Agenda Item No: 3.a
PLACENTIA CITY COUNCIL AGENDA REPORT
Meeting Date: September 3, 2024
Submitted by: Jennifer Lampman
From: Finance
Subject:
Appeal of Penalties and Interest for Business License Taxes for The Bruery & Offshoot Beer Company
Financial Impact:
Fiscal Impact:
$0 - $22,611.05 depending upon City Council action.
Summary:
On September 20, 2022, the City Council approved an agreement with Avenu Insights & Analytics, LLC for business license auditing services. During their audit of business license taxes for The Bruery & Offshoot Beer Company (The Bruery) for 2019-2022, they determined the business had incorrectly calculated the amount of tax owed and that the business owes the City $15,074.04 in back taxes and $7,537.02 in penalties and interest for a total amount due of $22,611.05. The business is now appealing and requesting a waiver of the penalties and interest calculated ($7,537.02) and requesting either a waiver of, or payment plan for the amount of taxes owed ($15,074.04).
Recommendation:
Recommended Action: It is recommended that the City Council:
1. Consider and approve the appeal of penalties and interest for business license taxes for The Bruery & Offshoot Beer Co. ($7,537.02); and
2. Authorize the Director of Finance to develop and implement a payment plan for the amount of business license tax owed ($15,074.04).
Strategic Plan Statement:
This item does not correspond to a specific Strategic Plan Goal or Objective.
Discussion:
On September 20, 2022, the City Council approved an agreement with Avenu Insights & Analytics, LLC for business license auditing services. During their audit of business license taxes for the past few years for The Bruery & Offshoot Beer Company they determined the business had incorrectly calculated the amount of tax owed based upon the profit and loss statements provided by The Bruery. The amounts determined to be owed to the City include $15,074.04 in business license taxes and $7,537.02 in penalties for a total amount due of $22,611.05.
The Bruery was notified of the audit results in a letter dated January 31, 2024, and officially requested an appeal and waiver of amount owed in March 2024.
Per Municipal Code § 6.04.180 Appeal of fee, any person aggrieved by the amount of tax he is required to pay under the provisions of this chapter may appeal to the City Council by filing a written notice thereof with the city clerk within ten days after payment of the license tax. The council shall make a decision within thirty days from the receipt of the notice by the City Clerk, and the decision of the Council, after hearing on the appeal, upon notice to the licensee shall be final and conclusive.
In this case, while the appeal was not submitted to the City Clerk within ten (10) days, City Staff was in contact with The Bruery, acknowledged the request and began to research the appeal process in consultation with the City Attorney's office. The City could not find any record of an appeal of business license fees and did not have a clear process in place, nor did the initial determination letter sent to The Bruery by the auditors provide information on their right to an appeal. Both City Staff and representatives of The Bruery have worked in good faith, and the auditors have confirmed that The Bruery modified their methodology, accurately reported their gross receipts and paid the correct amount for their current year's business license. For these reasons, Staff and the City Attorney recommend the City Council consider the Bruery's appeal.
Municipal Code § 6.04.200 Penalties for delinquent payment of taxes, states a penalty of ten percent of the license fee shall be levied in addition to the amount of the license on all who fail to pay their yearly license, due on the first of July, prior to the first day of September. Said penalty shall be also levied on all who fail to pay their yearly license, due on the first of January, prior to the first day of March and on all persons who fail to secure a license within sixty days after opening for business.
In addition, a penalty of five percent of the original license fee shall be added for each month or portion thereof said license fee is unpaid after the delinquent date. In no case, however, shall the penalty exceed fifty percent of the original license. In the case of a business tax audit, penalties may be waived if delinquent payments are made pursuant to the first notice of the audit.
The Bruery has requested the full waiver of the total amount due, and/or the possibility of a waiver of penalties and a payment plan for the amount of taxes owed.
ALTERNATIVE OPTIONS:
1. Consider and deny the waiver of penalties and interest ($7,537.02); and
2. Authorize the Director of Finance to develop and implement a payment plan for the total amount owed as determined by the auditors ($22,611.05).
Or
1. Consider and approve both the appeal and waiver of the total amount owed as determined by the auditors ($22,611.05).
Fiscal Impact Summary:
The audit determined The Bruery miscalculated the amount of business license taxes owed to the City for the years 2019, 2020, 2021, and 2022 resulting in a balance due of $15,074.04.
Per Placentia Municipal Code 6.04.200, there is also a penalty of up to 5% of the delinquent payment of taxes applied for each month the tax is paid late. The penalty is capped at 50% and has been included within the calculation of penalties totaling $7,537.02. The total amount owed as determined by the auditors is $22,611.05.