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HomeMy WebLinkAbout18 B.L. AMNESTY PROG 02-07-94NO. 18 2-7-94 JATE: FEBRUARY 7, 1994 inter-Com TO: WILLIAM A. HUSTON, CITY MANAGER FROM: COMMUNITY DEVELOPMENT DEPARTMENT SUBJECT: BUSINESS LICENSE AMNESTY PROGRAM RECOMMENDATION That Ordinance No. 1120, declaring a Business License Amnesty program during the month of April, May and June 1994, have first reading by title only. FISCAL IMPACT Adoption of.a BUsiness License Amnesty Program would have a minimal temporarily negative fiscal impact upon the City's business license related revenues. The .program would "register" currently unlicensed businesses on the tax data base, enabling collection of the tax in future years. BACKGROUND At the January 17, 1994 City Council meeting, Councilmember Thomas requested staff to provide a report on the possibility of reinitiating a Business License Amnesty Program. TheCity Council previously authorized two business license amnesty programs for three consecutive months in both 1991 and 1992. .During these times, the programs waived penalties, associated With unlicensed or delinquent businesses in Tustin to encourage such businesses to voluntarily obtain their business license without fear of prosecution or payment of past penalties. During Council discussion of the proposed 1992 .Amnesty period, staff was directed to pursue enforcement and penalties against delinquent or unlicensed businesses immediately following the '1992 amnesty period. The 1992 Amnesty period resulted in the .licensing of 102 delinquent new business licenses and 65 delinquent renewal business licenses and generated $8,515.25 in business license revenue. There were approximately 4,500 licensed businesses in the City in 1992. Immediately following the end of the 1992 Amnesty period, staff pursued enforcement of the City's business license tax codes. Code enforcement and Community Development Department staff utilized City Council Report Business License Amnesty Program February 7, 1994 Page 2 letter writing, press releases, public presentations, volunteers, articles in the Tustin Today, and personal contact to encourage business owners to comply with the code requirement for business license. In one instance, the use of Explorers to canvas areas of the City resulted in the licensing of over 73 delinquent businesses resulting in approximately $10,000 in revenue to the City. These efforts resulted in $261,887.00 in annual business license revenue being generated to the City in calendar year 1993 (in comparison to $212,986.00 in 1991 and $193,340.00 in 1992). Today, it is estimated that over 5,500 businesses are currently licensed in the City. City Business License Tax and Penalty Requirement In a practice similar to that of most ci~ies, the City has imposed a business license tax upon all businesses (with certain exceptions for non-profits, etc.) operating within the City of Tustin. Chapter 5 of the Tustin City Code places the responsibility and onus of applying for and acquiring a business license with the owner of a business. The Ordinance does not require or infer that the City must first contact and inform ~he business owner of this requirement. As such, the City's business license tax is similar to state and federal income tax, bicycle licensing or vehicle registration requirements in that it is presumed that the affected individual is knowledgeable of and responsible for the requirement, even if the individual fails to receive notice or is formally informed of the amount to be paid. Generally, the business license amoun~ required is based upon estimated gross receipts projected annually and prorated for the period of operation during the year. City business taxes have not been revised since 1966 and are recognized as being the lowest in the County with the average annual tax paid..being $40.00 and maximum being $100.00. Section 2521c of the Code requires the following penalty to be applied to business owners failing to obtain a required business license: Business Tax Paid Penalty Amount 30 days late 25% of total tax 60 days late 50% of total tax 90 days late 75% of total tax 120 days late 100% of total tax The Cities of Brea, Fountain Valley and Santa Ana have established similar penalties (up to 100%) which are ultimately higher than Tustin's because of their initially higher tax amounts. Irvine charges $250.00 per year for a maximum of three years past due. city Council Report Business License Amnesty Program February 7, 1994 Page 3 Although the current Ordinance permits the City to recover past business licenses and penalties regardless of the period involved, staff (based upon previous verbal communication from City Council) has pursued a policy of only requiring payment of delinquent ~licenses and. penalties for periods up .to three years past due. There are presently no provisions for waiver of a penalty for delinquent business licenses, regardless of the excuse. Enforcement Effort Similar to most other cities, Tustin relies upon new owners to' - inform the City when they set up business or move location within the community. As an enforcement tool, some cities have utilized a sophisticated Business License and water billing computer sOftware to identify new businesses which fail to inform them of their establishment. However, these systems and other methodologies are only partially successful and are not intended to alleviate the burden of owner responsibility for obtaining a business license prior to operation. The City does, however, make a good faith effort to remind business owners of the need to renew an existing business license. Existing businesses which have previously obtained a license are identified within the City's business license data base. Each November, courtesy renewal notices are sent to all businesses in the data base. If a response is not received by January, a delinquency notice is sent. If a response still does not occur, the matter is turned over to code enforcement. Once the City becomes aware of a new business without a license; a first and second notice is sent. Both notices inform the owner of the need to obtain a business license and the penalties involved. Failure to respond to these notices results in the case being turned over to Code Enforcement for additional notification.- Last year over 65 business license cases were handled by Code Enforcement resulting in $25,262.00 being generated in tax and penalty revenue. In summary, significant staff effort is required' in order to identify and encourage delinquent businesses to obtain a business license. PROPOSED AMNESTY PROGRAM -. Past Amnesty Programs have been somewhat successful in passively encouraging delinquent businesses to obtain a license and pay past due taxes. The waiver of penalties associated with the program can result in the savings of several hundred dollars to a local City Council Report Business License Amnesty Program February 7, 1994 Page 4 businessperson who did not know of or forgot about the City's business license requirement. The waiver of penalties could encourage voluntary compliance, resulting in .unidentified businesses being added to.the database (assuring notification when renewal occurs). Long term tax benefits off-set any short-term revenue lost from waiver of penalties. In addition, the program enhances public awareness of the City's busineSs license tax reqUirements while demonstrating good will towards the business community during this time of continuing economic hardship. To achieve additional business license compliance, staff is recommending implementation of a third Amnesty Program to run from April 1, 1994 through June 30, 1994. The program will target businesses in the City that have failed to pay their business license tax along with delinquent business license accounts. All penalties would be waived under the program, but the City will have the authority to collect up to three years back taxes. In order to reach unlicensed and delinquent businesses, press releases and advertisements will run in local publications, including Tustin-News, Tustin Weekly and the Chamber of Commerce's monthly newsletter. CONCLUSION The primary focus of both the Amnesty Program and staff's proactive enforcement is to ensure that unlicensed businesses pay the City's required business license tax. The Business License Amnesty Program would not only capture many unlicensed businesses, but create a business license, tax awareness within the business community area. This would hopefully 'reduce the amount of delinquent accounts in the future. Dana Ogdon ~ Senior Planner Christine A' inglet'on Assistant C1Cy Manager DO: kd\CCREPORT \bus [ i c .do 1 2 3 4' 5 6 7 8 9 10 1'1' 12 13 14 15 16 17 18 19 :20 9.1 9.2 23 · - :24 25 27 28 ORDINANCE NO. 1120 /~N ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, DECLARING A BUSINESS LICENSE ~STY PROGRAM DURING THE MONTHS OF APRIL, MAY AND JUNE, 1994. The City Council of the City of Tustin does hereby orda{n as follows: I · The City Council finds and determines as follows: A. Section 2521(c) of the Tustin City Code provides a penalty for failure to pay the business license tax when due. Be Ce There are presently a number of businesses who have never obtained a business license. If they obtain a business license at this time, they will be subject to penalty fees under Section 2521(c). It would be to the benefit of the City if all unlicensed businesses were encouraged to license. The City Council finds that a three month amnesty period, during the months of April, May and June 1994, during which no penalties would be due for prior failure to pay license taxes when due, would encourage unlicensed businesses to license during those months. II. The City Council does hereby declare: A. That Section 2521(c) of the Tustin City Code. shall be of no force and effect during the months of April-, May and June 1994. All businesses that pay license fees during that three-month period shall be excused from paying the penalties imposed by such Section. B. Except as specified' herein, and all other provisions of the Tustin City Code,. shall be in full force and effect. III. This Ordinance shall be effective during the months of April,'May and June 1994 only, and shall not be codified in the Tustin City Code. 2 3 4 5 6 7 8 9~ 10 11 12 13 14 15 16 17 18 20 21 ~22 23 24 25 26 27 28 i Ordinance No. 1120 Page 2 PASSED AND ADOPTED at a regular meeting of the City ~.ouncil held on the 21st day of February, 1994. JIM POTTS Mayor MARY E. WYNN City Clerk STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF TUSTIN CERTIFICATION FOR ORDINANCE NO. 1120 MARY E. WYNN, City Clerk and ex-officio Clerk of ~he City 'Council of the City of Tustin, California, does hereby certify that the whole number of the members of the City Council of the City of Tustin is 5; that the above and foregoing Ordinance No. 1116 was duly and regularly introduced, passed and adopted at a regular meeting of the City Council held on the 21s~ day of February, 1994, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: Mary E. Wynn, City Clerk cs: DO: kd