Confusion Over Business Tax Notices in Los Angeles

When Chelsea Rivera got a letter from the city of Los Angeles in September, she initially thought it must be a mistake.

“It was very confusing,” Rivera shared. “I didn’t really know what it was about.”

According to her, the letter indicated that she might need to register as a business owner and asked for financial records related to her role at a non-profit art gallery known as Junior High School, which is actually in Glendale.

“Our team is quite small, so we don’t provide W-2s to our employees; we pay them with 1099s,” Rivera explained. “The letter was requesting my income records from 2022 to 2023.”

And she’s not the only one facing this issue.

If you’re a gig worker, an independent contractor, or someone receiving a 1099, you may have also seen similar letters from the City of Los Angeles, indicating a potential business tax liability. Many individuals have taken to social media to share that they’ve received comparable notifications, despite not owning a business.

The City of Los Angeles issued a statement stating, “Independent contractors, who often receive 1099s, are subject to the city’s business taxes. While I can’t comment on the specific situations of those you’ve talked to, it’s very likely that they owe business taxes even if they don’t operate a ‘business.'”

The city’s website mentions, “Small businesses, creative artists, and nonprofit organizations with annual income below $100,000 may not need to pay business taxes.”

“Currently, Los Angeles is in need of revenue, so it seems they’re reaching out to anyone with ties to the city,” remarked certified public accountant Armin Arazian.

Arazian emphasized that the details are crucial.

“When you’re flagged, you get a letter saying you owe taxes. But if you read it closely, it states ‘estimated taxes,’” she explained. “That doesn’t necessarily mean you owe money; it could just mean you need to register.”

For many, this letter can feel intimidating and vague.

“I sent a reply and I’m just waiting… hoping the situation doesn’t escalate,” Rivera mentioned. “With the city, you never quite know what they might demand from you.”

If you receive one of these notifications, CPAs advise against ignoring them. Sometimes, all that’s needed is registration and submission, and in some cases, there may be no further requirements.

“Don’t hastily assume that you owe money and pay it,” Arazian cautioned. “I think a lot of people might just think, ‘Oh, this has to be it.’ But that’s not always the case.”