PURPOSE

The purpose of this report is to provide the City Council with information concerning the proposed Burbank Business Tax Penalty Amnesty Program.  This program requires approval of an ordinance and a resolution.  The ordinance amends Chapter 14, Article 8 of the Burbank Municipal Code to provide for business tax penalty amnesty programs to be conducted.  The resolution establishes the timeframe and other parameters for conducting this amnesty program.

BACKGROUND

In March of 2005 staff presented Council with information concerning the possibilities and potential benefits of the City of Burbank conducting its first business tax penalty amnesty program.  At this meeting staff detailed to Council that such programs are conducted to stimulate current, and future, General Fund revenue collections.  Council directed staff to return at a later date with an ordinance concerning conducting a business tax amnesty program.  Attached as Exhibit A, is the staff report for the March 1, 2005 Council meeting. 

ANALYSIS

Business tax penalty amnesty programs are designed to stimulate revenues by offering incentives, such as relief from monetary penalties, interest, fines, and criminal prosecution, as a way of motivating unregistered and non-tax paying Burbank businesses to voluntarily come forward and pay their business tax obligations.  The Burbank Business Tax has been in effect thirty-two (32) years and has never experienced an amnesty program.  Staff estimates that such a program should increase the first year business tax revenues by approximately $40,000.  Theoretically, once a business is registered through the promotion of the amnesty program they will remain on the business tax rolls and thereby continue to contribute to General Fund revenues into the future.  Consequently, the ratio of �dollar return to program costs� will become more favorable with time.

Example of Business Tax Penalty Amnesty Benefits

Excluding the City of Glendale, which does not have a business tax, Burbank�s business tax rates are amongst the lowest in California as compared to Los Angeles, Santa Monica, Pasadena, Torrance, and most other Southern California cities.   If the large corporate businesses such as Disney and the small �mama/papa� businesses in Burbank are excluded from calculation, the average Burbank Business Tax owed for a business with ten (10) to twenty (20) employees in Burbank would be between $135 to $180 per year.

The current Burbank Business Tax Ordinance provides for penalties for late, or non-payment of the business tax to be 25% per year.  An additional 1% per month, or 12% per year interest rate charges can also be assessed on the total amount of tax and late penalty.  An example of how the penalties and interest work is:

If a registered Burbank business owes $200 a year in business tax, over a four year period they would have paid an $800 business tax liability.  If that same business was unregistered for the past four years, then the same $200 a year business tax liability, with full penalty and interest, would accrue to $1,120,��..not $800.  That is a $320, or 29% difference.   If a dollar increase of this magnitude wasn�t enough incentive for an unregistered business to come forward,  then certainly amnesty from criminal prosecution and the associated fines, court fees, and acquired misdemeanor record, is further incentive for voluntary registration. 

Window Period of Time

Business tax penalty amnesty programs are designed to operate for brief periods of time.  The usual amount of time is somewhere between three (3) months to six (6) months.  For Burbank�s first business tax amnesty program staff is recommending a three (3) month window period of time.  Staff recommends the window period begin on February 1, 2006 and end on April 30, 2006.

This period of time is chosen because that is approximately how long the funding ($5,000) for advertising the program will last.  Council could, if they so desire, direct staff to conduct the program for a longer period of time beyond the allotted advertising budget of $5,000.  This would offer additional time for unregistered businesses to find out about the program via �word of mouth�.  However, without additional advertising funding, the existing advertising budget will be exhausted after (3) three months of program implementation. 

Strategy Elements for Business Tax Penalty Amnesty Programs

There are three primary strategy elements for business tax penalty amnesty programs.  Those elements are: advertising; vigorous follow-up enforcement; and, a fair payment schedule for small business which owe more than the maximum specified amount of business tax (in this case, $1,000).

Advertising: Large cities which have conducted business tax penalty amnesty programs in the past have dedicated hundreds of thousands of dollars into such programs.  Their advertising campaigns included network television and radio advertising which features mayors or council members addressing the general public.  These campaigns also include costly repeated full-page ads in major metropolitan newspapers as well as advertisements in professional journals and periodicals and on numerous strategically placed billboards.

Some business tax penalty amnesty programs promote �We Tip� features.  For the first ever Burbank Business Tax Penalty Amnesty Program, License and Code Services staff does not recommend promoting this feature.  Instead, staff will provide a telephone �Hot Line�, in addition to a License and Code Services� website which will give the public an opportunity to inquire about the program or the particular registration status of a business.

Burbank�s advertising budget ($5,000) is small.  However, staff feels that from a networking perspective, given the closeness of the community, that word of the existence and benefits of the business tax penalty amnesty program can be effectively promoted on this limited advertising budget.  The elements of the advertising campaign may include the following seventeen (17) points:

• Create a video production to be aired on the public access channel

• Create a TV 6 bulletin board message

• Provide monthly press releases in local newspapers (public service announcements)

• Purchase amnesty program newspaper advertisements ($3,000 in newspaper advertisements)

• Provide informational pamphlet at all City of Burbank public counters

• Establish a phone information �Hot Line� for distribution of information

• Establish a License and Code Services web site information link

• Post an information article in the citywide �Burbank Today� newsletter

• Advertise in the Burbank Chamber of Commerce newsletter

• Utility bill inserts for the month of February and March

• Feature information in the TV 6 program �Street Beat�

• Advertise on City FAX cover sheets

• Advertise in the Downtown, Magnolia Park, and Burbank Blvd. newsletters

• Provide City Council announcements for the kick-off and termination of the business tax amnesty program

• Free radio public service announcements

• Advertise in the City Employee paycheck �Hot Line� publication

• Special mailing to all City of Burbank Purchase Order holders who may be required to be registered with the City of Burbank

Vigorous follow-up enforcement:  After the amnesty program window period of time terminates (April 30, 2006), this element of the business tax penalty amnesty program will require a temporary shift in priority assignments for the License and Code Services Division.  For a two month period (May and June, 2006), staff is proposing that License and Code Services personnel, which are usually split 60% (code enforcement) to 40% (license and business tax enforcement), reprioritize these assignments to 80% (license and business tax enforcement) and 20% (code enforcement). 

Devoting this amount of resources for business tax investigations will result in capturing much of the potential business tax revenues �that fell between the cracks� in past years.  This effort will not only capture past due business tax after the amnesty program terminates on April 30, 2006, but will also recover penalties and interest due on these taxes.

Vigorous follow-up investigation and enforcement is an important element of a successful business tax penalty amnesty program and as such, needs to be a featured aspect of promoting an amnesty program.  If the general business community is aware that follow-up investigation will be prominently featured when conducting this program, then unregistered businesses are more apt to voluntarily step forward and take advantage of not having to pay penalties, interest, or to be subjected to possible criminal prosecution.

Some of the follow-up investigation tools staff will be utilizing for finding unregistered businesses are:

• On-line cross-over database information from the State Board of Equalization

• Possible on-line cross-over database information from State Franchise Tax Board (AB 63, there is a cost associated with acquiring this information)

• Review the State Department of Consumer Affairs License Bureau�s on-line listing of Burbank license holders

• Follow through on Los Angeles County Bureau of Fictitious Name Filings which have Burbank addresses

• Cross referencing Burbank commercial utility bill applicants

• Audit existing business tax registrants for underpayments (this is annually conducted)

• Intense door-to-door canvassing

Fair payment schedule for small businesses which owe more than $1,000 in business taxes.  Staff is aware that balancing the public relations aspect of the amnesty program for the �good will� which already exists within Burbank�s business community could possibly be challenged at times due to vigorous program follow through.  The risk is that some businesses may perceive that staff is being too aggressive.   However, staff feels this to be a risk that is worth the effort. 

Since smaller businesses may be more reluctant about volunteering to pay a �chunk� of back-tax money, staff has included in the ordinance an attempt to �soften� such a financial impact.  For the collection of sums of money greater than $1,000 owed in back taxes, the ordinance provides for a monthly installment payment plan, which includes a three (3) month payment schedule for businesses which have twenty (20) or less employees.    This feature in intended to assist smaller businesses while making the amnesty program more appealing.

CONCLUSION  

Business tax penalty amnesty programs are conducted to act as an incentive for unregistered businesses, which have avoided paying local business taxes, to come forward and voluntarily pay the business tax they owe.  The incentive to voluntarily come forward is that these businesses will not be charged financial penalties, interest payments or fines, and will not be criminally prosecuted. 

It is estimated that the proposed Burbank Business Tax Penalty Amnesty Program will generate a minimum $40,000 in increased General Fund revenues.  These previously uncollected business tax revenues will come from businesses which have either not been registered for the Burbank Business Tax, or have been under-reporting the amount of annual business tax they have previously paid.

Most business tax penalty amnesty programs generally have two (2) primary strategy elements, a marketing plan and vigorous follow-up inspections.  Staff will be conducting both a marketing plan, with $5,000 previously budgeted and funded by Council, in addition to a vigorous follow-up inspection program.  In addition, a third strategy element is included.  That element is a payment plan for businesses which have twenty (20) or less employees and owe over $1,000 in back business taxes and penalties. 

In order to implement a business tax amnesty program Council must first approve an ordinance which amends Article 8, Chapter 14 of the Burbank Municipal Code to provide for such a program.  In addition to amending the Burbank Municipal Code by ordinance, a resolution which establishes the standards for a particular amnesty program must also be adopted.  Staff is recommending the standards of the resolution to be:

• Include a provision establishing February 1, 2006 through April 30, 2006 as the Burbank Business Tax Penalty Amnesty Program window period of time

• Provide for an affidavit to be completed by an amnesty applicant which declares and requests business tax penalty amnesty

• Establish a payment plan for businesses which have twenty (20) or less employees within a calendar year and who owe a $1,000 or more in back tax and current business tax

• Provide for a three (3) years back tax and one (1) year current tax owed as the maximum amount of business tax to be collected

RECOMMENDATION

It is recommended that Council approve AN ORDINANCE OF THE COUNCIL OF THE CITY OF BURBANK ADDING SECTION 14-820 TO CHAPTER 14, ARTICLE 8 OF THE BURBANK MUNICIPAL CODE TO PROVIDE COUNCIL AUTHORITY TO DEVELOP AND IMPLEMENT A BUISNESS TAX PENALTY AMNESTY PROGRAM.  Further, it is also recommended that Council approve A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK AUTHORIZING THE DEVELOPMENT, IMPLEMENTATION AND ADMINISTRATION OF A BUSINESS TAX PENALTY AMNESTY PROGRAM.

ATTACHMENT

Exhibit A � March, 2005 Staff Report

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