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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10097
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I received a notice from the City of Los Angeles under the

Customer Question

Hi Pearl. I received a notice from the City of Los Angeles under the "tax discovery program" that I owe city tax for business activity for the past 5 years. I am exempt under law from this tax, as my income is under the threshold, but in reading onine, I have found that if an exemption is not filed each year, there is substantial tax and penalties that would cost me upwards of $30,000 when all totaled up. This would bankrupt me, as I operated at a loss last year, and currently am a stay at home mom. In further research, I found that the city seemingly purposefully does not make this particular tax widely known so that they can collect the outrageous penalties as they "catch" people like me. There are several news stories about it online. What are my options from a legal / accounting standpoint?
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: The exemption I refer to is a "creative artist" exemption, in case that's pertinent. Also, this notice was sent in the name of my sole member LLC ... not sure if that matters, though.
JA: OK. Got it. I'm sending you to a secure page on JustAnswer so you can place the $5 fully-refundable deposit now. While you're filling out that form, I'll tell the Accountant about your situation and then connect you two.
Submitted: 5 months ago.
Category: Tax
Expert:  Lane replied 5 months ago.

Yes, see this: (I'll underline the pertinent part)

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"To increase business tax compliance, the City of Los Angeles has initiated an enforcement program utilizing this information from the Franchise Tax Board to identify businesses that may not be reporting and paying their annual business taxes. Businesses that engage in business in the City must have a valid City of Los Angeles Tax Registration Certificate and pay applicable business taxes. This includes self-employed independent contractors and home-based businesses. If you are not properly registered with the City, owe business taxes or need additional information, we encourage you to call(###) ###-####or visit one of the local offices listed below. For more information visit our website at www.lacity.org/finance.

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Businesses that promptly register and pay their applicable business tax may benefit from tax exemptions, and minimize interest and penalties due to late registration. Increased compliance with the City’s business tax laws will allow us to further reform our business tax system for the benefit of the thousands of entrepreneurs who make the Los Angeles business community so vibrant. "

Expert:  Lane replied 5 months ago.

SO ... if you've just received this notice, contacting them promptly to register will likely take you off the list.

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AND, from what you've said here, this is just a registration issue. Penalties and interest have as their basis tax due

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X% x 0 = 0

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AND provide the opportunity to document (this list, again, simply comes from comparing entities to the CA FTB list) the exemption you have.

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All taxing authorities behave this way ... defaulting to the idea that you owe, or must pay, until you show otherwise.

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Expert:  Lane replied 5 months ago.

Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

I receive no crediting for the work here until you rate

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Thank you!

Lane

I have a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate, both for-profit and non-profit, and tax advice on three continents, since 1986

Expert:  Lane replied 5 months ago.

See this, from the City:

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Every person who engages in business within the City of Los Angeles is required to obtain the necessary TRC(s) and pay the business tax or obtain an exemption If your business is located within an unincorporated area within the County of Los Angeles, you may also be required to obtain a business license from the county and more information on these requirements can be found here.

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And here's the legal citation for your exemption:

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LAMC Section 21.29.(b) was amended by adding a Business Tax Exemption provision for "creative artists" who generate up to $300,000 in total taxable and non-taxable in-City and out-of-the-City gross receipts attributable to their qualifying "creative activities." If the total taxable and nontaxable gross receipts from in and out-of-the-City that are attributable only to "creative activities" exceed $300,000, the exemption does not apply. Please note that the creative activities exemption is only available to registered businesses and not new businesses. The creative artist exemption requires that businesses file a timely renewal form.

Customer: replied 5 months ago.
I'm already aware of everything you've shared. The issue here is that last line - " The creative artist exemption requires that businesses file a timely renewal form." It seems the only time most people like me find out about the annual exemption filing requirement is when the city sends out this form - most of the time years after exemption filings have not occurred, thereby yielding the city the maximum in penalties, interest, and tax. It's not a coincidence that they are allowed to go back 5 years, and it's been exactly 5 years since I started my sole member LLC. What I need advice on is how to navigate this issue at this point in the game ... for some reason, I can't find any info online about that or even in posts (other than people being upset that they owe the city for something they didn't ever know about).
Expert:  Lane replied 5 months ago.

I'm sorry, I'm not being clear.

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Your assumption that " ...thereby yielding the city the maximum in penalties, interest, and tax." is not correct.

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If you had no tax becasue you were under the filing threshhold, there will be no penalties or interest. Penalties and interest are charges levied AGAINST (multiplied by) the amount of tax due.

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(and under section 21.29 you're exempt anyway)

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If there is no tax due, there is no penalty. If there is no penalty there is no interest.

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And yes, as I mentioned earlier, they have simply compared lists with CA Franchise Tax board, to generate this mailing, and picked up that you are an LLC.

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If you simply call the number I provided above(###) ###-#### ***** will find that when you tell them you fall under the SEC. 21.29. SMALL BUSINESS EXEMPTION. (paragraph b - small artist) you will find that you owe nothing.

Expert:  Lane replied 5 months ago.

I'm sorry I confused with all of the data, I just wanted to provide the context.

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You have NOTHING to be worried about. Call them, they'll get you set up in the system as being exempt.

Expert:  Lane replied 5 months ago.

P.S. just so you'll have the code (in the event some front lines clerk tries to tell you that you owe), I'll underline a couple of pertinent parts

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Creative Artist. No tax is required to be paid by a person under this Article for gross receipts attributable to "Creative Activities", earned when that person is engaged in business as a "Creative Artist", unless the total taxable and nontaxable gross receipts from within and without the City which are attributable to "Creative Activities" exceed $300,000.00 annually.

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For purposes of this exemption, a "Creative Artist" shall mean only a person who operates either (1) as an individual, (2) through a corporation with one individual as the only shareholder and the only employee (commonly referred to as a "loan-out"), or (3) through a limited liability company with one individual as the only member and the only employee.

Expert:  Lane replied 5 months ago.

Does this help?

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I'd be glad to make a call FOR you

Expert:  Lane replied 5 months ago.

Hi,

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I’m just checking back in to see how things are going.

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Did my answer help?

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Let me know…

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Thanks

Lane

Expert:  Lane replied 5 months ago.

Hi,

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I’m just checking back in to see how things are going.

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Did my answer help?

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Let me know…

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Thanks

Lane

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