF-specific business taxes and California state obligations, the compliance surface area is larger than most early-stage founders realize. This post covers what you owe the city, what you owe the state, and what to set up before your first hire.

A note before we start: This is general informational content, not legal or tax advice. Laws and rates change — always confirm current requirements with a qualified advisor.

San Francisco Local Obligations

01 — Business Registration

Before anything else: you need a San Francisco Business Registration Certificate. Any business with a physical SF location, employees in the city, or more than $500,000 in gross receipts attributable to SF activity is required to register — from inception, not at year-end. There's no grace period.

Registration fees are tiered by gross receipts and paid annually. The certificate must be displayed at your place of business and renewed every year. Miss the renewal and you face penalties regardless of whether you owe any underlying tax.

Who must register
Any business with a physical SF location, SF employees, or more than $500,000 in SF gross receipts. This includes Delaware-incorporated companies operating from SF — your incorporation state has no bearing on your local registration obligation.

How to register
Via the SF Treasurer & Tax Collector's online portal. You'll need your federal EIN, CA entity ID, estimated gross receipts, and estimated SF payroll. A Business Registration Certificate is mailed within 10–15 business days.

Annual renewal deadline
Under Proposition M (effective January 2025), the renewal deadline shifted to March 2 — now aligned with the Annual Business Tax filing. The first combined filing under Prop M rules was due March 2, 2026.

02 — Gross Receipts Tax (Proposition M)

San Francisco's main business tax is the Gross Receipts Tax, significantly restructured by Proposition M, which voters passed in November 2024 and which took effect January 1, 2025. For most tech startups, this is the tax that matters most — and Prop M made several changes that are favorable to early-stage companies.

Small business exemption raised to $5M
Businesses with under $5M in combined SF gross receipts are now exempt from the GRT entirely — up from $2.25M previously. Most seed and Series A companies won't owe GRT at all. You still must register and file a return each year.

New apportionment formula: 75/25
From 2025, SF gross receipts are apportioned 75% by where revenue is generated or delivered and 25% by SF payroll. Previously many industries used 100% payroll apportionment. This benefits companies with heavy SF headcount but revenue from outside the city.

Business activity categories reduced from 14 to 7
Simplifies compliance significantly. Tech and information services typically fall in the lower rate bands — rates range from 0.105% to 1.008% depending on activity and gross receipts. Your NAICS code matters: the wrong classification can shift your effective rate by 50% or more.

Homelessness Gross Receipts Tax
An additional surcharge now applying to businesses with over $25M in SF gross receipts (down from $50M). Rates range from 0.175% to 0.69%. Not relevant at early stage, but worth modeling as you scale.

Overpaid Executive Tax
A surcharge triggered when the highest-paid executive earns significantly more than median employee compensation. Applies to businesses already subject to the GRT. A growth-stage concern rather than a day-one issue — but worth knowing exists before you set executive comp structures.

"If your SF gross receipts are under $5M, you owe zero Gross Receipts Tax under Prop M. You still must register, file, and renew annually — but the tax bill itself is nothing. Don't let the registration requirement slip just because the tax is zero."

03 — Key Filing Deadlines

March 2 — Annual
Combined Annual Business Tax filing and Business Registration Renewal. Both the filing and any payment due must be submitted by midnight. The first combined deadline under Prop M rules was March 2, 2026.

April 30 / July 31 / October 31
Quarterly estimated business tax payments if your prior year liability exceeded the relevant threshold. Missing these triggers penalties on top of the annual filing.

November 30 — Extension Deadline
New extended filing deadline, now aligned with California state timelines. To qualify: submit extension request and pay 110% of prior year liability by the March 2 deadline.

04 — California State Obligations

Operating in San Francisco means you're also subject to California state requirements — a separate and significant compliance layer that runs parallel to SF-specific taxes.

CA Franchise Tax / Corporate Income Tax
$800 minimum annual franchise tax applies to LLCs and corporations operating in California, regardless of revenue, profit, or activity level. C-corps pay 8.84% of net income; S-corps pay 1.5%. This kicks in year one, even pre-revenue.

CA Employment Development Department (EDD)
Register with EDD when you hire your first employee. Covers state payroll taxes: Unemployment Insurance (UI), State Disability Insurance (SDI), and Employment Training Tax (ETT). Running payroll without EDD registration is one of the fastest ways to accumulate penalties.

Workers' Compensation Insurance
Required in California from employee number one. No minimum headcount threshold. Operating without it is both a compliance violation and a significant liability exposure. Get this in place before the first hire's start date, not after.

CA Sales Tax (if applicable)
SF base rate is 8.625%. SaaS is generally not subject to CA sales tax — but professional services and tangible goods are. Post-Wayfair economic nexus rules can also create filing obligations in other states if you have significant out-of-state customers.

CA Pay Data Reporting
Employers with 100 or more employees must submit annual pay data reports to the CA Civil Rights Department, broken down by race, ethnicity, sex, and job category. Not a day-one concern — but a meaningful obligation as you scale.

The Delaware Trap

Most VC-backed startups incorporate in Delaware — sensible for cap table, investor, and legal reasons. But Delaware incorporation has zero effect on your San Francisco or California compliance obligations. The moment you have operations, employees, or customers in SF, you're subject to every local and state requirement above.

Register with SF. Register with CA. Pay the $800 franchise tax. Operate as if your compliance footprint is determined by where you actually run the business — because legally, it is.

Your SF Startup Compliance Checklist

Day 1 — Entity Formation

• Register entity with CA Secretary of State (or as foreign corporation if incorporated in Delaware)

• Obtain SF Business Registration Certificate via sftreasurer.org

• Apply for Federal EIN

• Register with CA Franchise Tax Board and pay $800 minimum annual franchise tax

First Hire

• Register with CA EDD for payroll taxes (UI, SDI, ETT)

• Set up workers' compensation insurance (required in CA from employee #1)

Annually

• File SF Annual Business Tax Return + renew Business Registration (deadline: March 2)

• File CA Statement of Information with Secretary of State

• Make quarterly estimated SF tax payments if applicable (Apr 30 / Jul 31 / Oct 31)

• If 100+ employees: file CA Pay Data Report with CA Civil Rights Department

San Francisco compliance isn't complicated once you know what exists. The founders who get into trouble aren't the ones who understood the rules and cut corners — they're the ones who didn't know the rules were there. Building the compliance infrastructure early is far cheaper than untangling it later.

Anelya Grant is the founder of AG Accounting Inc., an accounting firm serving tech startups and healthcare organizations, and co-founder of JustPaid.ai, an AI-powered billing and contract-to-cash platform.