State to Recoup Tax Overpayment to Diamond Bar

The state made a $286,200 sales tax error in the city’s favor and has decided to correct the mistake by withholding the city’s December tax check.

Officials at the State Board of Equalization recently discovered the overpayment, which occurred because they overestimated the amount of sales tax collected in the newly incorporated city.

“It was an oversight on my part,” Jim Munekawa, a senior auditor on the board, said Wednesday.

To correct the error, Munekawa said, the state will withhold the city’s sales tax payment this month and reduce it in January.

Diamond Bar City Manager Robert Van Nort said the resulting shortfall in cash may mean a delay in launching a narcotics program and in making some park improvements. But the city’s budget won’t suffer tremendously, he said.

“We were ultraconservative in our budget this year,” he said.

Since September, the state has turned over $711,200 to Diamond Bar, basing the amount on estimates of how much sales tax revenue the city was expected to take in during the first quarter of the 1989-90 fiscal year. But the state mistakenly included in its estimate branch businesses located in Diamond Bar and elsewhere in Los Angeles County. If the state had correctly limited its estimate to businesses located only within the city, Diamond Bar would have received $425,000, Munekawa said.

“I guess I was just pressed for time,” Munekawa said, explaining his miscalculation.

Van Nort, informed of the state’s error by The Times on Wednesday, said he may ask for an audit of businesses in the city to make sure the new state figure is correct. Before the city incorporated, March, 1989, the Los Angeles County Formation Commission estimated that Diamond Bar would receive $1.8 million in sales tax for the 1989-90 fiscal year, or $450,000 each quarter.

Mayor Phyllis Papen said Thursday that an audit may find that the sales tax was incorrectly calculated in another way, resulting in too low an estimate. Because part of Diamond Bar shares the 91789 ZIP code with Walnut, sales tax revenue from businesses in that area may have gone to Walnut or to Los Angeles County, Papen said.

Adding to the city’s tax woes is the fact that Diamond Bar will not be receiving any property taxes for fiscal 1989-90. But Papen said a newly incorporated city “has to anticipate problems in any transition period.”

“It’ll probably take us a year or two to finally figure out what our revenues are,” she said. “But I still think incorporation is the best thing this community did.”