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Biotechnology Payroll Tax Exclusion

OVERVIEW

In 2004, the City passed an unprecedented payroll expense tax exclusion for biotechnology companies in San Francisco. The Biotechnology Payroll Expense Tax Exclusion is a valuable tax incentive that allows qualified biotechnology companies to be excluded from the City’s payroll expense tax – San Francisco’s local business tax – on qualified employees, for 7 ½ years. This page provides background on the program, guides businesses through the process of applying for this tax exclusion, and includes contact information if you need further assistance or have any questions.

The necessary forms are attached to the right and include:

  1. Program Fact Sheet (pdf)
  2. Biotech Payroll Tax Exclusion Application (Word)
  3. Affidavit for Renewal of the Biotech Payroll Tax Exclusion (Word)
  4. First Source Employer’s Projection of Entry Level Positions Form (Word)
  5. Workforce Affidavit 1.2014 (Word)

PROGRAM DETAILS

Program Benefit: Exclusion from 1.5% tax on payroll for 7 ½ years from the commencement of the biotechnology business in the City of San Francisco.
Eligibility: Qualified biotechnology business located within the City of San Francisco on or before August 11, 2014.
Qualified Biotechnology Businesses: For the purposes of qualifying for this program, biotechnology business means conducting biotechnology research and experimental development, and operating laboratories in the City of San Francisco for biotechnology research and experimental development, using DNA, cells, and/or bioprocessing techniques, as well as the application thereof to the development of therapeutics, diagnostic products and/or devices to improve human health, animal health, and agriculture. Further information regarding this can be viewed in the "Business and Tax Regulations Code" section of the San Francisco Municipal code (Article 12-A, Sec 906.1).
Qualified Payroll Tax Expenses: Any person engaging in biotechnology business within the City may exclude from their payroll expense all compensation paid to all employees who perform substantially all work or render substantially all services in direct support of the biotechnology business. Outside contractors are not considered employees.
Approval Process: The San Francisco Department of Public Health evaluates and determines eligibility of biotechnology businesses qualifying for this incentive program. The application and approval process is summarized below.
Application Deadline: Businesses wishing to claim this Exclusion must file an annual Payroll Expense Tax Return with the Tax Collector regardless of the amount of tax liability shown on the return, after claiming the tax Exclusion provided for in this program. The application is available for download on the right.
First Source Hiring Program: Businesses wishing to claim this exemption must participate in the City's First Source Hiring Program. Businesses must complete the “Employer’s Projection of Entry Level Positions” form and submit to the Office of Economic and Workforce Development on or before January 31 as part of the initial application for the Biotech Payroll Tax Exclusion, and on or before January 31 of every year after the year the application is first approved.
Reporting and Records: Workforce Affidavit: Businesses wishing to claim this Exclusion must file an annual affidavit with the Office of Economic and Workforce Development detailing the total number of individuals hired, the number of individuals hired who were referred by the San Francisco Workforce Development Sytem, and the duration of employment for each individual hired. The affidavit must be filed with the Office of Economic and Workforce Development on or before January 31 of every year after the application is first approved.

Qualified Employee Documentation: Businesses wishing to claim this Exclusion must maintain a reasonable method of documentation that can be reviewed or verified objectively that tracks how employees whose compensation qualifies for the payroll expense tax exclusion spend their time at work and provide such documentation to the Tax Collector upon request.
Qualification Renewal: After approval, the qualified biotechnology business must file an annual Affidavit for Renewal with the Department of Public Health affirming that they continue to meet the eligibility criteria as determined by the Department of Public Health. The affidavit must be filed with the Department of Public Health on or before January 31 of every year after the year the application is first approved.
Credit Calculation as San Francisco Transitions to Gross Receipts Tax: Businesses granted a Biotechnology Exclusion in a given tax year may credit against the sum of their Gross Receipts Tax and Payroll Expense Tax liability for that tax year the dollar amount by which that business would have been able to reduce its payroll expense tax liability under exclusion as if the payroll expense tax were in full force and effect and calculated at the rate of 1.5%. In no event shall such credit reduce a person’s combined Gross Receipts Tax and Payroll Expense Tax liability to less than zero. The credit may not be used by related entities or other members of a person’s combined group.
Further Information: The Biotech Payroll Tax Exclusion was approved on August 12, 2004 (Ordinance 209-04) and amended on May 21, 2010 (Ordinance 105-10). Further information regarding this ordinance can be viewed in the “Business and Tax Regulations Code” section of the San Francisco Municipal Code (Article 12-A, Sec 906.1).

 

PROCESS

Step 1: Application

Complete and submit the Application for Biotech Payroll Expense Tax Exclusion to the Department of Public Health for review and evaluation on or before January 31 for the previous calendar year. Applications sent or postmarked after the January 31st deadline will be considered denied for that tax year. The application is available for download on the right. E-mail, fax or mail the completed and signed application to:

Sneha Patil
Health Program Planner
San Francisco Department of Public Health
101 Grove Street, Room 330
San Francisco, CA 94102
Phone: 415.554.2795
Fax: 415.554.2552
Email: sneha.pail@sfdph.org

Step 2: Review and Determination
The Department of Public Health will review and make a determination of eligibility. The Department of Public Health will notify applicants through a Letter of Determination whether the applicant’s application was approved or denied within 10 business days of receipt of a complete application.

Step 3: File Payroll Expense Tax Return
If the application is approved, the Department of Public Health will notify the Treasurer and Tax Collector’s Office of the name of the qualified biotechnology business. The qualified biotechnology business must file an annual Payroll Expense Tax Return with the Tax Collector regardless of the amount of tax liability shown on the return after claiming the tax Exclusion provided for in this program.

Step 4: Confirmation of Exclusion
No confirmation will be sent if an applicant's Exclusion is accepted as part of the applicant's Payroll Expense Tax filing / payment. However if the business is not on the approved list from the Department of PUblic Health, the business will receive a denial letter from the Treasurer and Tax Collector's Office.

Step 5: Enroll in First Source Hiring Program
Businesses wishing to claim the Payroll Tax Exclusion must participate in the City's First Source Hiring Program. Businesses must complete the “Employer’s Projection of Entry Level Positions” form and submit to the Office of Economic and Workforce Development on or before January 31 as part of the initial application for the Biotech Payroll Tax Exclusion, and on or before January 31 of every year after the year the application is first approved.

Step 6: Reporting and Record Keeping
Business wishing to claim this exclusion must file an annual Workforce Affidavit with the Office of Economic and Workforce Development on or before January 31 of every year after the year the application is first approved and maintain documentation on qualified employees as detailed above.

Step 7: Renewal
After approval, the qualified biotechnology business must file an annual Affidavit for Renewal of the Biotechnology Payroll Expense Tax Exclusion with the Department of Public Health affirming that they continue to meet the eligibility criteria on or before January 31 of every year after the year the application is first approved. A renewal confirmation letter will be issued within 10 business days.

CONTACT INFORMATION

Program Overview and Biotech Industry Liaison

Natosha Safo
Business Development Manager
City and County of San Francisco
Office of Economic and Workforce Development
Phone: (415) 554-6425
Email: natosha.safo@sfgov.org
Program Qualification and Review

Sneha Patil
Health Program Planner
San Francisco Department of Public Health
Phone: 554.2795
Fax: 415.554.2552
Email: sneha.patil@sfdph.org
First Source Hiring Program and Workforce Development Services

Business Services Specialist
City and County of San Francisco
Office of Economic and Workforce Development
Phone: (415) 701-4848
Email: business.services@sfgov.org
Tax Filings

Loretta R. Lieberman
Business Tax Account Services Manager
City and County of San Francisco
Office of Treasurer and Tax Collector
Phone: (415) 554-7339
Fax: (415) 554-7316
Email: loretta.lieberman@sfgov.org

 

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