BUSINESS TAX DRAGNET CITY EXPECTS TO COLLECT MILLIONS FROM SMALL OPERATIONS.

Byline: Gregory J. Wilcox Staff Writer

Los Angeles residents are flooding the city's tax office with questions about a tough new attempt to collect back business taxes and fees, with many saying they don't even operate a business.

Earlier this month, the city's Office of Finance mailed out 151,000 letters to residents stating they ``may be engaged in business within the city'' but do not have a valid municipal tax registration certificate.

Los Angeles defines a business as any individual, partnership or corporation located in the city and generating $5,000 annually in gross revenue.

Caught up in the dragnet are people like Joyce Blaine, a 75-year-old former actress and ballerina who teaches twice a week at a local dance studio.

``I'm not in business. I'm a teacher of classical ballet and it's not my business. I don't run the business. But they (city officials) want me to fill out this form. It's such a headache and time-consuming,'' said the Valley Glenn resident.

The tax enforcement program has generated enough concerns like Blaine's that a phone line for inquiries was swamped Monday, greeting many callers with a busy signal. The number to call is [phone].

People are being asked for financial records dating back to 1999 and the effort also includes a whistleblower program that provides rewards for information leading to the recovery of tax revenue.

Failure to comply with regulations ``may'' result in further enforcement action, including criminal or civil charges, the letter said. Those who simply ignore the law face a fine totaling as much as 40 percent of the unpaid amount of taxes.

Antoinette Christovale, the city's finance director, has no idea how many of the residents receiving the letter might be operating a business. But she estimates that the city will receive $3 million in back taxes this fiscal year and up to $10 million the next.

``The cost to mail the letters is about $120,000, so the return far outweighs the (costs) to the city.''

The letter came as unsettling news for Studio City makeup artist Michael Blake, who now wonders whether he will have to get a license to tote his makeup kit around town to various film shoots.

The kit is about 16 inches by 12 inches by 9 inches, and it hasn't brought Blake that much business over the past two years. He worked about 11 days last year and 20 days this year. And when he does work, it's on a set and for someone else.

He's also done some writing but never earned more than $2,500 at this endeavor.

``I don't have Fed Ex trucks running up and down the street dropping packages off,'' said Blake, who is thinking about moving to a more business-friendly community.

``I find it very interesting that all these letters just went out after the election and secession was defeated. I'm not a conspiracy theorist, but me do thinks something is rotten in Denmark,'' he said.

Blake and thousands of others are now facing this unexpected interaction with the city's bureaucracy thanks to Assembly Bill 63, a state law that took effect Jan. 1. That measure gave Los Angeles and other cities access to information residents include on their state tax returns.

That information was matched with city records and out popped a list of suspected scofflaws. Los Angeles fronted the costs of culling the information for all California municipalities, about $350,000, and has so far been reimbursed about $200,000, a state official said.

The city's aggressive enforcement campaign follows an amnesty program that was used to coax compliance out of businesses. In that effort, the state did not share the tax return information, but mailed 100,000 letters outlining the program to likely violators of municipal law.

Christovale said that 13,000 new businesses were registered through that process. And she denies taking a heavy-handed approach with the letter-writing campaign.

``The intent was not to threaten,'' she said. ``We just wanted to notify the business owners that they may owe a tax, and it would be in their interest to comply with the municipal tax code.''

The mass mailing scored a hit when the letter arrived at Reseda resident Adam Safran's home.

He's runs a Web consulting business out of his home, and the letter enlightened him.

But the city tax feels like a triple whammy.

``I'm already being taxed by the state and federal governments. It's kind of surprising that there was such a (municipal) tax,'' he said.

His complaint is that he could never get through to the city office until someone gave him the director's number.

The city's business tax was a key complaint cited by many supporting San Fernando Valley secession in the Nov. 5 election. The city has 64 business tax categories and eight rate schedules applied to every $1,000 in gross revenue. Secession lost 2-1 overall in Los Angeles while barely passing in the Valley with about a 51 percent to 49 percent margin.

Finance director Christovale said there is one aspect of the program she regrets and should have done differently: She would not mail all the letters at the same time.

``We have been overwhelmed with the number of calls,'' she said.

TOUGH TAX TALK

The city of Los Angeles has rolled out a tough policy in dealing with businesses that have not obtained licenses and paid fees. Here are some of its high points:

--A business is defined as any individual, partnership or corporation located in the city and generating $5,000 annually in gross revenue.

--The city has 64 business tax categories and eight rate schedules applied to every $1,000 in gross revenue.

--Rental property, whether residential or commercial, in the city is to produce rental income that is subject to municipal taxes.

--Not everyone who received a letter will have to get a business license.

Source: Los Angeles Office of Finance

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Michael Blake, a film makeup artist, recently got a letter from the city claiming he must pay a tax on an at-home business.

Charlotte Schmid-Maybach/Staff Photographer

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TOUGH TAX TALK (see text)