What is the AB63 tax enforcement program?
As a result of recent state legislation, the California State Franchise Tax Board (FTB) is now authorized to disclose certain records related to business activities of residents, corporations and other entities within the City of Los Angeles. By matching the FTB data to our existing records we now have an additional, effective tool to identify unregistered businesses within the City. Revenue generated by this program will be used to fund future business tax reform and affordable housing.
Why did I receive a notification?
Our records show that you or a spouse are reporting some type of business activity to the Franchise Tax Board and may be located in the City of Los Angeles, but have not obtained a Tax Registration Certificate with the City. Joint filers may receive the notification letter addressed to the primary name listed on the tax return, even though the other name may have the City tax liability.
How long do I have to respond to the notification?
Please refer to the letter received for a specific deadline to respond and please be aware that if you have a City of Los Angeles business tax liability and do not respond, interest and penalties on the tax liability will continue to accrue. To file in a timely manner and avoid interest and penalties, City of Los Angeles Business Tax must be filed on or before the end of February each tax year. For tax year 2016, filing must be done on or before February 28, 2017.
What happens if I do not respond?
If you do not respond, you may be in violation of LAMC Section 21.03 (Imposition of Tax) and your file could be forwarded to the City Attorney's office for appropriate follow-up.
I started a business this year. Are there any exemptions available for starting a business in the City of Los Angeles or relocating a business to the City?
LAMC Section 21.30 provides an exemption for a brand new business that is started in the City of Los Angeles or an existing business from outside the City of Los Angeles that relocates into the City. A brand new business or a business that relocates from outside the City is exempt from paying the first year business tax provided the business obtains the Tax Registration Certificate from the City by the end of the second calendar month of the business start date. A business that does not obtain the Tax Registration Certificate by this deadline cannot take the first year exemption and will be liable for the first year fee and any interest and penalties for late filing. Additionally, the City has an exemption for the second year of business provided the first year taxable gross receipts are less than $500,000 and the Business Tax Registration renewal is filed on or before the end of February deadline of the 2nd calendar year of business.
I do not consider myself to be in business. What does the City of Los Angeles consider to be a business?
Most activities conducted within the City for gain or benefit are considered engaging in business and subject to business tax. Specifically, the LAMC defines "business" as any activity, enterprise, profession, trade or undertaking of any nature conducted or engaged in, or ordinarily conducted or engaged in, with the object of gain, benefit or advantage, whether direct or indirect, to the taxpayer or to another or others. The term shall include operations of subsidiary or independent entities conducted for the benefit of others and at no profit to themselves, nonprofit businesses and trade associations. A person shall not be deemed to be engaged in business solely by reason of receipt of dividend or interest income from passive investments (LAMC Section 21.00, Subsection (h)). A person who is an employee and whose compensation is reported on a Federal Form W-2 is not in business and is not subject to the business tax. Please contact us to discuss the specific applicability of the above definition to your situation.
I receive a 1099 form instead of a W-2 for my work. Am I required to have a City of Los Angeles Business Tax Registration Certificate?
Those that work as an "independent contractor" and are paid by 1099 versus W-2 may be liable for City of Los Angeles Business Tax. Persons that perform work in the City of Los Angeles as an independent contractor as defined by LAMC Section 21.00, Subsection (j) are normally considered to be engaged in business and are liable for the City Business Tax. If you are unsure if the City's business tax ordinance applies to you, please contact us to discuss the specific applicability of the above definition to your situation.
What is the City of Los Angeles definition of an "independent contractor?
The LAMC defines "independent contractor" as any entity, other than an individual, that performs services for a principal; and any individual who performs services for a principal for a specified recompense for a specified result, under control of the principal as to the result of the work only and not as to the means by which such result is accomplished. An independent contractor receives income that should be reported to the Internal Revenue Service by the principal on IRS Form 1099, should report the income to the Internal Revenue Service on IRS Form 1040, Schedule C and may deduct the cost of the use of a home for business purposes on said Schedule C. (Added by Ord. No. 172,783, Eff. 9/30/99) (LAMC Section 21.00, Subsection (j)).
What is the City of Los Angeles definition of an employee?
The LAMC defines "employee" as any individual who performs services for a principal in a capacity other than as an independent contractor. An employee receives income that should be reported to the Internal Revenue Service by the principal on IRS Form W-2, should not report the income to the Internal Revenue Service on IRS Form 1040, Schedule C and may not deduct the cost of the use of a home for business purposes on said Schedule C. (Added by Ord. No. 172,783, Eff. 9/30/99) (LAMC Section 21.00, Subsection (k)).
I looked at the complete definitions for "independent contractor" and "employee" in the LAMC Section 21.00 and even though my compensation is reported by 1099, I fit the definition of "employee." What can I do?
Persons who are paid by 1099 and not W-2 can be considered "independent contractors" engaged in business and subject to City of Los Angeles business tax. The definitions for independent contractor and employee were defined in City of Los Angeles Municipal Ordinance #172,783 and contained in the LAMC Section 21.00,Subsections (j) and (k). Those that may not fall into either category or are actually employees may file an Employee Certification Form [PDF 2 pages, 1.3 MB] with the City's Office of Finance. The Employee Certification must be signed by the employer, stating that the employee is an employee based on LAMC Section 21.00, Subsection (k).
I conduct a business from my home. Am I required to register with the City?
Yes, home-based businesses are subject to City Business Tax. In almost all cases, businesses located within the City of Los Angeles, whether at a commercial or residential location, require that a Business Tax Registration Certificate be obtained from the Office of Finance.
Throughout the year, I am involved in consulting on a part-time basis. Do I have a City tax liability?
Yes, businesses both large and small are required to obtain a Business Tax Registration Certificate and to annually submit a tax renewal form to be in compliance with the LAMC. As long as the consulting work is performed as an independent contractor and attributable to a location within the City of Los Angeles, such as your residence, a business tax liability with the City may exist.
I operate a childcare service, do I have to pay City of Los Angeles Business Tax?
Any person conducting business as a childcare provider for more than eight children is required to obtain a City of Los Angeles Business Tax Registration and is subject to City business tax. Under LAMC Section 21.41 (formerly Section 21.189.3), Subsection (b), "child care" shall mean providing non-medical care for children who are under 18 years of age in need of personal services, supervision or assistance essential for sustaining the activities of daily living or for the protection of the individual on less than a 24 hour basis.
Any person conducting business as a Small Family Day Care is exempt from the requirement to obtain a City of Los Angeles Business Tax Registration. Section 1596.78 of the State of California's Health and Safety Code defines a Small Family Day Care Home as a home that provides family day care for eight or fewer children, including children under the age of 10 years who reside at home.
In addition, a person conducting business as a residential day care is required to obtain and maintain a Day Care Occupancy Fire Permit (F518) if there are more than 12 children cared for.
I am liable for City Business Tax for the past two years. What kind of interest and penalties are involved?
By ordinance, the City may seek principal, interest and penalties for the current tax year and the prior seven tax years. After the delinquent date each year interest and penalties accrue on all outstanding tax liabilities. The interest rate is re-calculated annually to reflect the average Federal short-term rate plus 3 percentage points. Interest rates are listed in the following table:
The penalty amount is graduated, beginning in the first month at 5% and increasing to a maximum of 40% after the fourth month of delinquency.
|Number of Delinquent Months||Additional Penalty||Total Penalty|
Taxpayers may request a waiver of the penalty amount as long as the request is in writing and the principal tax and interest amounts due are paid. Written requests for a waiver of the penalty will be considered on a case-by-case basis. If the waiver is denied, the penalties will be billed at a future date.
I live in Los Angeles but my business is located outside the city limits. What are my liabilities for City of Los Angeles Business Tax?
As long as all business activity is conducted outside of the City of Los Angeles, there is no liability for the City of Los Angeles Business Tax.
What if I received this notification and I no longer have a business?
If you previously conducted business in the City of Los Angeles and never registered for the Business Tax Registration, please provide gross receipts for the applicable years of business, out-of-business date and the information asked for on the application. Please note that there is a business tax liability for each of the prior three calendar years of operation within the City, but none for calendar years when the business was not operated.
I own a dwelling or commercial property that I lease or rent out. Is that considered a business?
The revenue collected from such properties located within the City is considered business income earned and is taxable under the LAMC.
Can I pay in installments?
Yes, if your total tax liability is $1,000 or more send the completed application with a formal letter requesting to pay the liability in installments and it will be referred to the Billing Unit. Please note that your total liability will include the sum of principal, interest and penalty owed.
If I have a business that needs to be registered but the notification was addressed to the previous owner, what do I do?
If you are the new business owner and need to apply for a Tax Registration Certificate, complete the application and note on it that the name or address is incorrect, so that we can register your business as well as update our records in regards to the previous business.
What is Single Category Filing and who is eligible for this option?
The City Council adopted a revision to the business tax ordinance to allow "Single Category Filing" (SCF) which added Section 21.06.1 to the LAMC. This ordinance became effective January 1, 2004. Single Category Filing is optional, at the discretion of the taxpayer. Under the SCF option, a taxpayer with multiple classifications whose rates are based on the annual gross receipts may elect to pay 100% of the gross receipts business taxes based on a single classification, provided that classification accounts for 80% or more of the entire gross receipts after any apportionments. For more information on SCF please visit our Single Category Filing page or contact us to discuss the specific applicability of the SCF to your situation.
Where do I mail the application?
City of Los Angeles
Office of Finance, Tax and Permit Division
P.O Box 53478
Los Angeles, CA 90053-0478