Tax Amnesty Fails to Pull in Expected Revenues

Staff Reporter

The City of Los Angeles took in $14.7 million from its most recent business tax amnesty initiative, well short of the $20 million goal city officials had set.

Antoinette Christovale, director of the city's Office of Finance, said the economic slowdown and the impact of the Sept. 11 terrorist attacks were largely to blame for the poorer-than-expected collection.

"Many small businesses that would have come forward to remit their business taxes didn't because they simply didn't have the money available," Christovale said.

As a result, the city now has $5 million less than expected for application toward reducing business tax rates. The city is in the midst of a multi-year effort to reform its cumbersome business tax system, which long has been criticized as a key impediment to doing business in L.A.

Christovale said an additional $1.3 million was collected from businesses after the amnesty officially ended on Dec. 31. Those businesses will be assessed penalties.

City Councilman Nick Pacheco, who chairs the council's budget and finance committee, said any additional revenues are welcome, no matter how far short of expectations they are.

"This is going to give us a substantial amount of money, three fourths of which is going to go towards business tax relief," Pacheco said. By council ordinance, the other fourth about $3.6 million will go to the city's Affordable Housing Trust Fund.

The city instituted the fourth quarter 2001 amnesty program as part of its effort to step up enforcement of business tax collections. Two years ago, City Clerk Michael Carey estimated that the city was missing out on $60 million in business taxes as about one-third of all businesses in the city avoided paying their taxes.

The amnesty program in which penalties for not paying the taxes or paying them late were waived was part of a two-pronged approach to step up enforcement. The other was accessing state income tax filings to catch businesses not paying city business taxes.

Local economic development consultant Larry Kosmont said the city should have done even more outreach, especially through business organizations. And given the events of Sept. 11 and the near freeze it put on business activity for several weeks, the city should have considered extending the amnesty deadline.

"Look, this went into effect on Oct. 1, when businesses were still reeling from Sept. 11. Then, just as business activity was ready to resume, you had the holidays," Kosmont said. "Businesses simply weren't focusing on additional things like the amnesty program during the fourth quarter."

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