Topic No. 61
OCCUPATIONAL PRIVILEGE TAX
(OPT or HEAD TAX)
There are two distinct parts to the Occupational
Privilege Tax (OPT): the Employee Occupational Privilege Tax and the Business
Occupational Tax. The Occupational Privilege Tax is imposed on businesses operating
in the City and on individuals who perform sufficient services within
The OPT was enacted in 1969 at the rate of two dollars ($2.00) each for both the Employee Tax and the Business Tax. Effective November 1, 1988 the rates were increased to $5.75 and $4.00 for the Employee and the Business taxes, respectively.
The purpose of both the Employee and the Business
Occupational Privilege Tax is to generate funds for the planning or design for,
and the replacement, expansion, acquisition, construction, installation, repair
or improvement of City facilities, as well as the provision of municipal
Employees who perform sufficient services in
Any entity which performs any business, trade,
occupation, or profession of any kind, is liable for a minimum of $4.00 per
month for each month in which that entity has any activity in
Businesses with owners, partners or proprietors
engaged in business in
Individuals with more than one
If an individual works for two or more employers in
two different jurisdictions imposing a head tax, such as
A corporation is a separate legal entity, apart from any "owners." As such, a corporation has only employees, not "working owners." All employees who perform sufficient services to receive $500 per month are taxable employees and are subject to both the Employee and Business OPT.
Individuals or households that employ domestic help (domestics) are employers as defined in Section 53-240(2), and are required to withhold and remit the Employee OPT from the employee. However, even though the individuals/households meet the definition of employer they are not subject to the Business OPT because they are not engaged in business in the City.
Domestic help may be employees or they may be self-employed. If the domestic help is self-employed, they are subject to the Business OPT. Self-employed individuals are therefore required to be set up with OPT account numbers. FICA (Federal Insurance Contribution Amount) withholding status provides guidance as to whether a domestic is an employee (FICA withheld) or is self-employed (FICA paid by individual only).
Employees who perform services for a single employer, but whose work is performed in more than one jurisdiction that imposes OPT, are required to pay the tax only in the jurisdiction in which they spend the majority of their working hours. This exemption applies to the employer as well as to the employee.
There is no exemption for an employee who performs
services for the same employer in
There is also an exemption provided in the Business OPT for religious, governmental or charitable entities whose employees are performing duties consistent with the organization's exempt status. The Employee OPT provides no such exemption and all liable employees are required to have the tax withheld and remitted by their employer.
A. Businesses with ten (10) or more employees must file and remit taxes on a monthly basis. Others may be allowed to file and remit quarterly or annually.
B. Monthly payments are due the last day of the month following the month in which the liability was incurred. Quarterly payments are due the last day of the month following the three-month period in which the liability was incurred.
Individuals, sole proprietors, and partnerships without employees subject to the tax have the option to pay in advance for the entire calendar year. This advance annual payment is due April 30th of each year.
1. Build-To-Suit Construction
Company has its offices in
Bill has the
Joe is working on a house in
Jim is working on both Bill's and Joe's crews as the
need arise. For the current month, Jim
has worked 88 hours in
Al's crew is working on an extended project in
2. Edward is currently under contract as a
butler to an oil executive and his family at their estate in
Included in Edward's responsibilities is the supervision of four additional domestics: a cook, a maid, a gardener, and a chauffeur, who are employed by the oil executive. Each of these employees has a standard set of duties that must be performed within the hours set forth by Edward. The oil executive pays the employment taxes, including FICA, for these employees.
For OPT purposes, Edward is treated as self-employed and is required to remit the $4.00 per month business tax for himself. Since the other four domestics on staff are treated as employees, all employment taxes are withheld and remitted by the employer. The oil executive must withhold and remit $5.75 per month for each of them. However, the household is not a business; therefore, the oil executive does not owe the Business OPT for those four individuals.
3. XYZ, Inc., sets up a shell corporation under
the name of ABC, Inc., in order to take advantage of certain income tax
benefits. Both corporations are located
Every person having a fixed or transitory situs within the City is required to pay the Business Tax for the first owner, partner, manager or employee. Even though ABC has no taxable employees in the City, it is still required to pay the Business Tax at $4.00 per month.
4. M & S, Inc., a small business within the City, is owned by Madeline and Scott. They are the only employees of the corporation and both of them work fifty weeks per year. In lieu of receiving periodic paychecks, Madeline and Scott each receive an annual salary of $25,000 on December 31 of each year. The salaries are recognized in a salaries payable liability account on the company's books.
In their third year, the business was struggling and Madeline and Scott agreed not to draw a salary. Although Madeline and Scott only get paid once per year, and in fact did not get paid at all in the third year, they are still liable for the OPT for twelve months per year since they performed sufficient services to receive at least $500 in compensation, which is reflected in the accrued salaries account for each calendar month of the year. The corporation is required to remit for every taxable employee, along with the $4.00 business tax for each taxable employee.
If Madeline and Scott were a partnership and all other facts in the example were the same, they would not be liable for the employee OPT for twelve months per year because they would be owners, not employees. The partnership however, would be liable for the Business OPT for each partner for each month.
* DRMC Sections 53-237 through 53-325. Employee and Business Occupational Privilege Taxes
* Rules Relating To Frequency Of Periodic Sales And Use Tax Returns.