California local municipal tax filing deadlines are quickly approaching and are commonly overlooked or misunderstood. A number of such jurisdictions, such as the City of Los Angeles and the City and County of San Francisco, administer a business tax based on gross receipts, payroll, or some other measure. A company does not have to be profitable or maintain a fixed place of business to be subject to and liable for such taxes.

In preparation for the upcoming federal and state tax filing season, please keep in mind the following information pertaining to Los Angeles and San Francisco.

Los Angeles

The Los Angeles business tax is due February 28, 2018. Taxpayers may file their 2018 Business Tax Renewal form either by mail or electronically. The city provides copies of its forms for download and completion as well as access to an electronic filing system (with applicable instructions) on its website (last accessed January 17, 2018). To be considered timely filed, a taxpayer must postmark or electronically file the forms no later than 11:59 pm PST on February 28, 2018. Interest and penalties will be assessed starting March 1, 2018.

Taxpayers can apply for a maximum filing extension of 45 days. An extension request must be submitted in writing, accompanied by at least 90% of the total tax due, and received or postmarked by February 28, 2018. If less than 90% of the total tax due is paid prior to the tax becoming delinquent, a 20% penalty on any unpaid principal tax balance shall accrue.¹

Additional information about the Los Angeles business tax renewal process is available here.

San Francisco

San Francisco's gross receipts tax is due on or before February 28, 2018. A taxpayer can request a 60-day extension in writing provided that it files the request in writing and pays at least 90% of the tax due by the filing deadline. Failure to make the required 90% payment will result in the automatic denial of the taxpayer's request for extension and the taxpayer being subject to the standard due dates, including any penalties, interest, fees, and other consequences of failing to file and pay by those due dates (2016 Gross Receipts Tax Payroll Expense Tax Online Filing Instructions). The extension request² and any required payment must be submitted by February 28, 2018. Taxpayers who qualify for the extension must file their returns and make any required payments by May 1, 2018.

In addition to the gross receipts tax, San Francisco also requires payment of a business registration fee. A taxpayer must register or renew its business registration every year. The due date for registration or renewal is May 31, 2018. The business registration fee may be paid online on the San Francisco Treasurer's website. The annual fee for obtaining a registration certificate for the registration year commencing July 1, 2018 and ending June 30, 2019 is paid in advance and calculated based on the taxpayer's (or its combined group's) San Francisco gross receipts in the immediately preceding tax year.

Implications

By no means should taxpayers assume that Los Angeles and San Francisco are the only municipalities that impose local business license taxes. Nearly every California municipality does and the variety of these levies varies widely from locality to locality. As an example, the City of Santa Monica imposes a tax on gross receipts but unlike San Francisco or Los Angeles, the return and payment is due on August 31. Moreover, unlike state or local income taxes in other states, these taxes do not exempt business entities based on legal form. Thus, partnerships, S corporations and limited liability companies that are treated as pass-through entities for federal and California state income taxes (or even disregarded altogether) could be directly liable for the myriad of California local and municipal taxes.

Businesses that are active in California, especially in the larger municipalities, should assume that some type of local business license tax applies. Usually, information about these special and unique city taxes can be obtained from the relevant municipality's webpage. EY California tax professionals can help businesses both in finding these business license taxes and in complying with the applicable payment and filing requirements.

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ENDNOTES

¹ Interest would also accrue on any unpaid principal tax balances.

² Information related to the extension request may be found here.