CITYWIDE — The Finance Department will launch a program in early April to encourage new businesses operating without a business license to get one before more stringent enforcement measures take effect.
Under the “business license amnesty program,” a business that has never before applied for a license in Santa Monica may do so and get up to 90 percent of penalties that stacked up during the time it operated illicitly waived.
That would constitute a major savings for businesses and a long-term coup for City Hall, which aims to get more owners into the fold. Officials hope that will result in additional tax dollars for City Hall down the road.
That’s important at a time of fiscal belt-tightening in the wake of the loss of the Santa Monica Redevelopment Agency, said Salvador Valles, the business and operations manager at City Hall.
“What we’re looking to do is increase our collections, whether it be a business license tax or a fee that someone owes us,” Valles said.
Those that do not take advantage of the amnesty program will face stiffer penalties including citations and possibly criminal charges in what Valles describes as a “proactive discovery program” that will involve the help of the State Franchise Tax Board and Los Angeles County.
The amnesty program is one part enforcement and one part education.
Officials believe that there are 700 businesses without licenses in Santa Monica, but many may not realize that they need to pay the tax, particularly if they are home-based or contractors that may do work in the city but do not live here.
“Oftentimes, they are small businesses, so the tax burden isn’t great,” Valles said. “These are groups that don’t think they rise to the level of a business.”
Getting the license wouldn’t add much of a burden to businesses like these, he said.
For the most part, if their revenues are less than $40,000, they can claim an exemption and pay no tax at all. Up to about $60,000, the tax is only $75.
Beyond those two revenue brackets, owners pay a specific fee per $1,000 in gross receipts, depending on the kind of operation that they run.
It’s still important for City Hall to know where those businesses are for zoning reasons, and to ensure that neighborhoods aren’t impacted by increased foot traffic or parking woes as a result of their presence.
The 90 percent discount on penalties — which does not include the cost of the license itself — can represent a real savings to out-of-compliance outfits.
In fiscal year 2011-12, City Hall collected $26.3 million in business license taxes and penalties, with late payments ranging between 20 and 100 percent of the tax due, according to a staff report.
The amount in licenses fluctuates from year to year as new businesses come online. Revenues jumped by 3.3 percent between 2010-11 and 2011-12, mainly because Santa Monica Place reopened.
Santa Monica last used an amnesty program in 2004, which collected approximately $588,000 in unpaid taxes. Other jurisdictions like Burbank and Pasadena have seen results from similar programs, and even the state government got in on the action, netting $350 million for an amnesty program relating to offshore accounts and tax shelters and $1.3 billion in a “voluntary compliance initiative” in 2004.
Those that don’t take advantage of the program could face severe penalties compared to the 10 percent that they would otherwise pay.
It could result in an audit for the business and potentially legal action, particularly in the case of large businesses.
“It’s not that unthinkable that they would because we do confront that sometimes and make a direct referral to the City Attorney’s Office to prosecute them,” Valles said.
The program will stretch from April 8 through May 24. Those interested will be able to get additional information about the program, including required forms, when City Hall launches the program website (www.smgov.net.businesslicense) on Monday.