INSIGHT

San Francisco’s Early Care and Education Commercial Rents Tax: What Commercial Landlords Need to Know

Sue P. Leighton • June 8, 2026

Services: State and Local Taxes

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If you lease commercial or warehouse space in San Francisco, your tax obligations don’t stop at the city’s Gross Receipts Tax. Since 2019, commercial landlords have also been subject to the Early Care and Education (ECE) Commercial Rents Tax, an additional gross receipts tax on rental income, passed by San Francisco voters as Proposition C in June 2018 to fund childcare and early education programs across the city.

The tax has faced legal challenges over the years, but those battles are settled. After a series of court rulings, the California Supreme Court declined to hear a final appeal in April 2021, leaving the tax fully and permanently in place. With Proposition M passing in November 2024, the rules have been updated in meaningful ways. If your compliance approach is based on older guidance, now is the time to revisit it.

What the ECE Commercial Rents Tax Covers

The ECE tax applies to gross receipts you receive from leasing or subleasing commercial or warehouse space located in San Francisco. The rates are straightforward:

• Warehouse space: 1% of gross receipts
• All other commercial space: 3.5% of gross receipts

These rates sit on top of your existing Gross Receipts Tax obligations, making it critical to factor the ECE tax into your overall San Francisco tax planning, particularly if you hold multiple properties or manage significant lease volume.

Exemptions Worth Knowing

Not all leasing activity is subject to the ECE tax. Several exemptions apply, and understanding them can meaningfully affect your liability.

Space-based exemptions exclude the 3.5% commercial rate for space used for industrial purposes, arts activities, retail operations, or non-formula retail services. Formula retail is defined as any retail sales or service business with 11 or more locations in operation.

Business-level exemptions apply to:

• Small businesses with San Francisco gross receipts from the preceding tax year at or below $2,325,000, the updated threshold set by Proposition M in November 2024 (previously $1,120,000)
• Organizations exempt from income taxation under certain provisions of the California Revenue and Taxation Code or the Internal Revenue Code
• Receipts from leases to qualifying nonprofits, federal, state, or local governments, or any business activity that San Francisco is otherwise prohibited from taxing

How and When to File

The ECE Commercial Rents Tax is filed as part of your annual San Francisco business tax return. Estimated quarterly payments are due on April 30, July 31, and October 31 each year. You’re required to file a timely annual return regardless of whether you owe any liability after credits are applied.

What Proposition M Changed and Why It Matters Now

Proposition M, approved by San Francisco voters in November 2024, made significant changes to the city’s overall business tax structure. For the ECE Commercial Rents Tax specifically, the most consequential update was raising the small business exemption from $1,120,000 to $2,325,000, which means some landlords who were previously subject to the tax may now be exempt based on their total San Francisco gross receipts.

It’s worth noting that this $2,325,000 threshold is lower than the $5,000,000 small business exemption that now applies to most other San Francisco business taxes under Proposition M, so commercial landlords should evaluate their ECE obligations separately rather than assuming uniform treatment across all city taxes.

Staying Compliant in a Changing Tax Environment

San Francisco’s business tax landscape continues to evolve, and the ECE Commercial Rents Tax is just one layer of a multilayered compliance picture for commercial property owners in the city. Between shifting exemption thresholds, updated filing requirements, and the interplay between the ECE tax and the broader Gross Receipts Tax regime, the stakes for getting it right are real.

BPM’s State and Local Tax (SALT) services include a team that works with commercial landlords and real estate businesses to navigate San Francisco tax requirements, identify applicable exemptions, and build compliance strategies that hold up over time.

Have questions about how the ECE Commercial Rents Tax applies to your properties? Contact us today to connect with a member of our SALT team.