FAQ: What You Need to Know about AB63 Notices
If you make your living as an independent contractor, small business owner, or with a variety of side-hustles in the gig economy, you may get a rude awakening for just trying to make ends meet. The City of Los Angeles has – albeit for longer than a decade – taken advantage of a state-supplied list of people who report income on 1099s to slam them with hefty back tax bills full of penalties and interest to boot.
The logic behind this way of “Tax Discovery” is that the City of Los Angeles views people who file 1099s as unlicensed business owners with outstanding tax liabilities to the city. Because the city’s strategy is to use 1099s as an indicator for unlicensed businesses, potentially thousands of independent contractors who wouldn’t consider themselves business owners can get swept up into owing city business back taxes on their gross incomes.
If you’ve recently received an AB63 notice in the mail, you probably have a lot of questions about what this is all about and why you’re suddenly involved in it. Read through to discover answers to commonly asked questions about AB63 notices, how to register your business with the city to get a license, and more.
What is AB63 Anyway?
In 2001, Assembly Bill 63 (AB63) was signed into law by then-Governor Gray Davis. This legislation allows the California Franchise Tax Board (FTB) to share with cities a list of individuals or businesses reporting income and deductions on IRS Form 1099-MISC.
The City of Los Angeles has used the list of those who report 1099 income and deductions to identify “unlicensed businesses” that owe the city in back taxes. When you’ve been identified as an unlicensed business, the city may send you a Tax Discovery Letter.
How Much Will I Owe?
As with any kind of income tax, your individual liability will depend upon how much you made. The applicable tax rate is also dependent on the categorization of your income (i.e., sale of goods, sale of services, etc.). Moreover, the city may look into collecting back taxes with interest and penalties for up to eight years.
In other words, if you’ve received income as an independent contractor during the last eight years without registering with the City and claiming an exemption, the city may send you an AB63 notice to collect on unpaid city business taxes for all of those years.
When Do I Need to Respond to My AB63 Notice?
Refer to your notice if there are specific deadlines. Generally speaking, the City of Los Angeles Business Tax must be filed on or before Feb. 28 of every year. Being aware of this deadline is important, especially because it falls about a month and a half before your state and federal taxes are due and can get lost in the shuffle.
I’m Don’t Own a Business, Why Did I Get an AB63 Notice?
Anyone collecting income and filing it on IRS Form 1099-MISC in Los Angeles may be considered a business owner. Even your small business side-hustle on Etsy, driving for Uber, or delivering Grub Hub orders makes you a “business owner” in the eyes of the city if you file income as an independent contractor.
It also means that if you worked as an assistant on a film or TV production, you could be considered an independently employed “consultant” and subject to the city’s business tax despite having required hours and supervision.
The rule of thumb is that if you’ve received a Form 1099-MISC with a Los Angeles address, you may be subject to an AB63 notice.
Are There Any Exemptions Available?
Yes, but only to registered businesses. If the income on your 1099 amounts to $100,000 or less, and your business is registered with the City of Los Angeles, you can file for an exemption from the city’s business tax. If your business is not registered, you will not be able to apply for this exemption until you do so. However, in order to claim this exemption, the filing must be timely (due by February 28 every year).
If you work in the entertainment industry and earn less than $300,000, you may apply for a creative artist business tax exemption but only if you register your business and file tax returns with the City of Los Angeles’ Office of Finance.
How Do I Register My Business with the City?
You can register your business with the City of Los Angeles’ Office of Finance online. You’ll be asked for information pertinent to yourself (if you’re a sole proprietor) or your business if you’re earning income through an entity separate from yourself.
After registering online, you should receive a temporary Business Tax Registration Certificate or number, which will be replaced by a permanent version within six weeks.
Greenberg Bitton LLP: Committed to Helping Our Clients with Local Tax Laws
If you’ve received an AB63 notice or tax bill in the mail, contact Greenberg Bitton LLP for help. Our firm is focused on helping people resolve matters concerning federal, state, and local taxes. Because AB63 affects those who file their income taxes with a Los Angeles address, our firm is capable of helping you resolve issues concerning your AB63 notice.
Greenberg Bitton LLP can help you:
- File for an AB63 exemption
- Represent you during state or local audits
- Negotiate an installment agreement for unpaid taxes
- Seek penalty and interest abatement
If you’ve received an AB63 notice and aren’t sure what to do, contact Greenberg Bitton LLP online or call (877) 829-5294 to get help from one of our tax law attorneys today!