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Last Updated on September 19, 2025 by Robert Green
The City of Los Angeles has begun mailing Business Tax Registration Certificate (BTRC) notices to residents, including traders eligible for trader tax status (TTS) who file a Schedule C for Section 162 business expenses only.
For these own‑account traders (no clients, no advisory fees, not broker‑dealers), a reasonable position is that taxable “gross receipts” are $0 because they make no sales to customers or provide services. However, LA has not published an explicit exemption for traders, and the City’s Stockbrokers page under LAMC §21.49 states that “stockbrokers trading on their own accounts” are subject to tax on net trading profits. That rule was designed for broker‑dealers with customers, but LA may misapply it to retail traders. Expect possible questions or documentation requests. If the City insists on registration, traders can consider the Small Business Exemption (≤ $100,000 receipts).
What Los Angeles Requires
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Who must register: Anyone “engaged in business” in the City must obtain a BTRC or claim an exemption. See LAMC §21.03.
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Nexus rule: Performing work in Los Angeles for seven or more days per year triggers business registration.
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Passive investment income: Dividends and interest alone do not count as business activity.
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Stockbrokers rule: Under LAMC §21.49, stockbrokers—including those trading on their own accounts—pay tax on commissions, fees, and net trading profits. This rule targets registered broker‑dealers with clients, but officials could apply it against retail traders.
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Tax rates: Professions and occupations (including stockbrokers) are taxed at $4.25 per $1,000 of gross receipts (about 0.425%). See the City’s Know Your Rates page.
How Traders Report Income Federally
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Capital gains/losses: Report on Form 8949 and Schedule D.
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Section 475 MTM traders: Report ordinary gains/losses on Form 4797, Part II.
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Schedule C: Used only for business expenses such as data, platforms, and home office—not trading gains or losses.
Because Schedule C shows expenses only, the City may assume gross receipts exist. Some traders with minimal expenses skip filing a Schedule C, but skipping it does not conclusively exempt them from LA business tax. The Office of Finance uses Franchise Tax Board data matching and flags Schedule C, Schedule D, or Form 4797 activity to issue AB63 discovery notices. Traders should explain that they report gains and losses correctly and that they have no customer receipts. Notices sometimes arise from a trader’s use of Form 4797, Part II for Section 475 MTM, which is titled “Sales of Business Property” but remains the correct form for traders.
IRS Topic 429 lists the factors used to determine TTS: holding periods, frequency and size of trades, pursuit of livelihood, and time devoted. It also notes that expenses go on Schedule C. Gains and losses from trading are not subject to self‑employment tax. Federal recognition of TTS does not automatically create taxable gross receipts under LA’s code, since traders still lack customer‑facing revenues.
Pass‑through entities eligible for TTS, including LLCs/partnerships and S‑Corps, also report business expenses and use Form 8949 (realization) or Form 4797 (MTM). These entities may also receive LA notices, and the same $0 gross receipts position applies.
Illustrative Examples
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Profitable Trader: An LA‑based trader earns $1 million in net trading gains for the year, with no clients and only personal capital at risk. For federal tax, those gains go on Form 8949/Schedule D or Form 4797. For the LA business tax, a reasonable position is that there are no customer receipts, so taxable gross receipts equal $0. If misclassified as a “stockbroker” under §21.49, the tax could reach 0.425% of $1 million = $4,250.
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Losing Trader: Another trader incurs $100,000 in net trading losses. For LA, again, the position is no gross receipts, so no business tax applies. If misclassified as a stockbroker, LA might attempt to treat gross receipts as trading profits net of losses ($0 here).
Traders vs. Broker/Dealers
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Dealer: Buys and sells securities as a business, holds inventory, earns spreads, and registers with regulators.
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Agent (Broker): Executes trades for clients and earns commissions.
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Principal: Trades for their own account, often taking the other side of customer trades.
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Market‑maker: A dealer that continuously quotes bid/ask prices and provides liquidity, always trading against customers.
All of these categories involve customers or counterparties. If a dealer, agent, principal, or market‑maker also makes some proprietary trades, regulators may lump that together with customer business. Retail traders are different—100% of their trades lack customers—which supports a $0 gross receipts position.
LAMC §21.49 specifies that an agent or broker who also deals as principal must include trading profits in gross receipts. LA could try to invoke this if it views a trader as fitting that bucket. That rule makes sense for market‑makers and dealers acting as principals in broker/dealer activity, where customer business is always involved. But retail traders are different: they have no clients and all of their trades are proprietary. Applying §21.49 to them stretches the law beyond its intent and remains a misclassification risk, not a clear obligation.
City Notices and AB63 Enforcement
The City of Los Angeles Office of Finance Enforcement Division (AB63 Unit) issues these notices using Franchise Tax Board data. Taxpayers must either:
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Complete a Business Tax Application (AB63) to register, or
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File an AB63 Alternative Form to assert exemption.
The letters warn that failure to respond may result in estimated assessments and penalties. Traders should complete the AB63 Alternative Form, state clearly that they trade solely for their own account, and explain that they have no clients. On the form, check: “I am not subject to City business tax – see the back of this notice and indicate the reason why you are not subject to the tax.”
See: City of LA – AB63 Program FAQ
Guidance and Call to Action
For own‑account traders, the LA business tax should not apply. But because no specific exemption exists and the City taxes “stockbrokers trading on their own accounts” under §21.49, expect questions and potential registration requirements. If LA insists on registration, the Small Business Exemption can provide relief. This exemption applies when worldwide gross receipts are ≤ $100,000 and must be claimed annually.
Our advice:
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Respond promptly and keep written records.
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State the facts clearly—you trade only for your own account and have no customer revenues.
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Be transparent but firm—acknowledge TTS for federal purposes, but clarify it does not create taxable gross receipts locally.
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Keep documentation—copies of AB63 forms, correspondence, and federal filings. Contact the City’s Business Tax Liaison if needed.
If you’ve received a BTRC notice, contact us. In a consultation, Green, Neuschwander & Manning, LLC can provide customized response letters, exemption declarations, and guidance to resolve these notices quickly and try to avoid unnecessary LA business tax assessments.
Disclaimer: This post is for informational purposes only and does not constitute legal or tax advice. Consult your own tax advisor regarding your specific situation.
Darren Neuschwander, CPA, contributed to this blog post.
Sources
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BDO and PwC publications summarizing Los Angeles City Business Tax rates and scope
