Renting in California can be a lucrative business for property owners, but to avoid potential problems, becoming a landlord requires extensive preparation, research, and knowledge of state and local laws. There is no mandate requiring a landlord to have a business license in California, but prospective property owners should check their local laws for operating a business. Despite having no statewide legal requirements for a business license, a California landlord may want to create a business for his rental property. Renting a property in his name can be risky in the event of a lawsuit, which could mean the loss of personal assets. She may prefer to establish an LLC or some other type of company for the rental business to protect those assets by limiting them to the value of the rental property.
Business Licenses and Business Tax Certificates
California cities and counties sometimes call a business license a business tax certificate, but they are the same thing. Property owners wishing to rent property in the name of a business must obtain a license or tax certificate in the city where the business is located. If they live in an unincorporated section of California, they must apply for a license or tax certificate in the county of their business' operation. If a landlord operates his business in multiple locations, she may need to obtain a license or tax certificate in each of the places where the property is located.
A prospective landlord must have the required license or tax certificate to legally rent property in his area, as the consequences for operating without one can be legally and financially disastrous for both him and his tenants. If a landlord gets caught without one, he may be unable to evict a troublesome tenant, he may receive a hefty fine, or he may have to close his business entirely. Even after filing, he must stay on top of renewing the documentation because business licenses and tax certificates expire, and their requirements may change with each passing year. Compliance with city and county agencies is necessary to operate a successful rental business.
Based on the city or county location, a landlord may submit his business license or tax certificate registration application online, by mail or in person. The steps for registering for a business license or tax certificate, and their fees, vary depending on where the landlord does business.
Los Angeles: Business Tax Certificate Requirements
To legally operate as a landlord in Los Angeles, a property owner must first register her rental units with the Los Angeles Housing Department for routine code inspections before applying for a business tax certificate with the city. Los Angeles Municipal Code Section 21.43 considers the revenue collected from renting properties as a taxable business activity. If a landlord rents out four or more residential units within Los Angeles city limits, she must obtain a business tax certificate from the city's office of finance. If she rents three units or fewer within city limits, she is exempt from business tax liability. A landlord can report income from all properties on one business tax certificate no matter where the buildings are in the city. However, when she applies for the tax certificate, she must provide the office of finance with a complete list of the properties.
When the office of finance sends out a notification for registering a landlord's business tax certificate, he must reply within 10 business days. If he does not apply in a timely manner, he may be subject to penalties. If a landlord doesn't reply at all, the office of finance will issue a notice of noncompliance, levy an estimated assessment of taxes owed, and the landlord may have to appear before a review board.
The business tax for rental properties in Los Angeles is due every January 1, based on gross receipts from the prior year, and has a rate of $1.27 per $1,000. A landlord can pay the tax in installments if he owes more than $1,000 by sending a completed application with a letter to the finance office requesting a payment plan.
Santa Monica: Business License Requirements
A landlord renting properties in Santa Monica must obtain a license to conduct business within city limits. If she does not do so, she can face penalties, citations and possibly criminal prosecution. Santa Monica bases business tax rates on the identity of the business; rental businesses in Santa Monica have a tax rate of $1.25, or 0.00125 of the gross receipts.
The city issues business licenses for the fiscal year starting July 1 and ending June 30. Santa Monica allows for a 60-day grace period to apply before assessing penalties. A landlord must renew his license annually until he ceases operation in the city. To renew a business license, he must produce a notice of renewal, gross receipts for the period, any additional required forms and payment. These should be mailed or delivered to the revenue division office. The landlord may also be able to renew online with his license number, the total gross receipts for that year and a credit card or e-check for payment. A landlord is not eligible to renew an application online if he's changed his business location or name in the previous year or has had a delinquent license for several years.
San Diego: Business Tax Requirements
Anyone who owns, operates or manages rentals, such as single and multiple family residences; mobile homes and mobile home parks; trailers and trailer parks; apartments; bungalows; hotels; and motels in San Diego city limits must have a business tax certificate. The city requires a separate certificate for each business location within the city's jurisdiction, with payments due by March 1 of each year. The annual fee for the certificate is $34 for an entity with 12 employees or fewer and $125, plus $5 per employee for a company with 13 or more employees. All businesses within city limits owe a one-time $17 fee for zoning use clearance. When the landlord obtains his business tax certificate, he must display it clearly and visibly at the place of business.
The city treasurer also calculates business tax fees retroactively on rentals for up to three years. The totals vary, depending on the type of rental the landlord owns:
- Single-family homes/condominiums: One unit $50 (parcel base fee), plus $5 (unit fee).
- Multi-unit complex: Two to 10 units $50 (parcel base fee), plus $5 (unit fee); 11 to 100 units $57 (parcel base fee) plus $9 (unit fee); over 100 units $150 (parcel base fee), plus $8 (unit fee).
- Mobile home: One unit $40 (parcel base fee), plus $3 (unit fee).
Landlords who are late in paying rental unit taxes face penalties of $25 or 10 percent of due taxes if that number is greater. They also face a 1 percent penalty for each month following the payment due date.
Sacramento: Business License Requirements
Sacramento does not require a business license to operate in the city. Instead, landlords must apply for a business operation tax (BOT). If the landlord works from home, she must apply for a home occupation permit as well, which has an annual fee of $156. Landlords who own four or more properties must have a BOT and renew it annually.
The city mails tax payment notices four times a year in February, May, August and November. There is no set fee for business taxes, but Sacramento offers business owners help in figuring out what they owe with an online tax calculator. The landlord will select his business type, area, the number of units he owns, his gross receipts, or number of professional employees to calculate the amount he owes.
Anyone renting properties in unincorporated Sacramento County must have a business license, which costs $182 and covers three years of business ownership. Renewals are $138 for home-based businesses and $175 for commercial locations.
San Jose: Business License Requirements
Before 2016, the city of San Jose required a landlord to have a business license and to pay an annual tax if he owned three or more units. That year, voters approved Measure G, which changed the city's business license rules regarding rentals. Property owners with any number of rental units now need licenses and will pay an annual fee of $150 for up to 30 units, plus $5 for each unit over 30, not to exceed $5,000. Landlords must pay business taxes based on the number of rental properties they have within San Jose city limits:
- 1 to 2 units: $200.85 (base tax)
- 3 to 35 units: $10.60 (incremental per unit)
- 36 to 100 units: $15.90 (incremental per unit)
- 101 to 500 units: $21.20 (incremental per unit)
- Over 500 units: $26.50 ( incremental per unit)
- Cap on total tax: $159,135
Business tax certificate registration fees and taxes are payable by email, phone and standard mail. A landlord has up to 90 days from the date of starting his business to register it with the city. San Jose requires tax payments on the 15th day of the calendar month in which the start of business occurred, with a 25 percent penalty added after that date.
San Francisco: Business Registration Requirements
Landlords who rent properties in the city of San Francisco must register as a business. Certificates require renewal annually and cover the period from July 1 to June 30 each year. A landlord who owns one structure with fewer than four units, or one condominium, does not need to register as a business. San Francisco bases its registration fees on the landlord's gross receipts for the current calendar year and has a worksheet to calculate the fees on the city's Treasury and Tax Collector webpage.
After the landlord completes the online application form, the office will send two emails with documents for her to sign and return. She will then receive instructions on how to pay the fee for the current year, along with a business account number. Upon final approval of the application, the landlord will receive her certificate, which must be displayed in a clear, visible way at her place of business.
Short-term landlords, also known as hosts, are business owners who rent out portions of their residences for tenants who wish to stay less than 30 days. Property owners who rent units or rooms for the short term also need to register as business owners in San Francisco since they earn income from rentals. However, in some instances, hosts are exempt from registration fees. If a host qualifies for an exemption, the city treasurer's office will automatically process a refund. After completing the business registration, the landlord must also register as a host with the San Francisco Office of Short-Term Rentals to pay transient occupancy taxes, if they apply.
- LA Office of Finance: Rental Dwelling FAQ
- Office of the City Clerk: Ordinance No. 183419
- Treasury and Tax Collector, City and County of San Francisco: Information for Lessors of Residential Real Estate
- San Francisco Business Portal: City Registration
- The City of San Diego: Business Tax/Rental Unit Business Tax
- The City of San Diego: Rental Unit Business Tax Fees
- City of Sacramento: Different Types of Business
- Sacramento County Finance: Business License FAQ
- City of Santa Monica: A Guide to Opening a Business in Santa Monica
- Abbott, Stringham & Lynch: San Jose’s Business Tax Now Impacts All Landlords
- City of San Jose: Business Tax Rates
- City of San Jose: Business Tax & Registration
- NOLO: How to Get a Small Business License in California
- City of Sacramento: Business Operation Tax
- City of Sacramento: General Questions