As a service provider catering to clients beyond the boundaries of the City of Los Angeles, it’s easy to assume that the Los Angeles City Business Tax (LACBT) doesn’t apply to you. However, harboring such misconceptions could lead to unexpected financial burdens. Let’s debunk some of the most common myths:
1. “My customers are located outside the City of Los Angeles so I don’t owe any tax!”
It’s a common belief that if your clientele resides outside the City of Los Angeles, you’re exempt from the LACBT. However, for service providers, LACBT obligations are determined based on where the services are performed by your employees. Therefore, any services rendered within the City of LA, regardless of client location, can result in gross receipts subject to LACBT.
2. “I ship all orders outside the City of Los Angeles so I don’t owe any tax!”
Shipping products beyond the borders of Los Angeles might seem like a surefire way to avoid LACBT, but it’s not that straightforward. While sales of tangible personal property (TPP) shipped outside California are exempt from tax, those shipped within the state are subject to taxation. However, specific activities related to those sales performed outside the City of LA could affect the tax liability.
3. “My rate is low so I don’t owe any significant tax!”
The LACBT rate might seem negligible at first glance, ranging from approximately $1 to $4.25 per $1,000 of gross receipts. However, don’t be misled by the seemingly low rates. Many companies, especially service-oriented ones, initially fall into lower rate categories only to face reclassification during audits, leading to substantially higher tax liabilities. A shift in tax rate can result in thousands of dollars in additional taxes annually. With a statute of limitations of three years (six years in cases of significant understatement), liabilities can escalate significantly over time.
Leverage DSF’s three decades of LACBT expertise to enhance your compliance strategy, mitigate risks, and potentially uncover refunds.
For immediate assistance, reach out to Jim Fier at (562) 249-6004.
Let us navigate the complexities of LACBT compliance together, ensuring your business remains resilient and protected against unforeseen tax liabilities.
