CITYWIDE — It’s time to pay the piper.

Well, actually that time came and went. Now it’s time to pay plus penalties.

City Hall’s Finance Department is in the process of making final phone calls to business owners who are late in paying their business license tax, a critical source of revenue, helping to pay for essential services such as police and fire.

At the end of February there were more than 870 businesses that had failed to pay their business license taxes for the current fiscal year (the number of businesses who have not paid changes daily as more checks are processed). The due date is Aug. 31.

Those who do not comply could face misdemeanor charges in addition to late fees. The late fee is 10 percent of the tax due for every month it is not paid, up to 100 percent of the total value.

“We are not trying to make this a punitive process,” said Pamela McGarvey, acting revenue manager for City Hall who is in charge of collecting the tax. “We are trying to be as diligent as possible. We want people to pay on time.”

There are more than 16,000 businesses in Santa Monica, the overwhelming majority of which have done just that, but for one reason or another others have not.

“We get all kinds of excuses,” McGarvey said.

Some business owners, especially property owners with four or more units, are elderly and may not be up to speed on all of their bills. Some may have simply forgot to pay while others are behind on their federal taxes or have gone out of business, failing to notify City Hall.

Such was the case for Jasmine Winston of Dutch Flower House, formerly on Pico Boulevard. Winston said she had to close the Pico location in December because business was slow. She now operates out of her home office in Pacific Palisades.

“I believe we notified them, but I’m not sure,” Winston said.

Business are required by law to notify City Hall if they close. Businesses operating after July 1 are obligated to pay the business license tax even if they fold a few months later.

Marice Egan is still responsible for paying the current fiscal year tax for KidsBizz, a clothing store on Montana Avenue. Egan is in the process of shutting her doors because of the sluggish economy and expensive rent. During an interview last week Egan said she knew she was late on paying and was planning to settle up with City Hall.

“Taxes definitely need to be paid,” Egan said. “It definitely won’t happen again.”

Egan hopes to reopen in another area of Santa Monica and does not want to burn any bridges.

“After 20 years it is unbelievably sad that I have to bail out,” she said.

One company, Overview Construction, closed because the principal contractor, Griffith Hoerner, died in a plane crash in Malibu late last year, an employee said.

Several phone calls to other businesses were not returned. Those on the failed-to-pay list as of Feb. 27 included dentists and lawyers, a limousine company, motel and a video game production house. There were a few doctors as well, plus plenty of retail outlets, restaurants and a private school. Even a monster like Google is listed.

“It’s a whole broad spectrum,” McGarvey said.

For most businesses, including auto dealerships, property managers and retailers, the tax is $1.25 per each $1,000 in gross receipts for the previous year. For contractors the tax goes up to $3 per $1,000. Those businesses that make less than $40,000 are exempt from the business tax, but are required to maintain a business license and pay all other taxes and fees. Gross receipts must be verified by federal tax returns.

The business license tax is an important source of revenue for City Hall, representing roughly 10 percent of the General Fund. Last fiscal year, City Hall collected $24.6 million and expects to collect $26.6 this year, money based on 2008’s receipts.

David Carr, a principal budget analyst in charge of investments for City Hall, said business tax revenue will flatten out next year after four years of significant growth, much of which has to do with the economy today. The projections could change as the full extent of the economic slump is not yet known.

“Things have gotten worse,” Carr said. “It’s pretty volatile. It’s hard to get a handle on it.”

The Finance Department refers only about a dozen cases to the City Attorney’s Office for prosecution each year, McGarvey said.

But once it gets to that point, offering to pay is not enough, said Terry White, a city attorney in charge of the Criminal Division.

“We are not filing charges to be a collection agency,” he said. “Offering to pay is not going to settle the matter.”

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