taxes/16 inches/1stjc/mark2nd

DANIEL TAUB Staff Reporter

Each year thousands of businesses in Los Angeles don’t pay their city taxes. And for years city officials didn’t do much about it.

Without sophisticated computer equipment, the only way to catch scofflaws is to spend countless hours comparing city tax rolls with lists of private companies operating in Los Angeles.

Enter private enterprise.

Two years ago, the city hired Mosaix Inc. of Redmond, Wash., to track down delinquent businesses. The company has so far collected $10.2 million in back taxes, penalties and interest owed by nearly 4,000 businesses.

“This is an additional tax discovery tool for us that has proven to be very beneficial,” said Los Angeles City Clerk J. Michael Carey, whose office is responsible for collecting taxes.

Carey said the advantage to using an outside company is that the city does not incur up-front costs in having to buy the necessary computer equipment and to train staff.

Mosaix identifies delinquent businesses by using computers to compare lists of businesses operating in the city of L.A. against city tax rolls.

The lists are purchased from Dun & Bradstreet Corp., the American Medical Association, the American Bar Association, real estate groups and other organizations.

“We try to find as many different areas as we can, and we concentrate our efforts where we think there is the highest return rate for the city,” said Tim Haidle, executive director of revenue improvement services for Mosaix.

Haidle said most of the delinquent businesses are not intentionally violating the law, but are instead unaware of their tax responsibilities. That accounts for the high collection rate on identified unpaid taxes.

Mosaix, which has nine workers assigned to the city of L.A., gets a 20 percent cut of the taxes owed (excluding penalties and interest). The rest goes to the city’s general fund.

Businesses that don’t pay their taxes cost the city upwards of $20 million a year, L.A. officials estimate.

Mosaix workers say they have already identified close to 30,000 businesses in the city of Los Angeles that are likely to owe back taxes. Nearly 4,000 have already paid their back taxes, and between 60 percent to 70 percent of the remaining businesses are expected to be found in violation of city tax laws and will be forced to pay their back taxes too.

Of the $10.2 million already collected, Mosaix will keep about $1.5 million.

Mosaix’s initial three-year contract with the city runs through the end of this year, and the contract has an option for two one-year extensions.

L.A. City Councilman Joel Wachs, a longtime advocate of cutting costs in city government, said that the city’s partnership with Mosaix can serve as a model for other departments.

“We get 80 cents out of each dollar we collect, and it’s really starting to pay off for the city. It’s a way of doing it that really makes sense,” Wachs said.

Wachs said that other programs, including an upcoming partnership with a private company to cut the city’s energy bills in exchange for a cut of the savings, are following Mosaix’s lead.

“That concept of someone else coming in and making an investment and giving the city the savings can go to other places as well as taxes and fees,” Wachs said.