On November 6, 2018, San Francisco voters passed, by a simple majority, Proposition ("Prop") C, which imposes a gross receipts tax ("GRT") - the Homelessness Gross Receipts Tax (the "Tax") - on businesses located in San Francisco (the "City") that receive more than $50 million in total San Francisco taxable gross receipts. There is current litigation disputing the validity of the Tax because the Tax passed by a simple majority instead of a two-thirds supermajority. Despite the on-going litigation, the City is requiring taxpayers to remit the Tax for the tax year beginning on January 1, 2019. Accordingly, taxpayers must determine (1) whether to file a refund claim for the 2019 tax year, or (2) waive their refund right in exchange for a 10 percent credit against their 2019 Tax liability.


In 2012, San Francisco voters passed Prop E, which amended the City's business tax system to include a GRT.1 Pursuant to Prop E, the City gradually phased in the new GRT over a five-year period, beginning in the 2014 tax year.2 The City's GRT is "a privilege tax imposed upon persons engaging in business within the City" and "measured by the person's gross receipts from all taxable business activities3 attributable to the City."4

In 2018, the City placed Prop C on the ballot and on November 6, 2018 San Francisco voters passed it by a simple majority vote of 61.34 percent.5 Prop C imposes the Tax on all businesses located in San Francisco that receive more than $50 million in total San Francisco taxable gross receipts, effectively doubling the GRT rates for those businesses.6 Unlike Prop E, Prop C is a special tax, not a general tax, because the funds are to be placed in the "Our City, Our Home Fund", rather than the general fund.

Quickly after the passage of Prop C, a dispute arose regarding whether special voter initiatives, like Prop C, must be passed by supermajority vote to be valid.7 The uncertainty regarding the voting requirements stems from a 2017 California Supreme Court decision, California Cannabis Coalition v. City of Upland.8 While the San Francisco Superior Court recently upheld the validity of Prop C, holding that special tax voter initiatives do not need a supermajority to pass, that decision is currently being reviewed by the California Court of Appeal, First Appellate District.9

Next Steps

While the City is requiring taxpayers to pay the Tax during the pendency of the litigation, the City enacted an ordinance that provides that the Prop C revenue will not be spent unless a taxpayer irrevocably waives its right to a refund (based on any of the simple majority validity arguments).10 To induce taxpayers to waive their right to a refund of the Tax, the City is offering a 10 percent credit (the "Refund Credit") against a taxpayer's Tax liability if they sign a closing agreement waiving the right to a refund in the event the City loses the Prop C litigation.11

Taxpayers subject to the Tax, therefore, have two choices: (1) apply for the Refund Credit for the 2019 tax year by entering into a closing agreement with the City, or (2) file a claim for refund for the 2019 tax year.

Applying for the Refund Credit

To take advantage of the Refund Credit for the 2019 tax year, taxpayers must enter into a closing agreement with the City between January 1, 2020 and February 28, 2020.12 The Refund Credit offer will remain outstanding until the earlier of the finality of the Prop C litigation or the 2024 tax year.13 The City provides a draft Refund Credit form on its website, but taxpayers should carefully review the draft form to make sure they agree with all of the provisions before signing.14

Filing a Refund Claim

If a taxpayer decides not to apply for the Refund Credit, then it should file a claim for refund to preserve its statutory refund rights for the full amount of the Tax if Prop C is ultimately invalidated by the courts. A taxpayer must file a claim for refund within one year of the filing of its return.15

The decision to apply for the Refund Credit or file a refund claim should be carefully evaluated by every taxpayer based on its individual facts and circumstances.