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BUSINESS TAX DISCOVERY
PROGRAM
City Council
September 6, 2022
Finance Department
RiversideCA.gov
2 1. Business Tax division ensures that all entities are compliant with the Riverside Municipal Code and obtain a business tax certificate through self-reporting and discovery services.
2. City contracted with Hinderliter, De Llamas & Associates (HdL) in November 2020 to assist with various tax administrative services. Industry standard is to charge three years’ back taxes to all newly discovered non-compliant entities.
3. June 2019 –Business Tax staff were directed to waive prior years’ taxes and all new businesses will have a start date equal to the date of the discovery.
4. HdL has expressed concerns and would need to perform a legal review as to the City’s current practice of non-compliant entities and the potential legal risk to HdL for enforcement of the current practice.
BACKGROUND
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3 1. HdL’s search of non-compliant businesses in Riverside are sorted into two main discovery categories
a. General Businesses: Retail, service, contractors, home occupations, etc. b. Property Rentals: Comprised of residential and commercial
2. General Businesses – HdL obtained data from Secretary of State reflecting approximately 19,000 businesses that are conducting operations without a business license in the City.
3. Property Rentals – HdL has id entified 14,508 potential discovery accounts (12,638 residential rentals and 1,870 commercial rentals).
NON-COMPLIANT BUSINESSES
RiversideCA.gov
4 City of Riverside:
1. 21,356 active licensed
businesses
2. 4,284 delinquent accounts
3. 21,894 potential discovery
accounts
4. City compliance rate: 45%
COMPLIANCE RATE
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5 Option 1 – Waive Back Taxes,
Penalties, and Interest
Option 2 – Collect Back
Taxes plus Penalties
Option 3 – Collect Back
Taxes, no Penalties
Option 4 – Back taxes, no
Penalties, add Simple Interest
PROS:
Business friendly to non-
compliant businesses
Compliant w/ RMC Partially consistent w/ industry
standard
Compliant w/ RMC
Fair & Equitable; Industry
standard
Business friendly Semi-business friendly: waive
penalties, add 8% interest
Sets standard for business
compliance.
Businesses would receive
waiver on 75% past due
penalties
Businesses would receive
waiver on 75% past due
penalties
CONS:
Non-compliant with RMC Potential for complaints to
Council
RMC – Penalties section
would not be adhered to
Seen as unfair/inequitable
City would receive $0.00
revenue in year 1
Could be seen as
not business friendly
Seen as unfair/inequitable. Potential for complaints to Council
Potential for complaints to
Council
Amnesty program can
be seen as unfair/inequitable
Compliant but delinquent
businesses are charged a
penalty vs. non-compliant
businesses that are not
charged a penalty
Compliant but delinquent
businesses are charged a
penalty vs. non-compliant
businesses that are not
charged a penalty
Compliant businesses
could request refund and no
incentive for businesses to
remain compliant
CITY OPTIONS MOVING FORWARD
RiversideCA.gov
6 1. City seeks to bring non-compliant entities into compliance with RMC Chapter
5.04. 2. Targeted approach to discovery accounts with 3-month amnesty programs to run consecutively beginning with property rentals followed by general businesses.
3. Staff recommends amnesty progra m Option 3 which would not penalize noncompliant businesses and would encourage compliance moving forward.
4. Staff recommends that following the amnesty program, new discoveries be assessed at the statewide industry standard of charging three years back taxes plus current year’s tax, plus applicable penalties as set forth in the RMC.
ACTION PLAN
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7 Potential Revenue
RiversideCA.gov
8 Strategic Priority 5: High Performing Government
Goal 5.4: Achieve and maintain financial health by
addressing gaps between revenues and expenditures and
aligning resources with strategic priorities to yield the greatest impact.
Cross-Cutting Threads
STRATEGIC PLAN ALIGNMENT
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9 T h a tt h eC i t yC o u n c i l :
1. Receive an update on the current status of the City’s Business Tax Discovery program and overall compliance rate;
2. Recommend to the City Council approval and implementation option for a 3-month amnesty program for non-compliant accounts;
3. Recommend to the City Council to direct staff to implement standard procedures for all new discoveries following the amnesty program timeframe in compliance with the Riverside Municipal Code, including assessment of penalties and back taxes; and
4. Direct staff to return to the Financial Per formance and Budget Committee in one year to provide an update on the outcome of the amnesty and discovery program and report resulting revenue enhancements.
RECOMMENDATIONS
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