Small Business Exemption FAQ

Small Business Exemption Informational Video ( English / Spanish )

Small Business Exemption FAQ

LAMC Section 21.29, Subsection (a) has been amended to provide an increase in the small business exemption threshold. On July 1, 2005, the small business exemption threshold increased from $5,000 to $50,000 and on July 1, 2006, it increased from $50,000 to $100,000, with reinstatement of the timely filing requirement for both increases. * Please note that the small business exemption is provided only for registered businesses. Another tax exemption  is available to new businesses in Los Angeles. Keep in mind that the $100,000 small business exemption requires that businesses file a timely renewal statement and this exemption became available January 1, 2007, during the 2007 business tax renewal period.

Please remember that in order to qualify for this exemption, a small business must have tax measures that do not exceed $100,000 for the 2008 renewal in taxable and nontaxable gross receipts from within and out of the City of Los Angeles (worldwide). No tax is required to be paid by any small business, provided that the small business files a timely renewal. Taxpayers who do not file a renewal timely under LAMC Section 21.29 are considered delinquent and will not qualify for the small business exemption.

Examples:

During 2016, an out-of-city taxpayer had total worldwide taxable and non-taxable gross receipts of $94,500, (in-city taxable gross receipts were $25,000). On February 4, 2017, the business taxpayer files the annual business tax renewal and receives a small business exemption based on the total worldwide taxable/non-taxable gross receipts of $94,500.

During 2016, an in-city taxpayer had taxable and nontaxable gross receipts of $107,000 (within and out of the City of Los Angeles). The taxpayer would be liable for the business tax in 2017 even though the gross receipts generated as a result of the in City activities were below $100,000. See below.

An in-city retailer has the following sales for calendar year 2016:

 

Worldwide Gross Receipts

 

 Taxable Tax Measures (apportioned)

In City

$  5,000

100%

$  5,000

Out-of-City
(California Sales)

$100,000

40%
Taxable: using Ruling 14

$40,000

Interstate Sales

 $  2,000

Not taxable

$        0

 

$107,000

 

$45,000

The taxpayer does not qualify for the business tax exemption, since the total taxable and nontaxable gross receipts within and out of the City exceed $100,000, even though the reportable tax measures are $45,000. In this example, the taxpayer would pay based on the applicable tax rate.

If I believe that I qualify for the small business exemption, does this mean that I do not have to report income of less than $99,000?

No, all gross receipts applicable to in and out-of city (worldwide), both taxable and non-taxable must be reported. Please note that the small business exemption threshold increase of $100,000 becomes effective July of 2006. The small business exemption only applies to businesses that are renewing in a timely manner. Therefore, the $100,000 small business exemption cannot be applied until January of 2007 (during the 2007 renewal period).

If the small business exemption threshold increases to $50,000 on July 1, 2005, do I need to wait until July 1, 2005 to apply for a small business exemption?

No. The small business exemption threshold increase becomes effective July 1, 2005 and applies only to renewing businesses and not new businesses. Additionally, this small business exemption has a timely filing requirement which cannot be applied until January of 2006 (during the 2006 renewal period). If a business waits until July 1, 2005 to file a renewal, that business will be considered late and must pay any principal tax, interest and penalty.