Los Angeles and San Francisco Business Tax Filing Deadline Is February 28

If your business has a physical presence in the City of San Francisco or City of Los Angeles, you may have a filing requirement due Monday, February 28, 2022.

These local taxes are separate from California filed taxes. They can represent significant refund and reduction opportunities (particularly in San Francisco) for the current and prior year filings due to COVID-related shelter-in-place orders and remote work. They can also represent tax exposures. It is important to have a state and local tax professional examine your local returns to ensure that all revenue is properly apportioned to reflect amounts earned only while employees worked from home.

Background

A significant number of California localities impose a tax on businesses, including Los Angeles, San Francisco, Oakland, San Mateo, Santa Monica, Napa and others. Many businesses remain unaware of these potentially material local tax filing obligations and/or their complexity. Additionally, many California localities are currently suffering significant budget shortfalls, resulting in an increase in the number of local tax auditors.

• Los Angeles is significantly increasing its audit activity and hiring an additional 30 tax auditors. The city will take a more aggressive approach to audits — if you did have a physical presence in Los Angeles and have not been filing, you are more likely to be audited.
• San Francisco’s business and tax regulation code has had broad changes for the gross receipts tax, which include temporary tax relief for restaurants, retail, manufacturing, hotels and arts organizations on their first $25 million in gross receipts; an increase in the threshold for a small-business exemption from the gross receipts tax from $1 million to $2 million; and a modification/increase to the gross receipts tax rates. For those in San Francisco, the elimination of the payroll expense tax also might impact their San Francisco liability.

New Filing Requirements

As COVID-19 work-from-home orders have shifted typical apportionment methodologies, which are no longer reflected by only office location payroll, the way you file is important, especially for SaaS, e-commerce, wholesalers and digital goods companies.

Additionally, if your company has created nexus, you’ll have a filing requirement simply because you have employees who live in these localities and work from their homes. San Francisco businesses specifically should be aware that there is an economic nexus threshold based on sales. There are also numerous other opportunities related to classification and apportionment to be aware of.

For assistance with California local tax filings, including gross receipts, payroll expenses, utility users (UUT), telephone users (TUT), communications users (CUT), and parking occupancy (POT), contact our experts: Alex Thacher and Brandee Tilman.