Los Angeles Tax Debtors, Parking Leads the Pack

The City of Los Angeles Finance Department has published its top debtors list, as of the middle of July. Read it here.

I have been asked to comment on why 10 of the top 30, and the highest amount owed, are from parking companies. Ah, in fact I can turn a tale on this topic.

The city of Los Angeles charges a tax on the monies collected by private parking operators. This 10% tax is determined just as you income tax is computed. They “trust” the businesses to report their income and then attach a check.

The problem is that with parking, it is extremely easy to “adjust” the total collected and under report the monies due. A few years ago the city realized that this was a potential problem and hired an outside firm to audit parking companies and provide the finance department with the results. I have been tracking this process and find that the auditing firm has found hundreds of millions in underreported revenue and thus underreported tax. The problem is that it’s now the city’s problem to collect the back taxes and in that task they have been incredibly remiss.

For a number of years the city’s finance department has basically ignored the problem. The audits would be turned in, bills sent, the companies owing the money, many of whom had close relationships with the powers that be at the city, would simply ignore the bills, or negotiate with the city and settle for as little as 10 cents on the dollar.

(In one case, the city employee who was responsible for reviewing the tax forms of a parking company, actually worked (moonlighting) for that parking company doing, guess what? That’s right, filling out their tax forms, but I digress)

Recently a number of individuals in the finance office retired and the new group is attempting to get a handle on the problem. This list shows the magnitude of the issue. The top 50 tax cheats in Los Angeles (not all parking) owe over $100,000,000 in back taxes. What is with that? If I didn’t pay my taxes there would be a big sheriff at my door with a chain and I would be out of business. I’m sure that the city could use that $100,000,000. Where are the sheriffs when you need them?

Remember – parking is a cash business. If you are a crook, it’s not difficult to under report your income. It’s easy, collect $1000, report $200. Who is to challenge you? Who is to know? Someone would have to go out and look at your operation. Let’s see. You run a lot in downtown LA, near the Halls of Justice where all the lawyers park. You charge $25 a day. You park 250 cars a day. That’s $6250 a day in cash, or $1,5 million a year. You owe $150,000 in taxes. What if you run 10 lots like this? The numbers go up fast. If the city ignores you, you simply report a quarter that amount, or less, and pocket the rest. (Some report nothing. It boggles the mind.)

This process puts legitimate parking operators (Central, Ampco, Standard, etc) at a tremendous disadvantage. The crooked operators (see attached list) can under bid parking operations because they don’t have any intention of paying the taxes. The legit companies bid a fair price but they don’t play on a level playing field.

Most operators I talked to about this problem say that the best thing the city can do is enforce its laws and force these back street operators to pay their legitimate tax bill. The city would benefit (more income) and the parking business would benefit as all would be bidding by the same set of rules.

Hopefully that’s beginning to happen

JVH