LABT March 2 filing deadline; internet business classifications extended

Multistate tax alert | February 2, 2015

This Tax Alert summarizes the Los Angeles Business Tax (“LABT”), while highlighting the upcoming March 2, 2015, filing deadline and the extension of the internet-based tax classifications through the 2018 tax period.

Summary of the tax

The LABT is a gross receipts tax imposed on most businesses operating within the City of Los Angeles (“Los Angeles” or the “City”).1 The tax separates business activities into a number of tax classifications, each with its own tax rate. In addition, the LABT is a location-based tax that requires taxpayers to register and obtain a business license for each business location within the City. The following is a summary of the more significant characteristics of the tax:

  • Nexus is broadly asserted and applies to most individuals and businesses “engaged in business” in the City. This includes, but is not limited to the following:
    • Maintaining a fixed place of business within the City
    • Owning or leasing real property within the City for business purposes
    • Maintaining inventory in the City
    • Regularly soliciting business within the City
    • Performing work or services in the City on a regular and continuous basis, involving not less than seven working days per year; and
    • Operating a motor vehicle on City streets for business purposes
  • Tax rates for the various tax classifications range from $1.01 (for wholesalers and retailers) to $5.07 (for professions and occupations) per $1,000 of gross receipts
  • When a taxpayer is involved in two or more business activities, a single primary tax classification election is generally available allowing a taxpayer to compute the tax using a single tax rate if at least 80% of the taxpayer’s gross receipts fall within that tax classification
  • The statute of limitations for assessments is generally three years, but is extended to six years where there has been a substantial understatement of tax (at least 25%) and to eight years for non-filers
  • A Voluntary Disclosure Program (“VDP”) went into effect in October 2011 that currently limits the look-back period for non-filers to five years. Without the VDP, the maximum look-back period is eight years
  • Claims for refund due to an overpayment must be filed within one year from the date of payment to receive a cash refund. After one year, taxpayers are entitled to a credit of the overpaid amount, which may be applied to offset any LABT liability for up to three years from the date of overpayment
  • Tax exemptions are currently in place for qualifying New Businesses2 and qualifying Small Businesses.3 However, both exemptions require the taxpayer to register and file annual renewals with the City on a timely basis
  • The City allows for apportionment based on several City administrative rulings

1 Los Angeles Municipal Code, Article 1, Chapter 2.

2 For those qualifying businesses that relocate or first establish a fixed location in the City on or after January 1, 2010, and before January 1, 2016, there is an exemption from paying any tax to the City for the first two annual required business tax renewals.

Any business that has total taxable and nontaxable gross receipts that do not exceed $100,000 in any year is eligible for the small business tax exemption.

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The Multistate Tax Alert Archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

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