Technology targeting wrong businesses

June Casagrande

A local businessman was frustrated recently when he got a letter from

City Hall telling him he should apply for a business license. After

all, he hadn’t opened a business here. He had merely used his Newport

Beach office address when he filed taxes for a limited liability

company he held.

What’s more, the “LLC” company merely represented his share of a

larger company that owned a shopping center in Tracy, Calif.

The computer that flagged the Newport Beach connection didn’t know

or care that the parent company already had a business license in

Tracy. Nor did the computer care that the businessman, whom it warmly

addressed as “Dear Taxpayer,” happened to be Newport Beach Mayor Tod

Ridgeway.

“I’ve gotten two of these things,” Ridgeway said. “It’s

frustrating.”

The information age could be creating a quirk in the city’s

business license system that’s automatically asking businesspeople to

pay for licenses they’re not required to have. In Ridgeway’s case,

the Franchise Tax Board’s computer told the city of Newport Beach’s

computer that Ridgeway probably owed $124 for a business license for

last year and for each of the three years before.

Glenn Everroad of the city’s Administrative Services Department

gave a presentation to the City Council on March 9 about the business

license policy and plans to give one to the city’s Economic

Development Committee as well.

Everroad said it was important to note that the letters generated

by the computers include instructions on how people who don’t really

need business licenses can set the record straight with the city.

“Eighteen years of our current administration of business

licensing has not produced a single business license appeal to the

City Council,” Everroad said. “I think the council believes that the

staff is exercising proper discretion in enforcing our business tax

ordinance.”

Business licenses, and especially new business licenses, are a

substantial source of income for the city. In 2003, the license fees

brought in $2.6 million. About a third of that was from new business

licenses, with the remaining two-thirds coming from renewals of

previous business licenses.

The council on March 9 also heard stories that corporations that

set up tables at special events to give away their products as

promotion were being asked to get business licenses as well, also

because of computers.

“Those aren’t the kind of people we want to tax,” Councilman Steve

Bromberg said. Those companies aren’t actually conducting business in

the city; they’re only doing promotion, he said.

Ridgeway isn’t the only councilman to get one of the letters. John

Heffernan has also received a number of them.

Council members did not give staff members any specific direction

to bring back an item to the City Council. But if the problem

persists, the matter is likely to flare up again.

“Of course I want to encourage the city to continue to collect

business license fees,” Ridgeway said. “But I didn’t like that

letter, and I still don’t.”