Los Angeles City Business Tax Annual Filing

In brief — Taxpayers operating in the City of Los Angeles and nearby may need to pay the yearly Los Angeles Business Tax by February 28th, 2023. Even companies that don't know they're working in L.A. could owe the tax because of the broad rules that define what counts as "doing business" in the city.

With more employees working remotely, employers might suddenly find they have to pay the city tax or that the amount they owe has gone up (or down). If you should pay but haven't registered yet, you can still sign up voluntarily.

Important next step: The L.A. business tax has unique and complicated rules. Companies should review their situation to see if they need to file, what sales count toward the tax, and how much tax they would owe the City of Los Angeles specifically.

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Los Angeles City Business Tax overview

In depth — The LACBT is a business license tax for the privilege of conducting business in the City of Los Angeles (City). The license tax is a gross receipts-based tax levied against taxpayers that are either located within the City or engaged in business in the City.

The threshold to be deemed “engaged in business in the City” can be a lower threshold than traditional income tax nexus. A person is deemed to be engaged in business if they have physical presence or regular solicitation of business in the City, if they perform work or render services for seven or more days in the City, or if they consummate four or more transactions in the City.

Planning note: Companies may have employees working remotely within Los Angeles as a result of work-at-home arrangements. If such presence is treated as satisfying the qualifications noted above, a company may be subject to the LACBT.

The LACBT generally is imposed on all gross receipts of a taxpayer earned in the City at a rate between 0.1% to 6.0% based upon in-City business activities. The tax rate varies based upon a taxpayer’s business tax classification, with many taxpayers falling within the “professions and occupations” category, with a rate of 0.425% for the 2023 filing. The “professions and occupations” category is the catch-all category for taxpayers that do not fall within other specified tax classifications.

Observation: The City taxing jurisdiction is not limited to the incorporated City of Los Angeles; it extends to various cities located within the boundaries of Los Angeles County.

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LABCT renewal

The Los Angeles Business Tax applies to companies operating in Los Angeles and neighboring cities. It is a gross receipts tax that must be paid yearly for the privilege of doing business in L.A. The rules for "doing business" are broad - simply having workers or making sales in the city can trigger the requirement to pay.

With remote work now common, firms may unexpectedly find that they owe the tax or that their liability has changed. Unregistered companies can voluntarily disclose themselves to comply.

The tax typically runs from 0.1% to 6% of local gross receipts, depending on the type of business. Many fall under "professions and occupations" at 0.425% in 2023. The L.A. tax jurisdiction reaches beyond the central city into parts of the county.

Companies must file by February 28, 2023 based on 2022 figures. The short interval between year-end financials and the deadline poses compliance challenges. A 45-day extension is possible but at least 90% of the estimated tax must be paid on time to avoid penalties.

Apportioning receipts uses different methods across industries. Service businesses like those in "professions and occupations" follow a cost of performance approach, factoring in costs such as rent, payroll, and administrative overheads.

Observation: With remote work now widespread, the payroll portion may shift for some firms, significantly altering apportioned taxable L.A. gross receipts.

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Los Angeles City voluntary disclosure agreement

If a company realizes it should have registered for the tax, a Voluntary Disclosure Agreement allows late payment with interest for up to six years without penalties, which can otherwise hit 40%.

Observation: L.A. business tax audits can span years and entail substantial information requests. The city likely will step up enforcement to bolster reserves against potential revenue shortfalls.

Calendar-year companies must file their 2023 renewal covering 2022 activity by February 28.

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Disclaimer: The information presented on this website or any Cruncher Accounting, PC online platform is for general information and illustrative purposes only. It should not be considered tax, legal, financial, or other professional advice. The content is not intended to provide definitive answers or solutions to specific business situations and is not a substitute for careful research or the advice of a licensed professional that knows your unique circumstances.

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Please contact a Cruncher Accounting professional directly to discuss your specific questions or business situation. Our team would be happy to speak with you about a tailored consultation to your needs. We also encourage all readers to seek counsel from licensed attorneys, financial advisors, CPAs, Enrolled Agents, or other qualified professionals prior to making decisions related to their finances or enterprises.