Who is required to pay the tax?
Every person who engages in business within the City of Los Angeles is required to obtain the necessary TRC(s) and pay the business tax or obtain an exemption.
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 Los Angeles Municipal Code (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 am a W2 employee but I do freelance work on the side. Is that considered a business?
The revenue collected from the freelance business activity is considered business income earned and is taxable under the LAMC.
I registered with an online company that puts me in touch with people interested in renting my property and/or using my ride share service. Do I have to pay business tax?
The collaborative economy is an economic model in which a host company provides an online-enabled platform to connect consumers with goods and services offered by private individuals or entities (also referred to as shared economy). Any person or entity that utilizes a hosted online platform to obtain payment for goods or services must comply with business tax requirements. Common types of platforms include, but are not limited to:
Short-Term Residential Rentals - Use of a residence to provide temporary lodging for compensation for periods of 30 days or less (such as Airbnb, VRBO, Flipkey, etc.).
Transportation Network Company (TNC) - A ride sharing service that connects persons in need of transportation with vehicle drivers (such as Uber, Lyft, Sidecar, etc.).
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 applied 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 eight calendar years of operation within the City, but none for calendar years when the business was not operated.)
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 are the penalties for not paying the business tax or obtaining the exemption?
Failure to obtain the required TRC and/or pay all business taxes in a timely manner may subject the tax due to additional penalty and interest charges. There are also legal remedies that the City may seek.
How do I apply for a TRC?
You may contact us or visit one of our office locations. You may also apply by completing the assessment response form included with this letter and mailing it to the address listed on the form.
I am a small business owner. Are there any exemptions available to me?
Yes. Starting on January 1, 2006, a small business with $100,000 or less of taxable and nontaxable gross receipts within and without the City, may qualify for a Small Business Exemption (LAMC Section 21.29). (Please note that the small business exemption is provided only for current registered businesses. If you are not registered, the small business exemption does not apply to you)
I am liable for City Business Tax for the past eight 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. For 2011 and following, interest accrues at a rate of 0.3% per month. The 2010 rate was 0.4% per month, the 2009 rate was 0.5% per month, the 2008 rate was 0.7% per month, the 2007 rate was 0.7% per month, the 2006 rate was 0.6% per month, the 2005 rate was 0.5% per month, and the 2004 rate was 0.4% per month. The penalty amount is graduated, beginning in the first month at 5% and increases to 40% after the fourth month of delinquency. 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.
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.)
How much will it cost?
In general, architects, engineers, and consultants, etc., are taxed under LAMC Section 21.49 (Professions and Occupations). Contractors (defined as persons who construct, alter, repair, etc., any building, highway, road or other structure) are subject to tax under LAMC Section 21.188. There are numerous other categories. Please go to http://finance.lacity.gov/ for more information.
When do I have to file a renewal?
The business tax renewal filing is due on January 1st and delinquent on the first business day of March. The amount of business tax due is based on your gross receipts generated during the previous reporting period, subject to applicable reductions under City Clerk Rulings.
If I obtain the TRC or exemption, will my business then be legal?
The issuance of a TRC and the payment of the business tax do not authorize the conduct or continuance of any illegal business or of a legal business in an illegal manner within the City of Los Angeles. The City has enacted regulatory ordinances in areas such as zoning, building safety, police, fire, hazardous material disclosure, sanitation, health, etc., which must be complied with in order to lawfully conduct a business.