Yesterday I reported on the problems plaguing one business improvement district, Discover Pacific Beach, and noted:

At a time when politicians of all stripes are focusing on eliminating City Hall’s red tape, the audit highlights a weak spot in the existing rules. Businesses pay an annual fee for operating in the city based on their number of employees. However, it’s largely an honor system.

I followed up today with Ricardo Ramos, business tax manager with the city, to learn more.

He said that when a business first applies for a business tax license, it reports its number of employees. Then, annually, a business tax renewal form is sent out to business owners. This form includes a section where the owner is to update its employee count.

In both cases, employee counts are self-reported.

However, the city as part of last year’s budget added a new level of verification, requiring small businesses to submit tax documentation as a way of confirming the numbers.

Prior to the verification program, businesses were only audited when the Revenue Audit Division performed hotel-room tax audits or when triggered by public complaint, as was the case with Discover Pacific Beach.

Ramos said that this is a low-cost way for the city to conduct compliance checks on businesses. It wasn’t cost effective to spend $400 to $500’s worth of auditor staff time auditing a $34 business tax assessment.

Even though this program is only in its infancy, it has already brought in an additional $20,000 in tax revenue for the city, begging the question of whether there is a widespread issue involving San Diego businesses underreporting employee numbers.

Sandy Coronilla reports on local government and education for voiceofsandiego.org. She is on the Armen E. Keteyian Scholarship for Investigative Reporting. You can contact her directly at sandy.coronilla@voiceofsandiego.org or 619.325.0528.

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