How to Start a Business in San Francisco, California

The Prop M Revolution — What Changed in 2026

If you’ve been putting off starting a business in San Francisco because of the city’s reputation for punishing small business taxes, the math changed. Significantly.

Proposition M, passed by San Francisco voters in November 2024, rewired the city’s entire business tax structure. The headline changes that took effect for the 2025-2026 tax year:

Small business exemption threshold jumped from $2.25M to $5M in SF gross receipts. If your business brings in less than $5 million from San Francisco sources, you don’t owe the Gross Receipts Tax or the Overpaid Executive Tax. You still register and pay the annual business registration fee, but the layered tax stack that gave SF its reputation is gone for the vast majority of small businesses.
Business activity categories reduced from 14 to 7. The old system required sorting your business into one of 14 categories, each with different rates and calculation methods. The new system consolidates those into 7 broader categories. Simpler classification, fewer disputes.
Approximately $10 million in permit, license, and other fees eliminated starting March 31, 2026. Forty-nine specific fees that used to pile onto business costs are being waived. The restaurant and nightlife sectors benefit most: 91% of restaurants and 87% of nightlife businesses will see their full annual license bills eliminated.
Deadlines consolidated. The Business Registration Fee and Gross Receipts Tax now share the same deadline: the last day of February (March 2, 2026 because February 28 falls on a Saturday). One filing, one deadline.

For context: before Prop M, a small tech company doing $3 million in SF revenue would have been subject to the Gross Receipts Tax. Now that same company is fully exempt. The only city obligation is the annual Business Registration Fee, which for most small businesses runs $150-$500.

This doesn’t make San Francisco cheap — commercial rent and talent costs remain among the highest in the country. But the city tax burden for businesses under $5M is now genuinely competitive.

What Prop M doesn’t change: The city’s regulatory environment — zoning, planning permits, formula retail restrictions, and building code requirements — remains among the strictest in California. Tax relief and regulatory relief are different things. Starting a restaurant in SF is now cheaper from a tax perspective but still requires the same permitting process. The fee eliminations help (especially for restaurants and nightlife), but the timeline for permits hasn’t changed.

Step 1 — File Your Entity with the California Secretary of State

Before dealing with San Francisco’s city requirements, you need a legal business entity registered with the state.

LLC Formation:

File Articles of Organization (Form LLC-1) for $70
File online at bizfileOnline.sos.ca.gov
Processing time: typically 3-5 business days for online filings
Statement of Information (Form LLC-12): $20, due within 90 days of formation, then every two years

Corporation Formation:

Articles of Incorporation: $100
Same portal: bizfileOnline.sos.ca.gov

Registered Agent:

Required for every LLC and corporation
Must have a physical California address (not a PO Box)
If you don’t have an office, registered agent services run $50-200 per year

The $800 Franchise Tax:

Every LLC doing business in California pays $800 per year to the Franchise Tax Board (FTB)
Due by the 15th day of the 4th month after formation, then April 15 annually
AB 85 first-year exemption expired December 31, 2023 — the $800 hits from year one
This is a state tax, completely separate from anything San Francisco charges
LLCs grossing over $250K pay an additional LLC fee: $900 ($250K-$500K), $2,500 ($500K-$1M), $6,000 ($1M-$5M), $11,790 ($5M+)

Seller’s Permit: If your business sells tangible goods, register with the California Department of Tax and Fee Administration (CDTFA) for a seller’s permit. Registration is free at cdtfa.ca.gov. San Francisco’s combined sales tax rate is 8.625%.

EIN: Free from the IRS at irs.gov. Takes about 10 minutes online. Required for opening a business bank account, hiring employees, and filing taxes.

California employer requirements (if hiring): Register with the Employment Development Department (EDD) for payroll tax. California mandates unemployment insurance, state disability insurance, and paid family leave contributions. AB5 rules on independent contractor classification are strictly enforced — and in SF’s gig-economy-heavy market, misclassification audits are common. When in doubt, treat workers as employees.

State minimum wage vs. SF minimum wage: The state minimum wage is $16.90 per hour (2026). San Francisco’s minimum wage is $19.18 per hour (effective July 1, 2025), rising to $19.61 per hour effective July 1, 2026. Always use the SF rate for workers performing services in the city — it’s among the highest in the nation.

The state filing is identical whether you’re in San Francisco, Fresno, or Bakersfield. It’s the city layer that varies — and in SF, Prop M just made that layer significantly lighter.

Step 2 — Register with the SF Treasurer & Tax Collector

San Francisco’s business registration is handled by the Treasurer & Tax Collector at sftreasurer.org. Every business operating within city limits must register, regardless of size, structure, or industry.

Annual Business Registration:

Required for all businesses in SF — no exemptions from the registration itself
Registration fee is based on SF gross receipts or payroll expense, depending on which applies to your business category
The registration fee is separate from taxes — think of it as the base entry cost for operating in the city
Most small businesses pay between $150 and $500 for the registration fee

The Unified Annual Business Tax Form: Under the new Prop M system, one consolidated form covers everything: your Annual Business Registration, Gross Receipts Tax (if applicable), Homelessness Gross Receipts Tax (if applicable), Commercial Rents Tax (if applicable), and Overpaid Executive Tax (if applicable).

For businesses under $5M in SF gross receipts, most of those line items will be zero. You’re essentially filing the registration portion and paying the registration fee.

First filing under new rules: The first joint Annual Business Tax filing under Prop M rules is due March 2, 2026.

How to register: Create an account at sftreasurer.org. New businesses register online and provide entity name, DBA, business address, SOS entity number, EIN, NAICS code, estimated SF gross receipts, and business start date. Have all of this ready before starting — the online form expects you to complete it in one session.

Timing your registration: Register as soon as you begin business activity in SF. Don’t wait until you’re generating revenue — the obligation triggers when you start doing business, not when you start billing clients. A freelancer who begins marketing their services to SF clients in January but doesn’t invoice until March still started their business in January.

Step 3 — Determine Your Gross Receipts Tax Obligation

For 2026 and beyond, this step is dramatically simpler than it used to be.

If your SF gross receipts are $5M or less: You’re exempt from the Gross Receipts Tax. You don’t need to file a Gross Receipts Tax return. You don’t owe the Overpaid Executive Tax. Your only city obligation is the Annual Business Registration and its associated fee.

This single change — the $5M threshold — eliminates the tax filing burden for the vast majority of SF businesses.

If your SF gross receipts exceed $5M: You’ll need to determine your Business Activity Category. The new system uses 7 categories (down from 14), each with progressive rates that increase as your receipts grow.

Rates range from 0.1% to 3.716% depending on your category and the amount of receipts
The structure is progressive: higher receipts trigger higher marginal rates within each category
Categories are based on NAICS codes — determine yours at census.gov/naics

Homelessness Gross Receipts Tax: Applies only to businesses with SF gross receipts over $25M. If you’re reading this guide as a startup founder, this won’t apply to you for a while.

The old reputation vs. the new reality: Before Prop M, SF’s layered tax stack — Gross Receipts Tax + Homelessness Tax + Commercial Rents Tax + Overpaid Executive Tax + registration fees + 14 confusing categories — was a legitimate deterrent. The new system preserves those taxes for large businesses (where the revenue impact is manageable) and effectively zeros them out for businesses under $5M. That’s a structural shift, not a marketing message.

One important caveat for growing businesses: If your SF gross receipts exceed $5M, the rate range under Prop M actually increased compared to the previous system — from a former lower cap up to 3.716% at the highest bracket. Prop M is a better deal for small businesses but a larger obligation for big ones. If your business is on a growth trajectory toward $5M+, understand the progressive rate structure you’ll eventually enter. Plan for it rather than being surprised by it.

Step 4 — Handle Zoning, Permits, and Planning

San Francisco’s regulatory environment remains strict compared to most California cities. The tax changes from Prop M don’t affect the permitting process, which can still be time-consuming and expensive depending on your business type and location.

SF Planning Department:

Conditional use permits are required for many business types in many neighborhoods
The type of permit you need depends on your business activity and the zoning district of your location
Processing times for conditional use authorization can run months — plan accordingly

Formula Retail Restrictions:

Chain stores and restaurants with 11 or more locations nationally need conditional use authorization in many SF neighborhoods
This is San Francisco’s protection mechanism for local independent businesses
If you’re opening an independent shop, this rule works in your favor

Entertainment Commission:

Permits required for nightlife venues, music venues, and any business hosting entertainment
The new Prop M fee waivers eliminate many Entertainment Commission fees starting March 31, 2026

Health Department:

Required for food businesses — both brick-and-mortar restaurants and food trucks
SF Department of Public Health handles permits and inspections

Building Code and ADA:

SF’s building code and ADA compliance requirements are among the strictest in the state
Budget for inspections, and potentially for bringing a space up to code
Older buildings (and SF has many) may need significant work to meet current requirements
Seismic retrofit requirements can add significant costs for businesses in unreinforced masonry buildings

CalOSHA and workplace safety:

California’s Cal/OSHA requirements apply to all SF employers
SF’s specific focus on ergonomics and workplace health is more aggressive than many other jurisdictions
Tech companies and offices: ergonomic assessments and injury prevention programs are expected

AB5 and contractor classification:

San Francisco has been at the center of the AB5 debate — Uber, Lyft, and DoorDash are all headquartered here
If your business model relies on independent contractors, get legal advice on AB5 compliance before launching
Misclassification penalties in California can include back wages, benefits, taxes, and penalties per violation

What It Costs in 2026 (Reality Check)

Government fees are the knowable costs. Here’s the full picture.

State costs (same for every CA city):

Secretary of State LLC filing: $70
Statement of Information: $20
Franchise Tax (FTB): $800/year
State total: $890 minimum in year one

City costs (SF-specific):

Business Registration Fee: $150-$500 for most small businesses
Gross Receipts Tax: $0 if under $5M in SF gross receipts (thanks to Prop M)
City total: $150-$500 in year one for most startups

Combined government startup cost: approximately $1,040-$1,390

The costs that actually determine whether SF is viable for your business:

Commercial rent: $50-80+ per square foot annually in many neighborhoods. A 1,000 sq ft space could run $4,000-7,000+ per month. This is the real barrier to entry in San Francisco, not the business tax.
San Francisco minimum wage: $19.18 per hour (effective July 1, 2025), rising to $19.61 per hour effective July 1, 2026. That’s the highest of any major California city.
Sales tax: 8.625% combined rate
Talent costs: competing with tech company salaries for employees, even for non-tech roles

The honest assessment: Prop M made SF’s tax structure genuinely friendly for small businesses. But the city’s cost of living — driven by rent, wages, and the general expense of operating in a dense, high-demand urban market — remains the primary challenge. The businesses that thrive here are those that benefit from SF’s specific advantages: access to the tech ecosystem, tourism volume, dense foot traffic, and a consumer base with high spending power.

SF-Specific Business Considerations

Industry mix: San Francisco remains a global center for technology — AI, SaaS, fintech, biotech — with a massive B2B market for companies that serve tech workers and tech companies. But the city’s economy extends well beyond tech: tourism brings 25 million+ visitors per year, supporting a deep hospitality, food, and retail sector.

Neighborhood identity matters more in SF than in almost any other city. Each neighborhood has distinct customer demographics, foot traffic patterns, and community expectations:

SOMA (South of Market): Tech companies, startups, and office workers. Good for B2B services, lunch spots, and tech-adjacent businesses.
The Mission District: Diverse, creative, and increasingly upscale. Strong food and nightlife scene. Community expectations around local ownership and cultural sensitivity are high.
The Marina/Cow Hollow: Affluent young professionals. Boutique retail, fitness, and dining do well. Higher rents.
Hayes Valley: Design-forward retail, boutique shopping, and upscale dining. Small storefronts at premium rents.
North Beach: Italian heritage, tourism, and nightlife. Established restaurant and bar scene.
The Richmond and Sunset Districts: Residential neighborhoods with neighborhood-serving businesses — restaurants, services, retail. Lower rents than central SF.
Dogpatch/Bayview: Industrial-to-residential conversion area with growing creative and food economy. Lower rents and more available space.

A business concept that works in the Mission may fail in the Marina — and vice versa. Research your specific neighborhood before committing to a lease.

Parking and delivery logistics: SFMTA commercial parking permits are important for any business that depends on deliveries, client visits, or service vehicles. SF’s parking situation is notoriously constrained — factor this into your operations plan. If your business relies on receiving shipments, confirm that your location has a loading zone or freight access. Restaurants, retail shops, and warehousing operations in dense neighborhoods face daily delivery challenges that don’t exist in suburban markets.

Insurance and banking: California requires workers’ compensation insurance for any business with employees. General liability insurance is practically essential in SF’s litigious market. Professional liability insurance is critical for service-based businesses. Budget $1,000-$5,000 per year depending on your industry. For banking, SF has a strong selection of both national banks and community institutions — open a dedicated business bank account as soon as you have your EIN.

The hybrid work opportunity: San Francisco’s commercial real estate market has shifted since 2020. Sublease space is available in neighborhoods that were previously impossible to afford. Some landlords are offering shorter lease terms and more favorable conditions for small businesses. If you’ve been priced out of SF in the past, explore current options — the market has more flexibility than it did five years ago, particularly in SOMA and the Financial District.

Small business resources:

SF Small Business Development Center (SBDC): free business advising, workshops, and technical assistance
SBA San Francisco District Office: loan programs, contracting assistance, and disaster recovery
Renaissance Entrepreneurship Center: training programs focused on underserved entrepreneurs
SF Office of Small Business: the city’s advocacy office for small business issues, including help with permitting

Remote and hybrid considerations: If you’re starting a business that can operate partially or fully remote, SF gives you access to the city’s network and customer base while potentially reducing your commercial rent burden. Many SF businesses now operate with smaller physical footprints combined with remote work, which aligns well with the post-Prop M tax structure — lower overhead, lower receipts attributed to the city, and a registration fee that reflects your actual SF activity.

CCPA and data privacy: If your business handles consumer data, California’s Consumer Privacy Act (CCPA) applies once you cross certain thresholds. In a tech-heavy city like SF, many startups handle significant amounts of user data from early on. Build privacy-compliant data practices from the start — retrofitting later is more expensive and legally risky.

Paid sick leave and family leave: California mandates paid sick leave for all employees (at least 40 hours or 5 days per year). SF has its own Paid Parental Leave Ordinance that supplements the state program. Budget for these benefits when calculating your employee costs.

The combination of Prop M’s tax relief and SF’s concentration of capital, talent, and customers makes 2026 a more favorable time to start a business here than any year in recent memory. The city is still expensive. But the tax system is no longer the reason to avoid it.