Tax scofflaws, beware especially if your office is in a San Fernando Valley highrise.
In its continued effort to nab businesses not paying their city taxes and thereby add millions of dollars to the city’s coffers the Los Angeles City Clerk’s Office plans to double its business tax collection efforts in the new fiscal year.
Composed of four field auditors and one supervisor, the new team will focus on businesses located in highrises in the San Fernando Valley. The team is expected to collect between $3.5 million and $5 million in back taxes in its first year. The existing team collected $7.4 million in the 1995-96 fiscal year.
“We will go into the business to verify the information we have on file is accurate and up to date,” said Sylvia Nesbit, assistant director with the tax and permit division of the City Clerk’s Office. “We will then advise them and effect collection of the business tax.”
Business taxes in the City of L.A. are based on gross receipts. Companies pay between $1 and $6 for every $1,000 in revenues they generate in a year beyond a set base amount. The base amount and the percent of gross receipts businesses pay vary based on their industries.
L.A.’s esoteric and outdated business tax structure has made the city being the most expensive place to do business in the county. A “tax equity” study, to be completed next month, is expected to propose a new tax structure for L.A. businesses.
In the meantime, the City Clerk’s Office has been using its business tax discovery workers as well as Redmond, Wash.-based Mosaix Inc., which has collected more than $16 million in back business taxes to find businesses not on the city’s tax rolls. One recent study estimated that as many as 40 percent of L.A.’s businesses do not pay their taxes.
The new tax discovery team differs from the current team which has collected $16.5 million in back taxes since its inception in that it will focus on the Valley.
“The Valley is a large area that our current team, being that they work the entire city, has not been able to sufficiently cover,” Nesbit said. Once the new team is in place, the existing team will no longer perform audits on businesses in the San Fernando Valley but will instead focus on the rest of the city, she said.
Bonny Herman, president of the Valley Industry and Commerce Association, supports any effort to find scofflaws.
“I think it just shows a more comprehensive business attitude on the part of the city, and that’s fine,” Herman said. “They should have more of a business attitude.”
John Rooney, president of the Valley Economic Development Center, added that he hopes the new team will not unfairly target the Valley.
“I think a lot of people have looked at the Valley as a cash cow, and our businesses are pretty much struggling as much as any other area of the city,” Rooney said. “Hopefully they will look at other areas as aggressively.”
Nesbit says the scofflaw team focuses on highrises, where a business easily could move in without registering with the city and not be noticed.
“Highrise buildings are generally where you have a lot of turnover where it’s not obvious there’s turnover,” she said.
David Lynn, program director for the Los Angeles Area Chamber of Commerce, supports the city collecting taxes it is owed, but added that he doesn’t think the city should target one or two types of businesses, such as accountants or lawyers, that tend to work in highrises.
Chris O’Donnell, director of budget and strategic planning for Mayor Richard Riordan’s office, said it makes sense to target businesses in highrises, since they are more likely to pay a higher tax rate.