Los Angeles City Business Tax annual filing due February 28, 2023

In brief

Taxpayers conducting business in the City of Los Angeles, as well as in neighboring cities, may be subject to the annual Los Angeles City Business Tax (LACBT) with a filing deadline of February 28, 2023. Companies unknowingly may be subject to the LACBT due to broad nexus standards that include regularly soliciting business in Los Angeles. 

With work-at-home arrangements becoming more mainstream, companies unexpectedly may find themselves triggering a filing obligation or increasing/decreasing their level of business activity in Los Angeles. For companies subject to the tax but not yet registered, a voluntary disclosure program is available.

Action item: In light of the unique and complex rules relating to the LACBT, businesses should analyze whether a filing obligation exists, what gross receipts may be subject to apportionment, and how such gross receipts should be apportioned to Los Angeles.

LABCT renewal

Taxpayers must file the annual renewal by February 28, 2023, in order to maintain good standing with the City. The gross receipts measure is based upon the apportioned gross receipts of the prior calendar year. The relatively short time frame between the typical taxpayer’s calendar year-end and the reporting deadline can present compliance challenges for taxpayers. 

A 45-day extension may be granted by the Director of Finance upon written request. If an extension request is granted, a minimum of 90% of the tax must be paid by the original due date of February 28 to avoid late filing penalties.

Only those gross receipts deemed attributable to business activities conducted in the City are subject to the LACBT. Depending on the taxpayer’s classification, the methodology used to apportion gross receipts varies. For taxpayers falling within the general “professions and occupations” category, gross receipts are apportioned using a cost-of-performance type methodology, with certain adjustments to the basis of gross receipts depending on the location of certain supporting activities such as accounting, billing, collection, and administration activities. 

Observation: Taxpayers should consider reviewing their historical methodology for determining their cost of performance and receipts sourced to the City due to the current remote working environment. While certain costs considered in the cost-of-performance analysis, such as rent expense, will not be significantly impacted, costs such as payroll may be significantly affected depending on the location of where services are being performed.LABCT renewal

Taxpayers must file the annual renewal by February 28, 2023, in order to maintain good standing with the City. The gross receipts measure is based upon the apportioned gross receipts of the prior calendar year. The relatively short time frame between the typical taxpayer’s calendar year-end and the reporting deadline can present compliance challenges for taxpayers. 

A 45-day extension may be granted by the Director of Finance upon written request. If an extension request is granted, a minimum of 90% of the tax must be paid by the original due date of February 28 to avoid late filing penalties.

Only those gross receipts deemed attributable to business activities conducted in the City are subject to the LACBT. Depending on the taxpayer’s classification, the methodology used to apportion gross receipts varies. For taxpayers falling within the general “professions and occupations” category, gross receipts are apportioned using a cost-of-performance type methodology, with certain adjustments to the basis of gross receipts depending on the location of certain supporting activities such as accounting, billing, collection, and administration activities. 

Observation: Taxpayers should consider reviewing their historical methodology for determining their cost of performance and receipts sourced to the City due to the current remote working environment. While certain costs considered in the cost-of-performance analysis, such as rent expense, will not be significantly impacted, costs such as payroll may be significantly affected depending on the location of where services are being performed.