(a)
Except as provided in this Section 953.8, notwithstanding any other provision of this Article 12-A-1 and in lieu of the other taxes provided by this Article for any person or combined group, every person engaging in business within the City as an administrative office, as defined below, shall pay an annual administrative office tax measured by its total payroll expense that is attributable to the City. If a person is a member of a combined group, then its tax shall be measured by the total payroll expense of the combined group attributable to the City. Such combined group shall pay only the administrative office tax. The administrative office tax rate is:
(1) For tax years beginning on or after January 1, 2014 and ending on or before December 31, 2021: 1.4%.
(2) For tax year 2022 and, if the Controller does not certify under Section 953.10 that the 90% gross receipts threshold has been met for tax year 2023, for tax year 2023: 1.47%.
(4) For tax year 2024 if the Controller certifies under Section 953.10 that the 95% gross receipts threshold has been met for tax year 2024, and for tax years beginning on or after January 1, 2025: 1.61%
(b) “Engaging in business within the City as an administrative office” means that:
(1) a person is engaging in business within the City during the tax year and over 50 percent of the total combined payroll expense within the City of that person and its related entities for the preceding tax year was associated with providing administrative or management services exclusively to that person or related entities;
(2) the total combined number of employees of that person and its related entities within the United States as of the last day of the preceding tax year exceeded 1,000; and
(3) the total combined gross receipts of that person and its related entities reported on United States federal income tax return(s) for the preceding tax year exceeded $1,000,000,000.
(c) For purposes of subsection (b) only, a related entity shall include any person who could be included in the same combined report under California Revenue and Taxation Code Section 25102 but for the existence of a water's edge election under Section 25110 of that Code.
(d) "Administrative or management services" comprises internal support services provided on an enterprise-wide basis, such as executive office oversight, company business strategy, recordkeeping, risk management, personnel administration, legal, accounting, market research and analysis, and training services; it does not include sales personnel or personnel actively engaged in marketing, research and development, direct customer service, and product support services. The Tax Collector is authorized to classify in its reasonable discretion which personnel employed by any person provide administrative or management services.
(e) A person provides administrative office services exclusively for itself or a related entity only if the final recipient of those services is at a location where that person or a related entity conducts business activities.
(f)
“Payroll expense” for purposes of this Section 953.8 means the compensation paid to, on behalf of, or for the benefit of an individual, including shareholders of a professional corporation or a Limited Liability Company (“LLC”), including salaries, wages, bonuses, commissions, property issued or transferred in exchange for the performance of services (including but not limited to stock options), compensation for services to owners of pass-through entities, and any other form of compensation, who during any tax year, perform work or render services, in whole or in part in the City; and if more than one individual or shareholders of a professional corporation or members of an LLC, during any tax year performs work or renders services in whole or in part in the City, the term “Payroll Expense” means the total compensation paid including salaries, wages, bonuses, commissions, property issued or transferred in exchange for the performance of services (including but not limited to stock options), in addition to any compensation for services to owners of pass-through entities, and any other form of compensation for services, to all such individuals and shareholders of a professional corporation or members of an LLC. For purposes of this definition of payroll expense:
(1) Any person that grants a service provider a right to acquire an ownership interest in such person in exchange for the performance of services shall include in its payroll expense for the tax year in which such right is exercised an amount equal to the excess of (A) the fair market value of such ownership interest on the date such right is exercised over (B) the price paid for such interest. This Section 953.8(f)(1) shall not apply for purposes of determining whether a person is engaging in business within the City as an administrative office, but shall apply for all other purposes of this Section 953.8.
(2) Any individual compensated in his or her capacity as a real estate salesperson or mortgage processor shall be deemed an employee of the real estate broker or mortgage broker for or under whom such individual performs services, and any compensation received by such individual, including compensation by way of commissions, shall be included in the payroll expense of such broker. For purposes of this Section 953.8(f), “real estate broker” and “mortgage broker” refer to any individual licensed as such under the laws of the State of California who engages the services of salespersons or a salesperson, or of mortgage processors or a mortgage processor, to perform services in the business which such broker conducts under the authority of his or her license; a “salesperson” is an individual who is engaged by a real estate broker to perform services, which may be continuous in nature, as a real estate salesperson under an agreement with a real estate broker, regardless of whether the individual is licensed as a real estate broker under the laws of the State of California; a “mortgage processor” is an individual who is engaged by a real estate broker or mortgage broker to perform services, which may be continuous in nature, as a mortgage processor under an agreement with such real estate broker or mortgage broker, regardless of whether the mortgage processor is also licensed as a mortgage broker under the laws of the State of California.
(3) All compensation, including all pass-through compensation for services paid to, on behalf of, or for the benefit of owners of a pass-through entity, shall be included in the calculation of such entity’s payroll expense tax base for purposes of determining such entity’s tax liability under this Section 953.8. For purposes of this Section 953.8(f), the “pass-through compensation for services” of a pass-through entity shall be the aggregate compensation paid by such entity for personal services rendered by all such owners, and shall not include any return on capital investment. The taxpayer may calculate the amount of compensation to owners of the entity subject to the administrative office tax in this Section 953.8, or the taxpayer may presume that, in addition to amounts reported on a W-2 form, the amount subject to the administrative office tax is, for each owner, an amount that is 200% of the average annual compensation paid to, on behalf of, or for the benefit of the employees of the pass-through entity whose compensation is in the top quartile (i.e., 25%) of the entity’s employees who are based in the City; provided, the total number of employees of the entity based in the City is not less than four.
(4) Where payroll expense is incurred by reason of work performed or services rendered by an individual wholly within the City, all of the payroll expense for such individual shall be attributable to the City and subject to tax under this Section 953.8. Where payroll expense is incurred by reason of work performed or services rendered by an individual partly within and partly without the City, the portion of such payroll expense attributable to the City (and subject to tax under this Section) shall be determined as follows:
(A) Except as otherwise provided in this Section 953.8(f)(4), the portion of such payroll expense attributable to the City shall be the portion of such payroll expense which the total number of working hours employed within the City bears to the total number of working hours within and without the City.
(B) If the amount of such payroll expense depends on the volume of business transacted by such individual, then the portion of such payroll expense attributable to the City shall be the portion of such payroll expense which the volume of business transacted by such individual in the City bears to the volume of business transacted by such individual within and without the City.
(C) If it is impracticable, unreasonable or improper to apportion such payroll expenses as aforesaid either because of the particular nature of the services of such individual, or on account of the unusual basis of compensation, or for any other reason, then the amount of such payroll earnings reasonably attributable to work performed or services rendered in the City shall be determined on the basis of all relevant facts and circumstances of the particular case, in accordance with any rulings or regulations issued or promulgated by the Tax Collector for the purpose.
(D) If the Tax Collector determines that the percentage of payroll expenses attributable to the City, for any one or more persons, is a relatively stable percentage, the Tax Collector may establish that percentage as a prima facie evidence of payroll expense attributable to the City; provided, that the Tax Collector shall condition the establishment of such fixed percentage upon the obligation of the taxpayer to report immediately to the Tax Collector any significant change in the taxpayer’s mode of business which may impact the portion of the person’s payroll expense which is attributable to the City; and, provided further, that the Tax Collector may rescind any such fixed percentage at any time by providing written notice to the taxpayer of such rescission.
(g) In addition to the administrative office tax provided in subsection (a), any person engaging in business within the City as an administrative office exclusively for itself or a related entity shall apply for a registration certificate and pay a registration fee, as provided in Article 12.
(h) Except as provided in this Section, the provisions of Article 6 and Article 12 apply to the administrative office tax. In particular, and without limiting the applicability of the balance of Article 6, the provisions of Sections 6.9-1 through 6.9-3, inclusive, of Article 6, regarding due dates, returns and prepayments, apply to the administrative office tax.
(Added by Proposition E, App. 11/6/2012, Oper. 1/1/2014; amended by Proposition F, 11/3/2020, Eff. 12/29/2020, Oper. 1/1/2021; Ord. 152-21, File No. 210828, App. 9/29/2021, Eff. 10/30/2021)