Los Angeles City Business Tax (“LACBT”) continues to be an overlooked and frequently misunderstood tax. The City’s ordinance for LACBT is not well-known or well-developed. As a result, many key areas of LACBT are often ignored or misapplied.
To begin with, LACBT applies to companies “engaged in business” in the City of Los Angeles. As a result, businesses can be subject to the tax whether located within or outside of the City of Los Angeles. Although similar to sales tax as a gross receipts tax, significant differences exist:
- Many businesses do not realize LACBT applies only to revenue/gross receipts attributable to activities performed in the City of Los Angeles.
- LACBT sourcing rules for calculating taxable gross receipts differ depending on whether you sell tangible personal property or provide services.
- The tax rate varies as well, depending on the type of product or service you provide.
Compliance issues we typically see involve:
- Not understanding when returns must be filed;
- How to determine taxable gross receipts; and
- Which tax rates apply to each type of revenue, etc.
This can lead to both significantly overpaying and underpaying this tax. Companies most vulnerable include service providers headquartered in the City with revenue from customers located within and without the City. Even businesses headquartered outside the City of Los Angeles but with employees performing services in the City can be exposed.
The City does, however, provide certain exemptions, favorable sourcing rules and reduced rates to certain companies that meet specific criteria. Downey, Smith & Fier has worked with all types of businesses of all sizes to assist with improving LACBT compliance, including eliminating or significantly reducing audit assessments and obtaining refunds. DSF’s impeccable reputation with the City and strong relationships with its audit management and staff allow us to effectively and efficiently manage this neglected area of tax.
Please contact Jim Fier, Partner with any questions at 562.249.6004.