LA County Business Tax Renewal: Everything You Need To Know
The LA county business tax renewal affects numerous businesses that are required to pay the Los Angeles Business Tax (LABT), a gross receipt tax.3 min read
The LA county business tax renewal affects numerous businesses that are required to pay the Los Angeles Business Tax (LABT), a gross receipt tax. Normally, this tax put various business activities in their own designated category with their own tax rates. This tax is location-based and applies to businesses operating within the City of Los Angeles. Business owners must register and acquire a business license for every business location they have in the city.
Nexus and the LABT
Any business that has a nexus with Los Angeles is subject to the LABT. What count as a nexus is thoroughly established, and the definition is broad enough to cover almost all individuals and ventures “engaged in business” in the City of Los Angeles.
A nexus exists if a business meets any of the following criteria:
- Is stationed at a fixed location in the city.
- Leases a physical location within the city to conduct business.
- Stores inventory in the city.
- Is trying to obtain business clients within the city on a regular basis.
- Has a continuous flow of work or services in the city.
A nexus is also established if the business owner uses a motor vehicle in the city on when conducting business.
Allocation and Distribution of the LABT
The LABT is determined after an assessment of the gross receipts obtained from business conducted in the city. This is mirrored in the 2017 tax rates for the different tax categories, which range from as little as $1.01 (for wholesalers and retailers) to $4.50 (for professions and occupations). In cases where a business owner runs two or more businesses, they are allowed to choose the single tax classification approach. This gives them the right to calculate their tax using just one category of tax rate if 80 percent or more of their gross receipt falls within that category.
Generally, the statute of limitations for assessment of a business's gross receipts is three years. However, in cases where a considerable understatement of tax has occurred (of at least 25 percent), it gets prolonged to six years or to eight years for taxpayers who haven't filed their taxes at all. In October 2011, a Voluntary Disclosure Program (VDP) became effective. This program reduced the look-back period for non-filers to five years.
When Is the LABT Renewal Due?
Taxpayers should stay updated on the development of the LABT renewal. They should know when the renewal is due. In 2017 for example, the LABT renewal and tax could be paid on January 1, 2017. If taxpayers couldn't file and make the payments on this date, they had until February 28, 2017, to do so. That was also the last day for filing. Failure to make the payments on or before this date was perceived as irresponsible or even criminal, resulting in a delinquency penalty of 5 percent of the tax owed, plus another 5 percent per month and interest for the first three months of delinquency.
Furthermore, the taxpayer was charged with another 20 percent penalty if he/she didn't make the payment for months or longer after the initial deadline. If so, the taxpayer would owe a delinquency penalty of 40 percent of the tax due plus interest.
Tax Renewal Development of Internet Businesses
In 2010, the City Council accepted a decree that added two new classifications for internet-based business to the renewal form: “Internet-Based Application Service Providers” and “Internet-Based Data Manipulation.” For these new groups, the business rate is $1.01 per $1,000 of gross receipts. These groupings and rates were prolonged in 2014 and will expire in 2018, immediately after the tax period.
This updated renewal form consists of different sections. For the sake of this post, however, we'll only discuss section 1 and 2.
- Section 1: Taxpayer information. This section must include the account number, current legal name, DBA (if applicable), your business address, and the mailing address that is on file in the City of Los Angeles database.
- Section 2: Tax Reform and Incentives. This section provides detailed steps for small businesses to receive an exemption. Small businesses within the City of Los Angeles can receive an exemption if their gross receipt did not surpass $100,000 worldwide in the calendar year 2016 or if they filed for renewal prior to February 28, 2017.
Business tax renewals are mandatory but can be tricky. It is therefore wise to get advice from professionals.
If you need help with any form of the LA county tax renewal, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.