Los Angeles Business Tax

I just got a wonderful notice from City of Los Angeles.
They assume I am engaged in business within the city,
an want to collect a business tax.

I trade stocks, futures, and options from home. I report
income/loss on Sch D. I don't use Sch C. I trade full time.

I have no idea on how to handle this notice.

I would appreciate any feedback on this matter. There
is only 20 business days to this letter, or else, it says.

Thanks

greddy

 

I ran into this problem in Los Angeles back in 1992. After engaging an attorney and getting nowhere with the city (other than numerous threatening letters), I finally found a solution -- I moved to Newport Beach and never looked back.

 

I went to the website www.lacity.org/finance as it
says on the form. It does not appear clear what "business"
is exempt from this tax.

Since my lease is up on the condo, moving to Orange County
might be the top priority for the moment.

Just need to confirm that City of Irvine or Tustin is not part of
City of Los Angeles.

 

Why don't you call them?

 

Irvine is defintitely NOT in Los Angeles. I'm not sure about Tustin.

 

The City of Los Angeles shares tax return information with the California Franchise Tax Board. The city has a set of matching parameters/criteria that it runs against tax returns filed in zip codes within the city limits.

The "occupation" that you put down where you sign your return is one potential flag. Generally, it had been thought that if you use Schedule "D" instead of Schedule "C" that you would avoid any problems. Not any more. With the city strapped for cash, they are looking for Schedule "D" activity which looks "excessive" in comparison for a "normal" investor who only has a few transactions per year, usually mutual funds. Did you deduct any expenses such as supplies, software, furniture, home office space depreciation, etc under "misc deductions" on Schedule "A"? All of these items are potential flags and will bring attention to your return.

I have a friend who got the same "letter" from the city earlier this year. He had thousands of transactions for the year (anyone who trades full time would). He ignored the first letter and now the city has decided to go back 5 years and is asking for back taxes, penalties and interest.

Like others have said, moving out of the city of Los Angeles is the best option if you can do it...

 

I was hesitant to call them because I just assumed
that I would be on the phone for an hour, just to get
some vague answer.

To my surprise, someone answered in 2 seconds.
Got a fairly clear response.

It appears I was flagged since I have a CPA license.
They were wondering if I were doing some CPA
related work.

I do have some deductions on Sch A. If my
trading activity increases in the future, then
it probably would be safe to move out of the zone,
just to be safe.

Thanks for all your feedback.

 

City of Los Angeles, although big, doesn't extend very far. The LA and Orange counties have something like 50 cities and LA City is the biggest. Anything south of Anaheim/Santa Ana definitely is within Orange County. Tustin is in Orange County. It's own city.

 

I just looked up the Municipal Code posted below to see if there was any chance you would qualify for any exemptions and unfortunately, the answer is no. The best advice is what everyone else has suggested -- pay the tax and move.

¶ 68,257. Exemptions—Exempt Registration Certificates.—

Exempt purposes: The city does not intend to require any payment that would unlawfully burden interstate or foreign commerce or violate federal or state constitution. [ Los Angeles Municipal Code §21.02 .] In addition, payment of the business tax is not required to operate an institution or association organized and conducted solely for charitable or religious purposes; nor to teaching, preaching or otherwise disseminate religious tenets; nor for entertainment, dance, concert, exhibition or lecture conducted by a charitable, religious, fraternal, educational, civic, military, state, county or municipal organization, when net proceeds are used wholly for the organization's benefit or for charitable or benevolent purposes; nor for credit union corporations. [ Los Angeles Municipal Code §21.22(a) .]

The exemption does not apply to independent contractor carrying on business or activity for profit and paying portion of receipts to charitable organizations. [ Los Angeles Municipal Code §21.22 .]

Procedure: Applications for a tax–exempt registration certificate shall be made upon a form furnished by the Director of Finance. The application shall be forwarded to the Board of Police Commissioners which shall investigate the applicant and its activities and whether the proceeds of the activity, if any, are to be used for the indicated purposes. If the finding is to the effect that the exemption requirements are met, the Director of Finance shall issue a tax exempt registration certificate provided the applicant has complied with all other applicable provisions of the municipal code. The registration certificate so issued shall show on its face that it is tax exempt. If the Board of Police Commissioners finds that the statutory requirements are not met, no registration certificate shall be issued without payment of the tax prescribed.

If at any time any exempt activity is conducted in such a manner as not to warrant the tax exemption, or if the net proceeds from those activities are not used for an approved exempt purpose, then ,any tax–exempt registration certificate issued shall be void and the full amount of the tax shall be due and payable. [ Los Angeles Municipal Code §21.22(c) .]