Are you a business owner who recently received a letter from the City of Los Angeles claiming you owe tax on your total revenues? If you operate a business within the City of Los Angeles, you must file a Business Tax-Registration Certificate (BTRC) each year regardless of whether or not you generated any revenues. The tax is due on the gross receipts of your business, which is the total revenues you collected before deducting any expenses. City of Los Angeles Business tax postcards were recently mailed and the business tax is due on February 28th of each year (29th if it’s a leap year). This tax is in addition to sales tax, state income tax, and the unsecured property tax imposed by the County of Los Angeles.
Who Needs a Business License?
If you operate a business within the City of Los Angeles, you need to obtain a business license and pay the annual tax. Some exemptions apply, but in most cases you still have to file to claim the exemption. Even if you have a day job earning a W-2 salary and sell bracelets at home at night for a small sum, you need to file and pay your gross receipts tax.
How the Tax is Calculated
The amount of the business tax is based on the nature of your business and the rate is calculated per $1,000 of taxable gross receipts. Some businesses pay a flat tax rate, while other businesses pay based on other factors (i.e. number of cars, machinery, employees, square footage, etc.). The City of Los Angeles posts a business tax rate table on their website with a list of different types of businesses separated by fund categories and classes. When you first apply for your BTRC, you will be assigned a fund category based on your business activity and your tax rate will be based on that category.
Exemptions Apply
Exemptions apply to small businesses with $100,000 or less in revenues, but you must timely file your annual BTRC to claim the exemption. Some businesses are given favorable treatment, like those in the entertainment business, while other businesses are exempt from filing the BTRC entirely. These businesses include airlines, bail bonds, financial and insurance institutions, non-profits, and some several others. The City of Los Angeles Office of Finance website has a complete list.
Rental Property
Owning rental property is equivalent to running a business. Therefore, if you own and operate residential rental property, you may be required to file the BTRC and pay tax on your gross receipts. You do not need a business license for each rental property, the revenues from all properties can be reported on one tax certificate. The business tax applies if you rent out four (4) or more residential units within the City of Los Angeles; therefore, if you rent three (3) or fewer residential units or if the properties are used for non-profit activities, you are exempt from the filing and tax.
Both Los Angeles City and County are notorious for their excessive taxes and lack of business friendly initiatives. In addition to the gross receipts tax, businesses must also file and pay an unsecured property tax to the County. That tax is imposed on furniture, office supplies, and computer equipment. Have a home alarm system? Well, you have to obtain a permit and pay tax on that too. If you received a postcard from the City of Los Angeles claiming you owe business taxes, do not ignore it. Make sure you file your business tax renewal before February 28th of each year to avoid penalties and interest.
Ara Oghoorian, CFA, CFP®, CPA is the President & Founder of ACap Asset Management & ACap Accounting Services.
ACap Advisors & Accountants is a “Fee-Only” wealth management and full-service accounting firm headquartered in Los Angeles, CA specializing in helping doctors and healthcare professionals make sound financial decisions.
Contact ACap at info@acapam.com or 818-272-8511.
