Businesses that are severely dodging taxes they owe The City could get slapped with a stiff penalty under new legislation proposed by Mayor Gavin Newsom.
Out of the 922 businesses audited last year, roughly 129 were found to have substantially underreported their taxes, according to the Office of the Treasurer and Tax Collector.
That’s why the Treasurer’s Office asked Newsom to sponsor legislation that would penalize businesses whose unreported taxes are 25 percent more than the taxes that were reported in a year. If a business is caught substantially underreporting taxes, it could be hit with a fine equaling 50 percent of the amount that is underreported, according to the legislation.
For instance, if a business reports a parking tax of $10,000 but an audit reveals it owes $15,000, then that would be considered a “substantial underreporting,” said David Augustine, policy and program manager for Office of the Treasurer and Tax Collector.
That business could be hit with a $1,250 fine, he said.
The ordinance would affect more than 6,000 businesses and applies to the hotel, parking, utility users, access line, stadium operator admission and payroll expense taxes.
“We want to make sure everyone is paying their fair share,” Augustine said. “This ordinance is designed to only apply to any amount that is substantially underreported to our office.”
The ordinance would not be retroactive, however, and The City stands to gain $662,000 through penalties in fiscal year 2012-13, Augustine said.
The money collected from the penalties would go into The City’s general fund, with half paying for technology upgrades in the Treasurer’s Office, including replacement of the online filing system.
The proposal comes at a time when Newsom has been pushing for legislation to provide assistance to small businesses through tax breaks and stimulus programs that help subsidize jobs.
“Even as we work to bring tax relief to small businesses that are creating new jobs, it’s important that we support the treasurer in his efforts to collect all revenues that are due,” said Tony Winnicker, Newsom’s spokesman.
Small-business leaders say they realize city leaders must go after companies that are not paying their taxes in full, but this legislation would only target a few thousand businesses, which doesn’t seem fair, said Scott Hauge, president of Small Business California.
“What about the other businesses that are breaking the law? What if they are not registered with The City?” Hauge said. “Clearly, I have a problem with that.”
The legislation was introduced at the Board of Supervisors Budget and Finance Committee meeting last week and will be heard by the committee within the month.
Paying their fair share
80,000 Businesses in The City
129 Businesses that substantially underreported their 2008 taxes
5 percent Penalty amount of the underreported portion of the tax due to negligence the offending business must pay
50 percent Penalty amount of the underreported portion of the tax due to fraud the offending business must pay
$331,000 Amount The City is estimated to gain from penalty fees under the proposed ordinance in fiscal year 2011-12
$662,000 Amount The City is estimated to gain from penalty fees under the proposed ordinance in fiscal year 2012-13
Source: San Francisco Office of the Treasurer and Tax Collector