HomeMy WebLinkAboutSS5 - Business License Tax - Staff PowerPointCity of Newport Beach
A Review of Business License Tax
uirements for Real Estate Agent
ew
➢ Background
PCity Code Requirements
• Business License Tax Rates and Revenue
➢ What factors do we consider to determine if
Real Estate Agents are subject to Business
kicense Taxation?
Are we compliant with Federal and State legal standards?
Is our treatment of the real estate industry consistent with the
treatment of other industries that employ independent
contractors?
Background
NBMC Code Requirements
• Any person who operates a business in the City must obtain a
license (NBMC §5.04.020).
• "Person" shall mean ... individuals transacting and carrying on any
business in the city other than as an employee (NBMC §5.04.010).
"Business" shall mean arts, professions, trades and occupations in all
and every kind of calling, whether or not carried on for profit (NBMC
§5.04.010).
Employees are not required to obtain business licenses.
Business License Tax Rates and Associated
Revenue from Real Estate Agents and
Brokers
Annual Tax Rate
Annual Revenue
• Residential Location $151
• Currently, 1100 licei
• Commercial Location $159
agents and brokers
• Out of Town $239
• 2012 $234,557
• 2013 $221,926
Evaluative Fa
.State •Empbyce /Employer RelatiomM1ip
Law
• Legal Obliganans ro Ea[b ONa
TaX
• W2
$tdt115 01099
0 RhNWe C
1 MMMM� Independent
T Contractor
Pub •commoora�mrs
• payroll W-1 -W
Fed
Law
lifornia Law
Business & Professions Code § 16300:
When there is a dispute between a city... and a taxpayer, the manner in
which a taxpayer reports or reported income to the Franchise Tax Board
or the Internal Revenue Service shall create a presumption regarding
whether the taxpayer performed services for an employer as an
employee, or operated a business entity.
real estate agents, like most independent contractors, file a
Jule C to receive the benefit of federal and state deductions,
ng the presumption of being a business entity.
Federal Standards
IRS Publication 15A states that a real estate agent is a
statutory non employee if:
Substantially all payments for their services as direct
sellers or real estate agents are directly related to sales
or other output, rather than to the number of hours
worked, and
Their services are performed under a written contract
providing that they will not be treated as employees for
federal tax purposes
Federal Law
U.S. Code Title 26, Chapter 25, § 3508, Treatment of Real
Estate Agents and Direct Sellers, provides that
...in the case of services performed as a qualified real estate
agent ...
1) the individual performing such services shall not b
treated as an employee, and
2) the person for whom such services are performed shall
not be treated as an employer."
Legal Precedent
The application of the City's business license requirem7e
to real estate agents has previously been challenged and
upheld in court:
➢ Cartelli vs. City of Newport Beach, Superior Court of
California, County of Orange Case #30 -2009- 002350
➢ Migliori vs. City of Newport Beach, Superior Court of
California, County of Orange Case #30 -2011- 00508986
02/21/2014
6
02/21/2014
Il
Ill do other cities classify real estate agents for
business license taxation purposes?
Independent
Contractor
Buena Park
Mesa
rden Grove
Habra
Palma
Beach
t Beach
Diego
Juan Capistrano
Marino
w Monica
Employees of
Broker Other
Brea
Beverly Hills
Huntington Beach
Palm Springs
Long Beach
Pasadena
Orange
Santa Barbara
Tustin
Walnut Creek
Other Considerations
• If the tax becomes the responsibility of the broker to pay on behalf of
their agents, there will be an increased likelihood that out of City
brokers will have an unfair advantage over brokers and agents within
the City if their tax is uncollectable.
If real estate agents were to be exempted from the City's busii
license requirements, the initial legal concern is that we could
challenges from other types of independent contractors seekii
exemption.
Summary - Frequently Asked Questions
➢ Real estate regulations require me to work for a
broker. The broker is taxed, why should I also be
taxed?
➢ Since my broker pays workers comp on my
shouldn't I be classified as an employee of
broker for taxation purposes?
Other cities exempt real estate agents from the
business license tax, why doesn't Newport
Beach?
City of Newport Beach
A Review of Business License Tax
uirements for Real Estate Agents
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