L.A. is losing $20 million a year because of fumbled tax data, audit finds

The city of Los Angeles is losing out on more than $20 million each year because of poor coordination of its data on tax-paying businesses with the county and state, according to an audit released Wednesday by City Controller Ron Galperin.

The audit found that L.A.'s database of businesses that pay the gross-receipts tax — a city-specific tax on total business revenue — is not synced with similar databases kept by the state and county for sales tax and business personal-property tax, respectively.

As a result, county and state tax officials aren't collecting enough tax money from city businesses, auditors found, shrinking the portion of tax revenue that the state and county pay back to the city each year.

"These agencies are the city's tax collectors," Galperin said in a statement. "By working together and sharing information, we can ensure that taxes are applied more fairly and efficiently — which will enable us to use revenues to improve city services, such as street maintenance and infrastructure improvement."

The city operates on an annual budget of about $8.6 billion. About 44% of revenue for L.A.'s general fund comes from taxes collected on the city's behalf by the county and state, according to Galperin's audit.

Most of the lost revenue — an estimated $19.2 million — is in the form of sales tax that the state is not collecting, and thus not remitting to the city, auditors found.

L.A. businesses' failure to pay sales tax to the state could be the result of confusion over the rules or deliberate tax evasion, Galperin said at a news conference Wednesday.

The audit also found that only 24% of the 380,416 businesses registered with the city's Office of Finance in 2014 also registered business personal property with the county.

Auditors did not identify specific businesses that had failed to pay taxes at an appropriate level to the state or county. Galperin said he didn't think that efforts to better coordinate the data and collect more tax revenue would disproportionately affect small-business owners.

"This is not about going after the little guy for a little bit here and there," he said. "This is about looking at large, established businesses and making sure everybody is paying their fair share."

The audit urged greater collaboration among city, county and state tax officials to ensure that a consistent picture of tax-paying businesses is maintained.

L.A. County Assessor Jeffrey Prang, who appeared with Galperin to speak to reporters Wednesday, said that while he believed the report was "a little bit optimistic" in how much revenue could be generated on the county side, he was working to match the county's tax information with the city's.

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