How Small Businesses Can Pay $0 in LA City Taxes: Gross Receipts Tax Exemption Explained

Victor • July 1, 2025

Starting a small business in Los Angeles is exciting, but taxes can feel like a heavy burden before you even get going. What if you could legally pay $0 in LA City business taxes for your first two years? Good news: if you qualify for LA City’s Gross Receipts Tax Exemption, you can do exactly that. Here’s what you need to know to take advantage of this valuable benefit.

An aerial view of LA city skyline

What is LA City’s Gross Receipts Tax Exemption?

Los Angeles imposes a gross receipts tax on businesses operating within city limits. This tax is based on your total revenue, not just your profits, so it can add up quickly (especially for small businesses in their early stages). The Gross Receipts Tax Exemption allows new businesses to exclude up to $100,000 in gross receipts from city business taxes during their first two calendar years. That means if your gross receipts stay below that limit, you could owe nothing for the tax portion.

For creative artists and businesses in the entertainment industry, the city offers an even higher exclusion threshold up to $300,000 for qualifying creative activities.  This program provides crucial breathing room for startups, freelancers, and production companies trying to get established in LA.

To benefit, you need to claim the exemption when you first register for your business tax certificate.

Who Qualifies for the Exemption?

The exemption applies to small businesses that are newly established in Los Angeles. Your business must be new to the city, meaning it cannot simply be a relocation of an existing LA business or a restructured version of one you already had. Another key requirement is that you must register for your Business Tax Registration Certificate (BTRC) within 45 days of starting business activity in LA. Missing this 45-day window can disqualify you from the exemption, so timing matters. Most businesses that engage in activities subject to the gross receipts tax (including service providers, retailers, and wholesalers) can take advantage of this program if they meet these conditions.

How Much Can You Save?

The amount of money you save will depend on the size and type of your business. For example, a service based business with $100,000 in gross receipts could save between $500 and $1,000 or more over the course of two years. Businesses in retail, wholesale, entertainment, or other high volume sectors could see even larger savings. This exemption can free up cash that you can reinvest into your business at a critical time, helping you build a stronger base for your success in the long term.

Don’t Leave Free Money on the Table

The LA City Gross Receipts Tax Exemption is one of the simplest ways for a new small business to cut costs in its first two years. Unfortunately, many business owners miss out simply because they weren’t aware of the program or didn’t file on time. At DRS Accounting PC, we specialize in helping small business owners in Los Angeles set up properly and claim every benefit they’re entitled to. Book a free consultation today and let us help you keep more of your hard earned revenue.

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