Dangerous misconceptions about the LACBT that could result in costly surprises!
I am a service provide and all of my customers are located outside the City of Los Angeles so I don’t owe any tax!
I ship all orders outside the City of Los Angeles so I don’t owe any tax!
My rate is low so I don’t owe any significant tax!
The LACBT is a gross receipts tax that applies to persons engaged in business in the City of Los Angeles (not County). However, unlike a sales tax, the tax rates vary significantly depending on the type of product, sale or service provided. Similar to income taxes, LACBT revenue can be sourced based also on the type of services or products sold. Armed with that information, let’s address the misconceptions:
My customers are located outside the City of Los Angeles so I don’t owe any tax! For service providers, LACBT is sourced/apportioned in general based on where the services are performed by the employees. Accordingly, any services performed in the City of LA by employees for customers, no matter where they are located, can create gross receipts subject to LACBT.
I ship all orders outside the City of Los Angeles so I don’t owe any tax! Sales of tangible personal property (“tpp”) shipped outside the State of CA are exempt from tax. However, sales of tpp shipped outside of Los Angeles but within CA are 100% taxable unless certain activities related to that sale are performed outside the City of LA.
My rate is low so I don’t owe any significant tax! The LACBT rate varies, generally from about $1 to $4.25 per $1,000 of gross receipts or about $1,000 to $4,250 per $1,000,000 of gross receipts. Many companies, particularly service companies, are classified initially as lower rate categories only to find them reclassified under audit at a higher rate. Such a change in tax rate can generate annually thousands of dollars in additional taxes. And with a three-year statute of limitations (six if more than a 25% understatement in any of the three years), the liability can significantly increase.
Let DSF’s thirty years of LACBT experience help you improve your LACBT compliance to minimize your exposure and identify potential refunds.
For immediate assistance contact Jim Fier or call (562) 249-6004