LA and San Francisco Local Taxes Due March 2

Los Angeles and San Francisco both impose annual business taxes. For both cities, annual returns generally are due by the last day of February, subject to calendar-day adjustments (March 2, 2026, for the current year). Late filings trigger potential penalties of up to 40% of the tax due, plus interest.

Crowe observation

Local tax filing obligations often are overlooked. With the Los Angeles and San Francisco March 2 annual filing deadlines approaching, now is the time to reassess tax classifications and apportionment methods.

Los Angeles Business Tax (LABT)

The LABT applies to businesses engaged in business within the city limits of Los Angeles, not the entire county. Businesses are required to register with Los Angeles, obtain a business license, and file an annual renewal return for each business location in Los Angeles.

A business is “engaged in business” in Los Angeles if it maintains a fixed place of business, owns or leases real property for business use, maintains inventory, regularly solicits business, performs services on a regular and continuous basis for at least seven working days per calendar year, or operates a motor vehicle on city streets for business purposes. The LABT does not currently have an economic nexus standard; only physical presence creates nexus.

The LABT divides business activities into multiple tax classifications, each with its own tax rate. Rates for most businesses generally range from $1.01 to $4.25 per $1,000 of gross receipts, depending on the classification. When a taxpayer conducts more than one type of business activity at a single location, Los Angeles generally allows for an election of a single primary tax classification if at least 80% of gross receipts fall within that classification.

The LABT has some challenging aspects, including:

• Though exemptions are available, including exemptions for qualifying new businesses and small businesses, they are not automatic and require timely registration and annual renewal filings.
• Guidance for determining the amount of gross receipts subject to tax is limited and varies by classification.
• Businesses that start a new business activity at a current location or open a new location in the city could be subject to an additional tax, commonly referred to as “back tax,” on their initial renewal or return filed after starting a new business activity.

Los Angeles offers a voluntary disclosure program for eligible unregistered businesses, with a limited five-year lookback period and penalty waiver.

San Francisco Annual Business Tax (SFABT)

San Francisco imposes an annual business tax that includes a gross receipts tax on companies engaging in business within San Francisco city and county. Businesses might be subject to tax if they perform services, have employees or representatives working, own or lease property, or otherwise conduct business activities within San Francisco. Economic nexus is established if a business has more than $500,000 in annual San Francisco-sourced gross receipts.

Gross receipts are taxed on a graduated-rate basis, with rates and computation methods varying by business activity. The rates range from approximately 0.1% at the lowest tier to 3.716% at the highest tier, depending on business activity classification and level of gross receipts attributable to San Francisco.

The SFABT return is required to be filed on a combined basis, which might come as a surprise to some taxpayers, as it generally mirrors the combined group filing for California franchise tax purposes.

The March 2 filing deadline is a significant filing for SFBAT taxpayers because it is the first return that incorporates many significant tax changes. For instance, changes for tax years beginning on or after Jan. 1, 2025, include:

• Changes to how gross receipts are sourced and apportioned to San Francisco.
• Adjustments to tax rate schedules across business activities.
• Modifications to the structure of several existing business taxes.
• Increases to the small business exemption from $2.25 million to $5 million in combined San Francisco taxable gross receipts. Businesses below this threshold might be exempt from paying the tax; however, they still are required to comply with registration and, potentially, filing requirements.

Crowe observation

The SFABT changes place increased emphasis on proper business classification and compliance with San Francisco’s administrative sourcing and apportionment guidance and could materially affect the amount of receipts subject to San Francisco tax.

San Francisco also enacted a new formal voluntary SFABT disclosure process for businesses that have not previously registered or filed SFABT returns. Through the voluntary disclosure program, qualifying taxpayers can receive penalty relief and a limited lookback period, reducing exposure for prior unfiled years.

Additionally, San Francisco established, for a three-year trial basis, an advanced written determination (AWD) program, which allows taxpayers to request formal written guidance regarding the application of the SFABT to specific facts, such as apportionment or business class classification. AWD requests cannot be submitted anonymously, and a redacted version of issued AWDs will be published.

Looking ahead

As March 2 approaches, companies should proactively confirm that all locations and activities are properly registered and classified in Los Angeles and San Francisco. Complex rules in both cities and recent San Francisco tax changes heighten the importance of accurately reporting gross receipts subject to the tax. Businesses with historical exposure should consider voluntary disclosure options or seek guidance where uncertainty exists to reduce risk and avoid costly penalties