Leniency Urged on Business Tax Issue

After fielding thousands of frantic and angry calls over the last two weeks, city lawmakers are considering granting a reprieve to people who received a letter from the Los Angeles Department of Finance demanding back business taxes and fees.

Councilwoman Wendy Greuel sent a letter to department Director Antoinette Christovale requesting that City Hall accountants forgive hefty late fees against business owners, freelancers and independent contractors who didn’t know they owed the city money.

Greuel is also asking that the city give letter recipients more time to file paperwork seeking to prove that they are exempt from city taxes.

That would be welcome news to Elizabeth Ginsburg, a retired teacher who works as a researcher for an author to supplement her fixed income. She said she showed up at City Hall at 8 a.m. the day after she received her notice to pay.

“I collided with umpteen others waiting for their opportunity to complain,” she said, adding that only two clerks were on duty to handle the rush.

Ginsburg said she was told that she owed the city $381 plus a late fee for the last three years, for a grand total of $500. She filed a request to have the late fee waived and paid the balance of the bill with a credit card.

“As I left the office, I was joined by an elderly couple who take clippings from plants, pot them and sell them occasionally at street fairs,” Ginsburg said. “They were pathetically fearful and frightened of what could happen. What kind of society are we turning into?”

Ginsburg said she went home and wrote a letter to Mayor James K. Hahn.

A few days later, she received a response that read, in part, “Your correspondence is greatly appreciated and will be forwarded to the appropriate staff member and considered in all related matters.”

The whole thing is an “outrageous debacle,” Ginsburg said.

A spokesman for Hahn said Friday that the letters were sent out with the mayor’s blessing because Hahn believes it is important for the city to crack down on businesses that don’t pay their taxes.

“We need business-tax enforcement to make sure that law-abiding businesses do not carry the burden for scofflaws,” said Deputy Mayor Matt Middlebrook.

He added that people doing business in the city were given plenty of notice over the last few years that Los Angeles was planning to crack down on people who do not pay their civic taxes.

Under city codes, any individual, business or corporation earning at least $5,000 annually as an independent contractor is required to obtain a city business license and pay taxes on revenue. The tax liability ranges from $1 to $5 per $1,000 earned. Those who don’t pay their bills are required to pay late fees of up to 40% of taxes owed.

Previously, the city had no ability to identify small businesses operating in Los Angeles. But a new state law that took effect in January changed that. Now California cities can request access to information that residents include on their state tax returns.

For example, if a person files a state tax return claiming more than $5,000 in income as an independent contractor -- even if it’s for baby-sitting, freelance writing or piano lessons -- the city can demand its share. Recently, Los Angeles officials went to the state Franchise Tax Board, requesting information on anyone who filed a 1099 form for “independent contract” work in the city.

The state complied, handing over names, addresses and types of business -- but no income information. Unsure of whether the people on the list earned $5,000 or $500,000, city bookkeepers sent out 151,000 letters warning recipients that they “may owe business taxes for conducting business within the city.”

“No person shall engage in any business or occupation subject to tax without obtaining a registration certificate and paying the applicable tax due,” Christovale wrote in the letter.

She went on: “Failure to respond to this notice may result in further enforcement action, which may include the filing of a criminal or civil complaint by the city attorney’s office.”

Christovale listed a phone number for residents to call if they had questions. The phone lines quickly became jammed. More than 12,000 calls were logged from people who were lucky enough to get through. For days, people lined up outside the Finance Department’s office seeking answers.

One man who received a letter said he was recently laid off from a staff position as a video editor and brought back on a part-time freelance basis, working four days a week with no benefits.

“Now the city wants to take its turn,” he said. “It’s really a cheap shot.”

Another man complained that a letter was sent to his deceased father.

Fred Gaines, chairman of the Valley Industry and Commerce Assn., said his organization has received so many complaints from its members that the group launched an “ax the tax” campaign, with a Web site where people can share their concerns. Greuel is scheduled to bring her proposal to the City Council next week.

The councilwoman said she also plans to summon Christovale and her staff to the council chambers to discuss the letter, which warned residents to pay up or face charges.

Christovale, who was out of the office Friday, could not be reached for comment.