Business license taxes in Los Angeles County raise complex issues

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January 2020

Overview

Taxpayers conducting business in certain cities within Los Angeles County — including the incorporated City of Los Angeles, Beverly Hills, Culver City, and Santa Monica — may be subject to annual business license taxes based upon gross receipts for the privilege of conducting business within city limits.

The business license taxes may pose difficulties due to broad nexus standards and a challenge for compliant filers due to antiquated ordinances, lack of published guidance, and inconsistent audit practices. 

Although each city has its own rules and practices, there are common elements, as highlighted below.

The takeaway

The rules surrounding each local business license tax are unique and complex, raising questions as to whether a filing obligation exists, what gross receipts are subject to taxation, and how such gross receipts should be apportioned. 

The issues and concerns businesses should consider include: 

  • Filing methodology.  A review of historical filings may uncover potential refunds and/or exposures and help establish a go-forward filing methodology. Common areas of opportunity or exposure include the identification of gross receipts subject to or exempt from tax, apportionment methodologies, and business entity classification. 
  • Negotiated filing agreements. Certain cities may be willing to enter into filing methodology agreements that can limit the uncertainty of application of city rules.
  • Nexus. Analysis of nexus may determine whether a filing obligation exists.
  • Voluntary Disclosure Agreements.  Businesses should consider the benefits of and negotiating voluntary disclosure agreements where appropriate.
  • Audit support.  Assistance navigating a city’s audit cycle may be useful.  
  • Annual compliance.  Businesses should consider the internal burdens of complying with annual filing requirements.

Contact us

Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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