Complying with northern California business license taxes

Overview

Taxpayers conducting business in various cities in northern California, including San Francisco, San Jose, Oakland, Berkeley, and Mountain View, may be subject to annual business license taxes based on gross receipts, payroll, and/or employee headcounts for the privilege of conducting business within their city limits.

These business license taxes may be a trap for the unwary due to broad nexus standards and challenges 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 many common elements that are highlighted below.

The takeaway

The rules surrounding each of the local business license taxes are complex, and careful consideration should be given 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 taxpayers should consider include:

• Filing methodology. 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 enter into filing methodology agreements to limit the uncertainty of application of city rules.
• Nexus. Determine whether a filing obligation exists.
• Voluntary Disclosure Agreements. Consider the benefits of negotiating voluntary disclosure agreements.
• Audit support. Assistance navigating a city’s audit cycle may be valuable. 
• Annual compliance. Consider the internal burdens of complying with annual filing requirements.