A City Council committee was assured Monday that Los Angeles is not losing out on any significant online sales tax revenue that could result from having neighborhoods with names similar to adjacent cities.
Los Angeles City Councilman Mike Bonin had submitted a motion in January raising concerns that the online sales tax confusion may be costing Los Angeles revenue through e-commerce and internet-based transactions that charge sales tax based on the location of the buyer, and asked the Department of Finance to report on the issue.
The report from the Office of Finance, which was reviewed by the Budget and Finance Committee, said the amount of incorrectly allocated sales tax monies the city receives from the state is less than 1 percent, and that the department’s Sales Tax Unit was formed in 2017 to buttress the department’s effort to monitor online sales tax issues.
The Los Angeles neighborhood of Santa Monica Canyon is adjacent to Santa Monica and shares a zip code with a portion of the city, according to Bonin’s motion, which pointed to several other similar instances that may be causing confusion with the collection of sales tax in certain areas of the city.
Bonin’s motion said that “because neighboring sales taxes are often higher than the city’s sales tax rate, this results in customers potentially being overcharged. Additionally, because the sales tax rate of the neighboring jurisdiction is being used, it is unclear whether the city of Los Angeles is receiving its fair share of the sales tax revenue that is being collected.”
The report from the Office of Finance outlined several ways it makes sure that location confusion does not result in a loss of sales tax revenue for the city, including reviewing all sales tax accounts located in zip codes that are shared by multiple cities to ensure that those located within city limits have the correct TAC code for Los Angeles specified. It also reviews accounts related to businesses that have multiple locations throughout the state to identify any allocations that may be missing for the quarter or unusually low.
The city receives more than $520 million each fiscal year from state sales tax allocations, according to the report. The allocation is based on the city receiving a 1 percent share of the 9.5 percent in sales tax charged to the purchaser of goods.
The report concluded the department has quantified that the amount of incorrectly allocated sales tax monies is less than 1 percent, based on the monitoring and correction of allocations performed over the past decade, and that it has identified and collected about $4 million in misallocated sales tax revenue annually in recent years. More than $20 million has been recovered over the past five years, according to the report.