Why did I receive a notification?
Our records show that you have registered your rental property units with the Housing Department (LAHD) for systematic code inspections. Under LAMC Section 21.43, renting dwelling units is a business activity and is subject to a City of Los Angeles business tax. Under, LAMC Section 21.03 , no person shall "...engage in any business or occupation subject to the tax under the provisions...without obtaining a registration certificate and paying the tax required thereunder."
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 City Municipal Code 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.
I own a dwelling 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 Municipal Code. This business activity is classified under LAMC Section 21.43 (LRG2)
There must be a misunderstanding. I have registered with the Housing department and paid $35.52 per unit per year for my rental property. Is there an additional fee that I am not aware of?
Yes. While it is true that property owners remit a fee of $35.52 per unit per year for systematic code inspections (whether or not the units are inspected during that year) to be conducted by the Housing department to ensure rental property meets the habitability standards set by the City's zoning laws, a taxpayer may have an additional tax liability from rental revenue collected from said property. This notification pertains to a possible business tax liability for revenue generated from rental income. Rental income is considered "business revenue" and is subject to a business tax.
I own a few residential properties from which I receive rental income. Do I have a business tax liability?
If you rent out 4 or more residential units from properties within the City limits, you are required to obtain a business tax certificate from the Office of Finance. However, if you receive rental income from 3 or less units throughout the City, you would not be liable for business taxes under this classification (LAMC Section 21.43(LGR2)).
I have several rental properties throughout the City of Los Angeles. Do I need a separate business tax certificate for each site?
No. Revenue from all the properties can be reported on one business tax certificate. If you are reporting revenue from several properties, please provide a list of the rental properties when you apply for a business tax certificate.
A business tax certificate has been registered for my property. How should I respond to this notification?
Write the account number (shown at the upper left-hand corner of the business tax certificate) on the provided application and list the addresses of the property or properties registered under the account. Return the document(s) to the Office of Finance to the address provided on the letter.
How long do I have to respond to the notification?
A response to the notification is required within 10 business days. Please be aware that failure to file the appropriate tax returns in a timely manner, regardless to a principal's lack of understanding or knowledge of the City's business tax code, may result in a substantial tax liability from principal, interest and penalties.
What happens if I do not respond?
If you do not respond, you may be in violation of LAMC Section 21.03, and a notice of non-compliance will be issued to the owner of the property in question. This office may then proceed with an estimated assessment as provided for under LAMC Section 21.16. In the event an estimated assessment is levied, you will be required to apply for a hearing and appear with your records before a Board of Review. Should you fail to request a hearing, or after application fail to appear, the total amount of the estimated assessment will become final and will be due and payable under the provisions of the law.
I am liable for City Business Tax the past two years. What kind of interest and penalties are involved?
Please see the following pages:
Is the business tax for rental properties an annual tax?
Yes. The taxes paid at the beginning of the year satisfy the tax liability for the entire calendar year.
How much is the business tax liability?
Under LAMC Section 21.43(LGR2), the rate is $1.27 per $1000.00 or fractional part there of. The annual tax renewal is due on the first date of January of each calendar year. The tax renewal liability is based on the prior year's gross receipts. Because the tax is based on the prior year's gross receipts, the tax liabilities for both the 1st and 2nd years are based on the 1st year's gross revenue. For assistance in tax calculations, please contact us or submit a completed Business Tax Registration Application, [PDF 1 page, 2.2 MB] Certificate to be billed at a later date.
How do I ensure that I do not accrue any more interest and penalty? Should I certify the mailing for one-day delivery?
Additional interest and penalty is recalculated at the beginning of each month. When tax remittance is received via mail, interest and penalty will be calculated based on the postmark date of the return mailing. You may use the one-day delivery service or any carrier as you see fit, but regular (1st Class) mail received by the Office of Finance through USPS is acceptable.
What if I received this notification and I no longer own rental property within the city limits?
Write a letter stating that you no longer own the property in question or indicate the date you sold the property on the reverse side of the application form, and return the response to the Office of Finance. You are still required to report revenue if you have owned the property in question within the last 8 years. Please list the gross rental income for the years that you owned the property during that 8-year period on the back of the application form.
Can I pay in installments?
Yes. If your total tax liability is greater than $1,000 per year, send the completed application with a formal letter requesting to pay the liability in installments. The request is forwarded to the Billing Unit while you wait for further instructions. Please note that your total liability may include the sum of principal, interest and penalty owed.
The properties are used for non-profit purposes. Would that constitute a tax liability?
If you have been given 501c(3) form from the IRS stating that this entity is for not-for-profit activities, you would be exempt. Please forward a copy of the 501c(3) form to the Office of Finance to record your exempt status. However, if a 501c(3) has not been attained from the IRS, you would be liable for taxes to be paid on the income received from dwelling property rental.
Where do I mail the application?
City of Los Angeles
Office of Finance
RMS Unit MS 178
200 N. Spring Street, RM 101
Los Angeles, CA 90012-5701