FAQs regarding the reduction of the business tax rate for the L049 fund/class including Professions and Occupations and Fund/Class Consolidation Ordinance No. 183419
How will the reduction of the business tax rate for the L049 fund/class, which includes Professions and Occupations, be implemented and do I need to do anything to confirm that it has been applied to my business taxes if I am registered under the L049 fund class?
The reduction of the business tax rate for the L049 fund/class will be phased in over three annual business tax periods beginning January 1, 2016 as follows:
- January 1, 2016 reduced from $5.07 for each $1,000 of gross receipts or fractional part, to $4.75 for each $1,000 of gross receipts or fractional part.
- January 1, 2017 reduced from $4.75 for each $1,000 of gross receipts or fractional part, to $4.50 for each $1,000 of gross receipts or fractional part.
- Tax years beginning after December 31, 2017 the tax rate will be $4.25 for each $1,000 of gross receipts or fractional part.
Your pre-printed business tax renewal form, or the on-line E-filing program, will reflect the reduced L049 tax rate for each annual renewal season. If you are using the pre-printed business tax renewal form, simply use the L049 tax rate printed on the form. If you E-file, the reduced L049 tax rate will automatically be applied.
What is the purpose of the fund/class consolidation?
The purpose of the fund/class consolidation is to simplify business tax compliance by reducing the number of fund/classes that businesses subject to the City of Los Angeles’ gross receipts tax are required to report under. Ordinance #183419 consolidates LAMC Section 21.42 into Section 21.41, and LAMC Sections 21.44 and 21.45 into Section 21.43.
Businesses currently reporting under LAMC Sections 21.41 and 21.42 will be consolidated as Gross Receipts Fund Class I (LGR1). LAMC Sections 21.43, 21.44 and 21.45 will be consolidated under Gross Receipts Fund Class 2 (LGR2). Businesses with fund/classes that are undergoing the consolidation will receive updated business tax registration certificates that note their new consolidated fund/class. Furthermore, the new consolidated fund/classes will be reflected on your 2016 Business Tax renewal forms if you are currently registered.
How will the consolidation affect my business tax renewal reporting?
Beginning with the 2016 Business Tax renewal season, which starts January 1, 2016, any business previously classified in fund/class L041 through L045 will be reclassified into the LGR1 fund/class or the LGR2 fund/class as applicable as noted in the response to FAQ #2.
Therefore, these businesses will use the LGR1, LGR2, or if applicable*, both LGR1 and LGR2 fund/classes to report their 2016 and future taxable gross receipts.
- Example #1: ABC Co. was classified under LAMC Sec. 21.44 Retail Sales (fund/class L044) in 2015. Due to the consolidation, ABC Co. is reclassified into LAMC Sec. 21.43 (fund/class LGR2).
- Example #2: XYZ Co. was classified under LAMC Sec. 21.42 Wholesale Sales (fund/class L042) in 2015. Due to the consolidation, XYZ Co. is reclassified into LAMC Sec. 21.41 (fund/class LGR1).
- Example #3: DCE Co. was classified under LAMC Sec. 21.42 Wholesale Sales (fund/class L042) and LAMC Sec. 21.45 Radio and Television Broadcaster (fund/class L045) in 2015. Due to the consolidation, DCE Co. is reclassified into LAMC Sec. 21.41 (fund/class LGR1) and LAMC Sec. 21.43 (fund/class LGR2).
Is my tax rate affected by the consolidation?
No, the tax rates of the consolidated fund/classes are not changed. The consolidated LGR1 fund/class tax rate remains $1.01 per $1,000 of taxable gross receipts. The consolidated LGR2 fund/class tax rate remains at $1.27 per $1,000 of taxable gross receipts.
My business has physical activity outside the City of Los Angeles and I am entitled to use apportionment to determine my taxable gross receipts. Does consolidation change how my gross receipts are apportioned?
No, the consolidation does not change how a business uses apportionment to determine its taxable gross receipts.
For example, if your business was previously classified under LAMC Sec. 21.44 Retail Sales and is now consolidated under LAMC Sec. 21.43 (fund/class LGR2) you would continue to use City Clerk’s Ruling No. 14 or City Clerk’s Ruling No. 13 to apportion your gross receipts.
Likewise, if your business was previously classified under LAMC Sec. 21.42 Wholesale Sales and is now consolidated under LAMC Sec. 21.41 (fund/class LGR1) you would continue to use City Clerk’s Ruling No. 14 or City Clerk’s Ruling No. 13 to apportion your gross receipts.
My business was previously classified under LAMC Sec. 21.44 Retail Sales and LAMC Sec. 21.45 Theater. Per the consolidation, my business is now classified under LAMC Sec. 21.43 (fund/class LGR2). How do I report my taxable gross receipts for the consolidated fund/class LGR2?
In this situation, you will report one combined tax measure (taxable gross receipts) for the newly consolidated fund/class LGR2.
First, you will determine the taxable gross receipts from the Retail Sales activity in the same manner as it was computed in prior years. If you need to apportion your Retail Sales gross receipts, you may use the same apportionment formula as you used in previous years assuming your Retail Sales business activity is essentially the same.
Second, you will determine the taxable gross receipts from the Theater activity in the same manner as it was computed in prior years. If you need to apportion your Theater gross receipts, you may use the same apportionment formula as you used in previous years assuming your Theater business activity is essentially the same.
Finally, you will add the taxable gross receipts from the Retail Sales activity and the Theater activity, and report the combined taxable gross receipts under the LGR2 fund/class.
Can I still use the Single Primary Tax Classification Election if I qualify?
If the consolidation results in a single activity that represents 80% or more of your total taxable gross receipts, you may elect at your discretion to report and pay all taxable gross receipts under that single primary tax classification.
I have previously qualified for the Small Business Exemption. Will consolidation affect my ability to qualify for the Small Business Exemption?
No, the consolidation does not affect the qualification criteria for the Small Business Exemption.
I have previously qualified for the Creative Artists Exemption. Will consolidation affect my ability to qualify for the Creative Artists Exemption?
No, the consolidation does not affect the qualification criteria for the Creative Artists Exemption.
I have previously qualified for the New Business Exemption. Will consolidation affect my ability to qualify for the New Business Exemption?
No, the consolidation does not affect the qualification criteria for the New Business Exemption.
I was classified under Retail Sales in 2014 and an audit of my 2014 business tax payment determined that I had a non-refundable tax credit. How do I receive the non-refundable credit?
The consolidation does not affect your ability to use your non-refundable tax credit. You may use the non-refundable tax credit on your 2016 and/or 2017 Business Tax renewal forms under the consolidated fund/class LGR2.