The City of Atlanta Business Occupation Tax
Businesses that operate in the City of Atlanta must have a business license and must display the business license. To get the license, the business must pay an annual business occupation tax. The business files a business license renewal form, on which the business must show its prior-year gross receipts. The City computes the business occupation tax on the gross receipts. The City also requires a nominal payment per employee over the first employee. The City’s form is not a model of clarity, and it has no instructions on the revenue items included in “gross receipts.” The business must turn to the Georgia Revenue Code or the City of Atlanta Municipal Code, and then try to find the definition of “gross receipts.” Some businesses simply put the best estimate of “gross receipts” and, perhaps, insert the gross revenues shown on the income tax return. But “gross receipts” for computing the business occupation tax, whether in the City of Atlanta or any local jurisdiction that imposes a business occupation tax, is not the same as total revenues or gross revenues shown on the federal income tax return.
In this edition of “Pass the Salt,” we clarify some of the confusion that business owners face when reporting gross receipts on the business license renewal form. The discussion below does not address the right of professionals to pay a maximum of $400 per licensed practitioner. Businesses that comprise professionals qualify for this limited business occupation tax.
What is “Gross Receipts” for Business Occupation Tax? As noted above, the City of Atlanta renewal application form requires the business to insert its prior-year gross receipts. But the form does not list the revenue items included in gross receipts. This prompts the business and its advisors to make assumptions, to wit: that “gross receipts” is total gross receipts/sales without deductions, a number that the business may simply pull from the federal tax return. But for business occupation taxes, “gross receipts” is not the same as gross receipts for federal reporting purposes.
“Gross receipts” is defined in both the City of Atlanta (and other local jurisdictions) Municipal Code and in the Georgia Revenue Code. Specifically, “gross receipts” is total revenue for the year, including (1) total income without deduction for cost of goods sold or expenses, (2) gain from trading stocks, bonds, capital assets, or debt instruments, (3) commissions from the sale of property, goods, or services, (4) fees charged for services, and (5) rent, interest, royalty, or dividend income. But excluded from gross receipts are the following: (1) sales, use, or excise taxes, (2) sales returns, allowances, and discounts, (3) intercompany transfers among members of a controlled group, (4) certain revenue items received by nonprofit organizations, (5) payments to a subcontractor or an independent agent for services that contributed to the business’s gross receipts and (6) proceeds from sales of goods and services that are delivered to or received by customers who are outside the state at the time of delivery or receipt. Ignoring or not considering (5) and (6) results in over-stating gross receipts and overpaying the business occupation tax. An unwitting business could easily overlook these important exclusions. These two exclusions are covered below.
Exclusion for Payments to Independent Contractors or Agents. A business that pays independent contractors or independent agents should exclude the payments from “gross receipts.” The business must keep proof of the payments (e.g., bank records). Also, the business must keep proof that the payments were made to independent contractors or independent agents (e.g., Forms 1099).
Exclusion for Receipts from Non-Georgia Sales. A business should also exclude any receipts from sales of goods/services to customers that are located outside Georgia at the time that the customer receives the goods/services. This means that if (1) the Atlanta business has total revenues of $5 million and (2) $4 million are for services delivered to customers outside Georgia, then the business should report “gross receipts” of $1 million, not $5 million. The business should keep records of sales invoices, contracts, or other documents to show that the customer was located outside Georgia at the time that the customer received the goods/services.
Allocation Where More than One Location. Some businesses have more than one location. Perhaps the business has a location inside the City of Atlanta and a location in another local jurisdiction. Georgia law authorizes each local government to tax the gross receipts generated by the location or office within the jurisdiction. Georgia law also allows a business to allocate revenues by location, as long as the business can reasonably allocate the gross receipts to its locations. The business can allocate (1) based on product manufactured in that location/office or (2) based on sales or other services provided in that location/office. If the business cannot reasonably allocate the dollar amount of gross receipts among its locations, then the business must divide Georgia gross receipts reported to all local governments by the number of locations or offices that contributed to total Georgia gross receipts. In such circumstances, the business reports an equal percentage of Georgia gross receipts to each location or office. If the business does not report to another local government in which the business has an office/location, then the City of Atlanta (and perhaps other local governments) will make the business report 100% of the Georgia gross receipts. Thus, the business must have proof that it files and pays the business occupation tax to other local jurisdictions in Georgia.
The business may have a location in the City of Atlanta and have other locations outside Georgia. The business can use the allocation discussed above, so that the business does not overpay taxes to the City of Atlanta. Gross receipts are based on the location. If the location is not in Georgia or not in the City of Atlanta, then the business should not include receipts generated by locations outside the City of Atlanta.
Location/Office for Real Estate Rentals and Real Estate Transactions. As noted above, Georgia law allows each local government to impose the tax on businesses with a location or office within the jurisdiction. This rule prompts questions tied to real estate brokers that have its main offices outside the City of Atlanta but owns real estate inside the City of Atlanta. For instance, the business may own office buildings in the City of Atlanta, but the business may have its main offices in Dunwoody. Revenues from sales or rentals of real estate inside the City of Atlanta may be City of Atlanta gross receipts even where the seller’s location is outside the City of Atlanta.
The site of the rented real estate is considered an “office” or “location” subject to tax if three conditions exist: (1) the site of the rented real estate is the site where the owner (or its agent) shows the property to prospective tenants, (2) the site of the rented real estate is the site where the owner (or its agent) maintains and repairs the property, (3) the site of the rented real estate is the site where the owner (or its agent) conducts business of renting and leasing the property or conducts any business at the site. Also, Georgia law authorizes a local government to impose the tax on real estate brokers based on gross receipts for real estate transactions (sales/rentals) as to property located within the local jurisdiction. Indeed, under the Municipal Code of the City of Atlanta, a business occupation tax is required from real estate brokers, agents, or companies based upon gross receipts of real estate transactions on property located within the city, regardless of the location of their business office. This rule is the source of much confusion, and real estate brokers whose offices are in one local jurisdiction but own property in another jurisdiction should confirm their obligations to both local governments.
Interest on Unpaid Taxes. The Municipal Code of the City of Atlanta imposes interest on past-due taxes at the rate of 1.5% per month. This is a simple interest, not compounded interest. But the City of Atlanta may try to assess compounded interest on past-due taxes, and businesses must be aware of this possibility. To be clear, the Municipal Code of the City of Atlanta authorizes simple interest, not compounded interest.
Refunds for Overpayments. A business that has overpaid its business occupation taxes can file a refund claim for overpayments. The business must file a refund claim within three years of the payment date. The refund claim must be filed with the government to which the taxes were paid. The specific local jurisdiction’s municipal code provides for the specific office where the claim must be filed.
Conclusion. By February 15, a business must file a business license application renewal form to report prior-year gross receipts, which is used to compute the business occupation tax. The business must pay the business occupation tax by April 1, so that the business can get a business license. A business that does not have a business license is susceptible to two citations: not having the license and not displaying the license. Also, the operator or manager (the individual who runs the location) is likely to be cited personally. The business and the manager/operator must appear in municipal court. Both are subject to a fine and court costs. More important, the City of Atlanta, and other local jurisdictions, can shut down a noncomplying business. To prevent the citations and/or fines and to prevent overpayment of the tax, a business must obtain its business license annually and compute the proper tax.
A business that has been cited should consider the pretrial intervention program, which relieves the business of having to appear in municipal court and having to pay all the fines. Finally, where a business has not obtained a city business license, the business should consider approaching the City of Atlanta (or other local jurisdiction) to get into compliance, to avoid getting cited.
Litwin Law represents individuals and businesses in state and local tax matters. Litwin Law deals with a variety of issues that arise during audit and during protest and appeal to the Georgia Tax Tribunal and to local governments. If you or your client faces a local business occupation tax issue, and you are unable to resolve the issue, Litwin Law can help.
For over 30 years, and as a recognized Super Lawyer since 2008, Richard Litwin has devoted his practice to multistate tax, state and local tax, and tax controversies. He has chaired the State Bar of Georgia’s Section of Taxation and is highly active on Georgia Department of Revenue committees.
Note: “Pass the SALT” is a blog of The Litwin Law Firm, P.C., d/b/a Litwin Law, and is dedicated to sharing views and ideas on state and local taxation. This document is an overview and summary of state and local tax obligations. This document is not intended to be, nor should be interpreted as, legal advice. For legal advice, the reader should contact an attorney.
