Local city tax late notice

[DIY_Tax_Person]

The City of LA hit me with a 'late fee' notice. I discontinued my DBA. Also, my royalty income is with companies that are out of state (Tunecore and Sound Exchange). So, is this right? Should I be owing localized taxes?

[KristinaK]

This is an out-of-scope question, but let me give you some direction. 

The city of Los Angeles imposes taxes on persons engaged in any trade, calling, occupation, vocation, profession, or other means of livelihood. Which implies active engagement in an activity. From what you are describing, it doesn't sound like you are actively engaged in a business activity anymore. 

Even if the state taxes income from out of its area, it still needs to be an activity you are actively engaged in. But you seem to be describing passive income received in the form of royalties. 

I suggest you contact LA Office of Finance (the contact information should be on the notice you received), and explain the situation. Also, make sure that you inform them that the business is closed. Read more about it here. 

For the future, be aware, that there are a couple of exemptions from tax that you may qualify for. Read about it here. 

[DIY_Tax_Person]

I contacted them with my argument that I'm retired and just receiving royalty money. It seems to take them at least 3 working days to respond to emails. Meanwhile, my late penalties go up in 4 working days, if I'm deemed to still be 'in business' and don't pay up. It's catch-22.

They say that you "must cancel your City of Los Angeles' Tax Registration Certificate by sending a letter OR by completing a Taxpayer Information Update Form". I hope they don't have some Draconian rule whereby it's only considered 'canceled' if you do so before the 2023 tax year or by the end of the 2023 tax year.

Also, I wonder if they consider having a promotional website as being 'in business'. For example, a musician or actor with a website promoting their old work and maybe with external links to where fans can buy their work on Amazon.

[KristinaK]

I know that CA FTB considers active websites as one of the indicators that the activity is still valid. But I am not sure about the City of LA. It's possible, though. But a reasonable explanation should convey your message. 

[DIY_Tax_Person]

I had zero web-related expenses in 2023. In fact, my only 'business' expense was an annual fee paid to a royalty collection company. The domain and the webspace provider expenses were already paid for in prior years. As an analogy, I think about someone paying in advance for a couple of years of billboard space rental, then they go out of business in a couple of months. No longer in business but the billboard ad is still there.

I'm still awaiting a response from the city. I wonder if this is a grey area of law that I can dispute. I'll ask their lawyer to cite the legal language if they hold my website against me.