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HomeMy WebLinkAbout06/18/1996, 6 - BUSINESS TAX VERIFICATION PROGRAM council6 ` acenaa aepoat °®Nw.6� 6 CITY O F SAN LUIS 0 B I S P 0 FROM: Bill Statler, Director of Finance Prepared By: Linda Asprion, Revenue Managery*P v SUBJECT: BUSINESS TAX VERIFICATION PROGRAM CAO RECONEWENDATION Approve implementation of an ongoing business tax verification program effective with the 1996- 97 renewal process (July 1, 1996). DISCUSSION Overview In accordance with the program objectives set forth in the 1995-97 Financial Plan, the purpose of the proposed business tax verification program is to ensure that business taxes are paid fairly and equitably, not only for the City. but for the taxpayer as well. Most businesses pay their "fair share" as set forth in the City's business tax ordinance; accordingly, we believe that we should have an ongoing verification program to provide assurance To *Bose who correctly pay their taxes that the City is taking reasonable steps to ensure that other .tee doing the same. The proposed verification program, which has been modified from the draft previously reviewed by the Council based on comments and suggestions we have received from the business community, is provided in Exhibit A. Key features of the proposed verification program include: ■ Reported gross receipts will be verified by all businesses every five years (about 20% of businesses annually). ■ A wide range of simple options are available to businesses in verifying gross receipts. ■ An "amnesty" program is offered consisting of no tax liability nor assessment of penalties or interest for inadvertent understatement of gross receipts in prior years. Background On April 16, 1996, the Council authorized City staff to meet with the business community to discuss a proposed business tax verification program. A copy of that Council Agenda Report is provided in Exhibit B. Nine business organizations were notified of the proposed program and their suggestions/comments were solicited at a briefing held on May 8, 1996. Additionally, two groups followed-up on the staff's offer to meet with them further regarding this program: SLO Property Owners Association and the Downtown Business Improvement Association. Based on Council Agenda Report - Business Tax Verification Program Page 2 these meetings and other feed-back that the staff has received, we are returning to the Council with the results of those discussions and a formal recommendation for implementation of the program. Discussions with the Business Community On April 22, 1996, a letter requesting participation at a briefing and soliciting each organization's suggestions on the draft verification program was mailed to the following organizations: ■ Downtown Business Improvement Association (BIA) ■ SLO County Builders Exchange ■ SLO Association of Manufacturers & Distributors ■ Business Coalition ■ SLO Board of Realtors Association ■ Visitors and Conference Bureau ■ SLO Property Owners Association ■ Chamber of Commerce ■ Building Industry Association of the Central Coast SLO Property Owners Association requested staff to attend their monthly meeting on May 8, 1996, to provide a briefing to all the members in attendance. A scheduled briefing with the business groups noted above was also held on May 8, 1996, with six representatives from the Downtown BIA and the Chamber of Commerce in attendance. A brief overview of"why" the City is proposing a business tax verification along with an explanation of"how" the verification program might be implemented was presented. Comments and suggestions were then solicited from the attendees. A follow-up briefing was also held with the Downtown BIA Board of Directors on May 14, 1996. The comments received during these briefings were especially valuable in gaining additional insight into how to make this program a more effective and better received by the business community. Two specific program features were recommended: ■ Add a section on the renewal form to explain major variances in gross receipts. For those businesses chosen to participate in the verification program, it was recommended that we add a section on the renewal form where they can explain major variances in their gross receipts between the current and prior fiscal year. Incorporating this suggestion onto the renewal form, and providing the business an opportunity to explain variances when appropriate,will assist staff in understanding why large variances occurred and deter further follow-up. This would save the business owners' time as they will not be asked to provide additional information; this would also save staff time by eliminating any potential need for follow-up. While we plan to incorporate this feature on the renewal form, it is not as critical a component if the second feature discussed below - an "amnesty" program - is also adopted. ■ Provide "amnesty"for those businesses who may have inadvertently made errors in calculating prior years gross receipts. Representatives from the business community stated their belief that the verification program would be better received if concerns could Council Agenda Report - Business Tax Verification Program Page 3 be mitigated regarding the possibility of having to pay additional business taxes as well as late charges and interest on owed business taxes from prior years that may have been inadvertently calculated incorrectly. As such, the business community recommended an amnesty program under which there would be no past tax liability nor penalties or interest if taxes had not been fully paid in the past due to an understatement of gross receipts, as long as the 1996-97 tax amounts are paid correctly. Programmatically, this can be accommodated by simply not following-up on large changes in reported gross receipts, and by notifying those scheduled for verification that there will be no follow-up action in these cases. Staff concurs with these recommendations and has included these changes in the final procedures provided in the recommended business tax verification program. How will businesses be notified about the business tax verification program? . A letter and a fact sheet describing the business tax verification program will be sent with each business tax renewal form. For those businesses not selected for review this year, the letter explains why the program is being implemented and what the business can expect when they are selected (Exhibit Q. For those businesses selected for review, their letter provides the same explanation of the program but also includes details on the types of verification documentation that can be provided (Exhibit D). All businesses will receive a copy of the fact sheet provided in Exhibit E. How will the business tax verification program be implemented? The goal of the verification program is to verify the gross receipts of each business at least once every five years. Accordingly, approximately 20% (or about 1,200 businesses) will be selected each year to provide some form of verification of their gross receipts. There is a variety of criteria that will be used for selection of the businesses such as: ■ Reasonable groupings of businesses by type or area ■ Random selection by date opened or alphabetically ■ Information has come to our attention that a review is warranted or potential for understatement of revenues based on business type ■ Date last reviewed Those businesses selected for review will be requested to provide documentation verifying the gross receipts for their prior fiscal year which is the basis for computing their business tax- Businesses axBusinesses located in the City can provide one of the following documents: ■ A copy of the appropriate IRS form indicating gross business receipts ■ A copy of quarterly business sales tax submissions to the State Board of Equalization when all sales are subject to sales or use tax ■ An audit by an independent Certified Public Accountant (C.P.A.) if one is routinely performed ■ A simple letter from a paid tax preparer stating the gross receipts of the business 6-3 Council Agenda Report - Business Tax Verification Program Page 4 ■ An on-site review if requested by the customer Additionally, other methods verifying the gross receipts may be proposed by the business and will be reviewed by the Director of Finance. For businesses with locations outside of the City, the same documentation as indicated above is required along with supporting documentation for apportionment of the gross receipts between the City and other locations. The verification document provided by the business will be matched to the gross receipts on the business tax renewal form. If the gross receipts on the two documents match, the verification document will be shredded and the business tax certificate issued. If gross receipts on the renewal form do not match the verification document, the renewal will be processed using the gross receipts from the verification document and either a credit will be issued (in the case of an overpayment) or a billing produced (in the case of an underpayment). In all cases the verification document will be shredded. If a business refuses to provide verification of gross receipts, or does not pay in accordance with the stated amount of gross receipts, their business tax renewal will not be processed and regular enforcement procedures will be taken. During the first five years of this program, we do not expect to take any actions when verified gross receipts for the current year are significantly greater than in the past pursuant to the "amnesty" feature discussed above. However, after the first five years, when all businesses have been through the verification process, we anticipate running a computer program that compares current year gross receipts with prior year gross receipts. Businesses that exceed a reasonable percentage increase in gross receipts may be contacted for prior years verification documentation for those gross receipts. If additional business tax is found to be owing, late charges and interest will be assessed in addition to the delinquent amount of business taxes. CONCURRENCES The Business Improvement Association Board of Directors unanimously endorsed the business tax verification program at their May 14, 1996 meeting (minutes of this meeting are provided in Exhibit F). We have not received any formal responses from any other business groups or individuals. FISCAL EMPACT The business tax verification program has been carefully designed so that existing staff can handle the additional review and processing. One of the key reasons the program is designed to only verify gross receipts on approximately 20% of the businesses annually in conjunction with the regular renewal process is to ensure that reasonable verification can be met with existing resources. While it is not possible to quantify the affect on revenues, it has been the experience of other communities implementing similar programs to see annual revenue increases of 10% to 15%; if this occurred, we would see annual revenue increases of$85,000 to $127,000. Council Agenda Report - Business Tax Verification Program Page 5 ALTERNATIVES ■ Do not implement a verification program. The City has never had a pro-active program for verifying the gross receipts of businesses, and perhaps such a program is not needed now. However, the equity issue between businesses who pay correctly and those who do not remains unresolved for the business community. From the discussions held with the business community, there seems to be an understanding of the reasons behind the program, and acceptance of the proposed approach. ■ Defer consideration of a business tax verification program. While recognizing that the verification program is conceptually a good idea, this option suggests that perhaps this is not the right time for one. The drawback to this option is determining when such an approach would be more favorably received. As such, if this alternative is chosen, staff requests direction from Council on when to bring this program back for consideration. EXHIBITS A. Business tax verification program B. Council agenda report from April 16, 1996 C. Letter to businesses not selected for review D. Letter to businesses selected for review E. Fact sheet on business tax verification program F. Minutes of the May 14, 1996 Downtown BIA meeting 6S EXHIBIT A CITY OF SAN LUIS OBISPO FINANCE DEPARTMENT BUSINESS TAX VERIFICATION PROGRAM I. Overall Objectives A. Ensure that the business tax ordinance is administered in a fair and equitable manner. B. Ensure that each business owner pays the amount of tax that is appropriately owed. C. Bring business owners who do not pay their tax into full compliance with the business tax ordinance. II. Goal Verify the gross receipts of each business at least once every five years. III. Plan A. Schedule each business for verification at least every five years. Selection of businesses for any given year will be based on a variety of criteria, including: 1. Reasonable groupings of similar businesses by type when there are economies of scale in verification by type at one time. 2. Reasonable groupings by area when there are economies of scale in verification by business location at one time. 3. Potential for understatement of revenues based on business type. 4. Date last reviewed. 5. Random selection by date opened or alphabetical. B. Prepare program. See Section IV below. C. Provide information regarding objectives, goals, and program to the business community. Solicit business community's comments, suggestions, and recommendations regarding program implementation. D. Return to Council with business community input and formal staff recommendation. 6-� N. Verification Program A. Send notification of process with business tax renewal form (mailed annually in June) to all businesses not undergoing verification review in June of 1996. B. Beginning in June of 1996, include letter with renewal notice to businesses undergoing review requesting verification of gross receipts. This notice will also discuss the "amnesty" aspects of this program (Section V). 1. Businesses principally located in San Luis Obispo will provide verification of gross receipts by providing one of the following: a. Copy of IRS form for prior fiscal year indicating gross business receipts (IRS Form 1040 Schedule C for privately owned businesses or Schedule E for privately owned property rentals, IRS Form 1120 for corporations, or other applicable schedules). b. For businesses whose sales are entirely subject to sales or use tax, copies of quarterly business sales tax submissions to the State Board of Equalization during prior fiscal year. C. Audit prepared by an independent Certified Public Accountant (C.P.A.), if one is routinely prepared. d. Letter prepared by an independent Certified Public Accountant (C.P.A.) or paid tax preparer verifying the amount of gross receipts for the business from prior fiscal year. e. Other methods proposed in writing by the business that will verify gross receipts for the company; acceptance of this proposal is subject to approval by the Director of Finance. f. On-site review as requested by customer. 2. Businesses with other locations outside of San Luis Obispo must provide similar external reports as discussed above as well as supporting documentation for apportionment of gross receipts between San Luis Obispo and other locations. C. Confirm gross receipts submitted on verification documentation is the same as gross receipts reported on business tax renewal form. In all cases, verification documentation will be destroyed by shredding. 1. If gross receipts match, process business tax certificate. 2. If gross receipts reported on business tax renewal are higher than on verification documentation, prepare refund request for amount of overpayment and process business tax certificate. 3. If gross receipts reported on business tax renewal are less than on verification documentation bill for additional business tax due. Business tax certificate will not be processed until paid. V. Amnesty Program The City is providing an "amnesty" program during the first year a business is selected for verification review. Under this amnesty program, there will be no past tax liability nor penalties or interest if business taxes were under-paid in past years based on inadvertently under-reporting gross receipts, provided that gross receipts on the fust verification review are correctly reported and the tax amount is correctly paid. VI. After the First Five Years - Amnesty Program Concluded Confirm gross receipts submitted on verification documentation is the same as gross receipts reported on business tax renewal form. In all cases, verification documentation will be destroyed by shredding. A. If gross receipts match, process business tax certificate. B. If gross receipts reported on business tax renewal are higher than on verification -documentation, prepare refund request for amount of overpayment and process business tax certificate. C. If gross receipts reported on business tax renewal are less than on verification documentation bill for additional business tax due. Business tax certificate will not be processed until paid. 1. Review gross receipts and other account history to determine if further analysis is appropriate. 2. If additional analysis is appropriate, request verification documentation for prior two years and match gross receipts reported on renewal form with verification documentation. a. If gross receipts match, analysis is complete. b. If gross receipts reported on business tax renewals are higher than on verification documentation, prepare refund request for amount of overpayment. C. If gross receipts reported on business tax renewal are less than on verification documentation bill for additional business tax due plus interest in the amount of 8% from the date the tax was due plus penalty in the amount of the business tax due. This payment of business tax, interest, and penalty is due. within 10 days of notification. D. Run computer program that compares current year gross receipts with prior year gross receipts. Businesses that exceed a reasonable percentage increase in gross receipts may be contacted for prior years verification documentation of gross receipts. 6OP Exhibit-6. " city of San IMS OBISPO M7G '� 6 COUNCIL AGENDA REPORT mam NUMBER: FROM: Bill Statler, Director of Finance Prepared by: Linda Asprion, Revenue Manage SUBJECT: BUSINESS TAX VERIFICATION PROGRAM CAO RECOMMENDATION Authorize City staff to. meet with the business community to discuss a proposed business tax verification program. DISCUSSION Overview In accordance with the program objective set forth in the 1995-97 Financial Plan, we are considering the implementation of an ongoing business tax verification program effective with the 1996-97 renewal process. As directed by the Council last June, we are requesting Council authorization at this time to discuss the proposed program with the business community before returning to Council for formal approval to begin implementing the program. Accordingly, while a draft program has been developed as a starting point for discussion with the business community, no formal Council action approving the program is being requested at this time; this will not occur until we have had an opportunity to review the workscope and timing with the business community, and based on the results of that review, prepare a formal recommendation for the Council's consideration. Background In October, 1991 the Council adopted a revised business tax ordinance that was consistent with recommendations from various Council adopted financial documents and community groups. Specifically, the Business Tax Advisory Committee (BTAC) was formed with the intent of having a business peer group review the business tax ordinance, become familiar with the general options and elements involved in restructuring an ordinance, and develop an overall philosophy which became the basis for the revised ordinance. One of the key recommendations of the BTAC was that once the revised ordinance was fully implemented and understood by businesses, the City should take a proactive enforcement approach and implement an audit program. Several steps were necessary to accomplish before implementing a pro-active business tax verification program: first, to successfully implement the revised ordinance through the renewal process; and following that, to design a reasonable business tax review program that would not require additional resources and would not be unduly burdensome to the business community. Following two renewal years (1992-93 and 1993-94), one of the key program objectives set in the 1993-95 Financial Plan was the implementation of a business tax verification program in 1994-95. �-9 Q0%JgPARt city of San t ' S OBISp0 COUNCIL AGENDA REPORT In May of 1995, the Council was informed (through Council Notes) that staff was implementing a business tax verification program and was provided with an overview of the program. At that time the Council requested that the verification program be postponed and brought back for Council's review during the 1995-96 fiscal year. Accordingly, staff is now returning requesting authorization from the Council to discuss the proposed business tax verification program with the business community and then to return to the Council with the results of those discussions and a formal recommendation regarding implementation of the program. Why is the Business Tax Verification Program a Good Idea? Business Tax Management No one likes to pay taxes. However, certain taxes paid locally are essential in order to provide vital public services -- services which directly benefit local residents and businesses. The City's business tax is one such example. Money from this tax is used to provide municipal services to residents and businesses such as police and fire protection, street and sidewalk maintenance, parks, recreation programs, environmental protection, and economic development. It is important that taxes are paid fairly and equitably. -- not only for the taxing agency, but for the taxpayer as well. This is because most taxpayers pay their "fair share", and they need to be assured that others are also doing their share. In the long run, collecting the appropriate level of taxes from those who may be paying less than they should helps keep taxes down for everyone. In order to assure that taxes are paid fairly, most taxes are subject to some type of review, verification or audit process, including local taxes. However, the City has never had a proactive business tax review program. The proposed business tax verification program would provide this evaluation. Revenue Generation Although additional revenue cannot be guaranteed, it is likely that some increase in revenue will result from this effort. As such, given the City's current financial position and the serious challenges facing us in the future, we should not overlook the opportunity to improve our fiscal health by more effectively managing our existing revenue sources. For example, if the program results in an ongoing revenue increase of just 15%, this will increase General Fund revenue by $127,000 every year. Do Other Cities Perform Business Tax Verifications? Staff contacted all the cities within San Luis Obispo County along with the twelve cities we commonly use for comparison purposes. The information provided is as follows: 6-/D City Of San L_. S OBI Spo COUNCIL AGENDA REPORT Name of City Basis for Verification Program Business Tax Palm Springs Flat Tax None required. San Juan Capistrano Flat Tax None required. Petaluma Gross Receipts Not at this time. Visalia Gross Receipts Not at this time. Davis Gross Receipts Request business to recheck gross receipts if appear incorrect. Santa Barbara Gross Receipts 10 yrs ago verified gross receipts of 700 businesses in Parking District only. Businesses fairly cooperative: Camarillo Gross Receipts In 1994 requested verification of gross receipts from 4 businesses. Did not pursue program because of problem with 1 business. Santa Maria Flat Fee None required: Ventura Gross Receipts Computer program calculates percentage difference in gross receipts between last & current year. If variance over 35% request business to reverify gross receipts. Santa Cruz Flat Fee None required. Napa Gross Receipts 5 yrs ago verified gross receipts by having businesses mail in tax statements. Most businesses complied. Not significant increase in tax revenue but did influence accuracy of gross receipts on renewal forms. Monterey Gross Receipts Businesses required to provide tax statements every three years. Indicated significant revenue from this verification process. Arroyo Grande Flat Fee None required. Atascadero Flat Fee None required. Grover Beach Flat Fee None required. Paso Robles Flat Fee None required. Pismo Beach Gross Receipts Not at this time. Morro Bay Flat Fee None required. -l/ city of San L_ .,s OBISPO COUNCIL AGENDA REPORT Those cities whose business tax is a flat fee have no reason to verify business's gross receipts as there is no.correlation between the business revenue and the business tax paid. However, of the nine cities with gross receipts as the basis for the business tax, six cities have some sort of review/verification process. Draft Business Tax Verification Program The proposed objectives, goal, plan, and program of the business tax verification plan are provided a�an Exhibit. It is important to note that this is a draft program to serve as a starting point for discussion with the business community; it is likely that there will be modifications to it based on the results of our review with the business community. The purpose of this program is three-fold: ■ Ensure that the business tax ordinance is administered. in a fair and equitable manner. ■ Ensure that each business owner pays the amount of tax that is appropriately owed. ■ Bring business owners who do not pay their tax into full compliance with the business tax ordinance. Under this program, it is our intent to verify gross receipts for each business at least once every five years, with the selection of businesses for audit in any given year based on a variety of criteria, including: ■ Reasonable groupings of similar businesses by type when there are economies of scale in auditing by type at one time. ■ Reasonable groupings by area when there are economies of scale in auditing by business location at one time. ■ Potential for understatement of revenues based on business type. ■ Date last audited. ■ Information has come to our attention than an audit is warranted. ■ Random selection by date opened or alphabetical. One of two notices regarding the verification program will be sent to all businesses as an enclosure with the business tax renewal forms: approximately 1,200 businesses will be chosen for the verification program during this first year and will receive a notification letter providing a general overview of the program and that they have been selected for the current year; the balance of City businesses (about 5,000) will receive a general notification letter explaining the verification program. Review Process As noted in the Overview, we will be discussing the purpose and scope of this audit pr aaram with the Chamber of Commerce, BIA, Manufacturer's Association, and other business groups. Staff will then return to the Council with the comments, suggestions, and recommendations of the business community along with a formal staff recommendation regarding the program. �►��► I��►►��I=���`�� city Of San L ,s OBISPO -� COUNCIL AGENDA REPORT FISCAL EMPACT No additional resources will be required to initiate this program; one of the key criteria in developing the draft program was to ensure that it could be implemented within current resources. As noted above, it is not possible to quantify the affect on revenues; however, given that no additional resources are required to implement this program, the fiscal impact will be a positive one. Based on the experience of other communities who have implemented similar programs, an increase in revenues of 10% to 15% would not be unusual; if this occurred, we would see annual revenue increases of $85,000 to $127,000. However, while revenue generation is a desirable outcome, we believe that the primary benefits of this program are improved equity and fairness for taxpayers. ALTERNATIVES ■ Do not implement a verification program at all. The City has never had a pro-active program for verifying the gross receipts of businesses, and perhaps such a program is not needed now. However, the equity issue between businesses who pay correctly and those who do not remains unresolved for the business community. While they may ultimately not be supportive of such a program, the business community may appreciate having the opportunity to at least discuss it, which this option would not allow. Additionally, the potential to improve the City's fiscal position by more effectively managing our existing resource base is also not addressed with this option. ■ Defer consideration of a business tax verification program. While recognizing that the verification program is conceptually a good idea, this option suggests that perhaps this is not the right time for one. The drawback to this option is determining when such an approach would be more favorably received. As such, if this alternative is chosen, staff requests direction from Council on when to bring this program back for consideration. ■ Go forward now without discussion with the business community. The business tax verification program can be implemented as currently designed during the 1995-96 renewal period, and notification to businesses can be sent as part of the renewal process. However, we believe that this will be a more effective program if business community input and participation is solicited prior to implementation. EXIMITS Draft business tax verification program EXHIBIT C BUSINESS TAX VERIFICATION PROGRAM "I pay my business taxes to the City correctly and on time ... how does the City make sure others do the same thing?" This is a good question - and one we recently asked ourselves: how can the City reasonably assure those who pay their fair share of taxes that others are doing the same? No one likes to pay taxes. However, certain taxes paid locally are essential in order to provide vital public services -- services which directly benefit local residents and businesses. The City's business tax is one such example. Money from this tax is used to provide municipal services to residents and businesses such as police and fire protection, street and sidewalk maintenance, environmental protection, and economic development. It is important that taxes are paid fairly and equitably -- not only for the taxing agency, but for the tarpaver as well. This is because most taxpayers pay their "fair share", and they need to be assured that others are also doing their share. In the long run, collecting the appropriate level of taxes from those who may be paying less than they should helps keep taxes down for everyone. In order to assure that taxes are paid fairly, most taxes are subject to some type of review, verification or audit process, including local taxes. However, the City has never had a proactive business tax review program, and this is something the City needs to correct. Therefore, the City has adopted a plan for verifying gross receipts from business conducted within the City of San Luis Obispo. The purpose of the verification program is a simple one: to assure the vast majority of business owners who pay their fair share of taxes that the City is taking reasonable steps to assure that others are doing the same. Our program does this by: ■ ensuring that the business tax ordinance is administered in a fair and equitable manner. ■ ensuring that each business owner pays the amount of tax that is appropriately owed. ■ bringing business owners who do not pay their tax into full compliance with the business tax ordinance. Under this program, we intend to verify gross receipts for each business at least once every five years. Your business is not undergoing a review during the first phase of the program - this letter is being sent for informational purposes only. At the time your business is scheduled for review, you will receive a letter requesting verification documentation for your business' gross receipts. If you have any questions or require additional information, please contact the Business Tax Associate at 781-7134. EXHIBIT D BUSINESS TAX VERIFICATION PROGRAM "1 pay my business taxes to the City correctly and on time... how does the City make sure others do the same thing?" This is a good question- and one we recently asked ourselves: how can the City reasonably assure those who pay their fair share of taxes that others are doing the same? No one likes to pay taxes. However,certain taxes paid locally are essential in order to provide vital public services — services which directly benefit local residents and businesses. The City's business tax is one such example. Money from this tax is used to provide municipal services to residents and businesses such as police and fire protection, street and sidewalk maintenance,environmental protection, and economic development. It is important that taxes are paid fairly and equitably--not only for the taxing agency,bur for the taxpaveras well. This is because most taxpayers pay their"fair share", and they need to be assured that others are also doing their share. In the long run,collecting the appropriate level of taxes from those who may be paying less than they should helps keep taxes down for everyone. In order to assure that taxes are paid fairly, most taxes are subject to some type of review, verification or audit process, including local taxes. However,the City has never had a proactive business tax review program, and this is something the City needs to correct. Therefore,the City has adopted a plan for verifying gross receipts from business conducted within the City of San Luis Obispo. The purpose of the verification program is a simple one: to assure the vast majority of business owners who pay their fair share of taxes that the City is taking reasonable steps to assure that others are doing the same. Our program does this by: ■ ensuring that the business tax ordinance is administered in a fair and equitable manner. ■ ensuring that each business owner pays the amount of tax that is appropriately owed. ■ bringing business owners who do not pay their tax into full compliance with the business tax ordinance. Under this program, we intend to verify gross receipts for each business at least once every five years. Your business has been selected for review this year. As such, one of the following documents for your business is required to be provided to the City for verification of your gross receipts for your last completed fiscal year: ■ Copy of IRS form for your last completed fiscal year indicating gross business receipts(IRS Form 1040 Schedule C for privately owned businesses,Schedule E for privately owned property rentals,IRS Form 1120 for corporations, or other applicable schedules). ■ For businesses whose sales are entirely subject to sales or use tax,copies of monthly or quarterly business sales tax submissions to the State Board of Equalization during prior fiscal year. ■ Audit prepared by an independent Certified Public Accountant(C.P.A.), if one is routinely prepared. ■ A letter prepared by an independent Certified Public Accountant(C.P.A.)or paid tax preparer verifying the amount of gross receipts for your business. ■ Other methods proposed in writing by the business that will verify gross receipts for the company; acceptance of this proposal is subject to approval by the Director of Finance. ■ On-site review at our office or yours, as requested by customer. Please note that the City is providing an amnesty program under which there will be no past tax liability nor penalties or interest if taxes have not been paid in full in the past, as long as the 1996-97 tax amounts are paid correctly. Your verification documents must be returned with your business tax renewal to the City's Business Tax Section no later than July 31, 1996, to avoid late charges. All documentation provided is considered confidential and will be destroyed by shredding. If you have any questions or require additional information,please contact the Business Tax Associate at 781-7129. / EXHIBIT E BUSINESS TAX VERIFICATION PROGRAM FACT SHEET 1. Why is the City performing verification of the gross receipts for business tax? It is important that taxes are paid fairly and equitably- not only for the taxing agency,but for the taxpayer as welL Because most taxpayers pay their"fair share", they are entitled to assurance that others are also doing their share. 2. What authority does the City have to verify the gross receipts of my business? The business tax ordinance adopted in 1991 authorizes the City to conduct this type of verification program. 3. What method are you using to choose businesses for the verification program? It is the intent of the program to verify gross receipts on every business at least once every five years. Selection criteria of businesses in any given year includes: reasonable groupings of similar businesses by type or area; potential for understatement of revenues based on business type; date last verification performed; information has come to our attention that indicates verification of gross receipts is warranted; random selection by date business is opened or by alphabetical listing. 4. How often will my business be subject to the verification program? It is the intent of the program to verify gross receipts for each business at least once every five years. 5. What if portions of my gross receipts come from areas outside of the City? Only gross receipts attributable to business in San Luis Obispo are subject to the City's business tax. For example,a grocery store chain is only responsible for paying a business tax on the gross receipts of its stores located in San Luis Obispo. In some cases,allocating gross receipts may be very simple and straightforward because all sales are attributable to business conducted in San Luis Obispo, or because this information is directly captured by your accounting system; in other cases it may be more difficult. One simple way of determining whether you should allocate gross receipts is to ask yourself: am I paying a business tax to another city? If the answer is"no", then all of your gross receipts are probably attributable to the City; if the answer is "yes".then some type of allocation would probably be appropriate. 6. What if I don't comply? If verification documentation is not provided upon request from the business, a business tax certificate will not be issued. It is unlawful to perform business within the City without a current business tax certificate. 7. What options do I have in verifying gross receipts? The following information is acceptable for verifying the gross receipts of your business: a. Supporting IRS schedules(Form 1040 Schedule C for privately owned businesses,Schedule E for privately owned property rentals, Form 1120 for corporations, or other applicable schedules. b. For businesses whose sales are entirely subject to sales or use tax,copies of monthly or quarterly business sales tax submissions to the State Board of Equalization during the prior fiscal year. C. A letter from an independent Certified Public Accountant(C.P.A.)or paid tax preparer verifying the amount of gross receipts for your business; or an audit prepared by an independent C.P.A. if one is routinely prepared. d. Other methods proposed in writing that will verify gross receipts for the company; acceptance of this proposal is subject to approval by the Director of Finance. Additionally, we will review the documentation at our office or yours, upon request. 8. Who has access to the gross receipts information that I provide? Just as the gross receipts information provided on the business tax renewal form is confidential,the verification documentation provided is also confidential. 9. What will be done with the documents I provide to verify my business's gross receipts? After the verification has been completed, the documents will be destroyed in a secure manner. 10. What if I report other than calendar year gross receipts? Gross receipts for business tax calculations should be based on your business' last completed fiscal year. Accordingly,if your fiscal year is different from a calendaryear, there is no need to modify your financial information. 11. What if in preparing this years' renewal,I notice that the gross receipts reported to the City in prior years does not agree with my other tax records? The City is providing a complete amnesty program during the first year a business is selected for verification review. As such, no additional business tax, interest, or late charges will be assessed if you inadvertently under reported your gross receipts in prior years as long as the tax amounts on the first verification review are paid correctly. Thank you for your assistance in the business tax verification prograru /- �/to Exhibits Downtown Business Improvement Association Board of Directors Meeting 14 May 1996 City County Library Conference Room Minutes Present Steve Gilreath Wendy George Pierre Rademaker Mike McCluskey Mike Stanton Bill Staffer Mike Spangler Lynn James Ann Reeves Tolbert Correne Cotta Mark Furia Deborah Holley, staff Pete Eberle, staff Call to order 7:40 by Gilreath Approval of minutes of 9 April: Motion by Rademaker,2nd by Spangler,discussion: correction to minutes Rademaker was present;approved as amended PAIR Mike McCluskey proceeded to give an overview and proposed timeline of Marsh St. parking structure expansion. He indicated that a project manager has been hired;also that Bruce Fraser may be hired for the conceptual design. McCluskey said that each step is taken carefully and that the biggest roadblock could be a challenge to the environmental assesment. The alternative transportation/parking study should be complete by May of 1997. Gilreath asked if this was not contrary to the fast track ordered by the City Council. McCluskey replied that the timeline being discussed included a variety of scenarios. Gilreath stated that the BIA will be asking for firm dates from time to time and asked to be kept informed of any major developments. Promotions Report Silent Auction was reported to be a successful event grossing$7,578,expenditures of $2,242 and netting$5,336. Reeves stated that if the event is to be repeated next year,it needs a broader base of support for ticket sales and getting auction items. She said the big money came in the past from the live auction and we did not have the big items this year. Cotta asked if the board wanted to do the event again next year. Most seemed favorable but the issue was not voted on. Taste of San Luis—Cotta stated that the key to success for this event is sponsorships;that the biggest money comes from sponsors. The first Taste of San Luis meeting will be held on May 22 at 9 AM in the BIA office. Packets will be handed out;letters to sponsors will be developed before that time. Also, letters to restaurants and wineries need to go out sooner this year. Reeves said everyone needs to sell tickets--it's an important part of making the event a success. Thursday Night Activities Furia said Mothers Day was a good night at FM;400 carnations were given away to moms. He said it started out slow but.picked up as the evening went on. The next big event is Downtown Brown's birthday on June 6. Beautification !IgLley reported that Light Up Downtown is still in the research stages;choosing trees, pricing lights, working with the City and PG&E. Funds from the Taste will go to this program (in part) and the invitations will indicate that fact. The beautification and promotions committee will hold a joint meeting in May to talk about the program and also about the Holiday Open House. Parking SSan !g_er reported that the parking committee was informed of the sale of the old Fire Station building on Pismo and Garden;this does not directly affect the Downtown,but some permit holders do park in the lot. The City has indicated it will make arrangements for those permit holders if the property sells and the lot is converted to another use. It could become a parking issue down the road. Also,the parking committee gave approval to requests from merchants on 700 block of Marsh to have two 2-hr spaces converted to 30-minutes spaces which were lost during bulb out construction. Also approved a plan to offer overnight parking on 1300 block of Garden after City presents a plan to accommodate street sweepers. Business Tax Verification Bill Statler gave an overview of the program designed to easily verify that businesses are reporting correct figures for income and tax. He stated that it is believed most are paying accurate tax;but with a gross receipts tax base,a form of proactive verification is necessary. Spangler stated that a recent meeting with Statler and the property owners association indicated that the property owners felt the program was reasonable. Statler said that an ordinance already exists to authorize the program, but the City wanted to work with the business community. He also said this was not an audit program, and no audits would be performed unless there were a reason to do so. He said that of similar cities that have a gross receipts program,about half have a verification program. SSMagler said the city has major reliance on sales tax and that sales aren't growing but services are;the city is losing tax revenue—this could.be step one in collecting. Gilreath asked the board to make a recommendation and requested amnesty for all transactions prior to implementation of the program so that the program is not perceived as an audit or intrusive. Statler reiterated his department wants to make this program as easy as possible to comply J with. Cotta made a motion to support the business tax verification program;Rademaker 2nd. Discussion: Gilreath asked to include amnesty in the motion; Cotta revised the motion to include amnesty,2nd agrees with revision. Passed all but Spangler(abstained). G -l� Financial, report SSpansler stated that he felt Farmers Market should be a bigger source of revenue;that fees should be reviewed and increased. Projected revenue from Farmers Market for 96-97 was decreased due to a decrease in this years income. The proposed 96-97 budget was reviewed Gilreath made a motion to accept budget as proposed. Cotta 2nd. PAIR Stanton agreed that some make a lot of money but it could be seasonal. Gilreath indicated an analysis is necessary before fees could be increased This item is scheduled for a future agenda- Seismic: gendaSeismic: Holley gave an update on Seismic Task Force activity(handout in board packet). Spangler indicated the new timeline and recommendations of the task force don't really solve any problems for the Downtown. A motion was made by Furia to support the state's minimum seismic compliance requirements;2nd by Gilreath;Discussion: there is a need to identify costs:Vote: all opposed. This item will be continued on a future agenda Wendy George discussed that the BIA and the City should work more closely on street closures for parades. Several board members expressed that March for Jesus is scheduled for a busy shopping time and will inconvenience many merchants. Eberle stated that a new event is coming up Concerts in the Plaza;one Friday night a month during the summer. The first concert is scheduled for 21 June from 5:30-7:30 featuring a jazz band. It will be advertised in SLO Byers. Next concerts are July 12 and Aug 16. Board members are urged to participate. Also food and beverage will be available;concerts are free. This is seen as a great way to attract Central Valley visitors that are here for the weekend to come Downtown. Also, Farmers' Market will be held on the Fourth of July. Meeting adjourned at 9:45 AM. Prepared by D.Holley 5-17-96