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City discontinues tax processing fee; will refund some money

The San Diego City Council voted Monday to discontinue certain fees that business and rental property owners have been paying since 2004, and to issue some refunds.

Agreeing that the fees essentially equaled an illegal tax, the council voted unanimously to discontinue the Business Tax Processing Fee and Rental Unit Business Tax Processing Fee. The council also voted to refund most of the taxes paid by landlords.

“These fees should not have been charged, that was clear,” said Councilman Kevin Faulconer. “We need to be doing everything we can for small businesses and others.”

The fees were added in 2004 to make up for a city budget deficit. Since the fees were designed solely to fill a budget hole and not provide a service, a court ruled in August that they were the same as taxes and that the public must vote on tax increases.

The Rental Unit Business Tax Processing Fee was levied against landlords who wanted to rent a property, and the Business Tax Processing Fee was against most business owners. San Diego City Attorney Jan Goldsmith said that the Business Tax Processing Fee actually did go toward business services, making it arguably legal, but since it had been conceived in the same memo as the Rental Unity Business Tax, he suggested terminating it as well.

The council agreed, and also voted to refund most of the Rental Unit Business Tax Processing Fees via tax credits.

“In essence, the city got caught with its hand in the cookie jar, and now we’ve got to return the cookies,” said Councilman Carl DeMaio. "That’s the right thing to do, to return this money.”

Some landlords will need to file claims to get their money back, but those who still have active tax accounts will likely be refunded through a credit. This would be less costly to the city than writing checks.

The loss of these fees will cost the city just over $3 million, and the refunds will likely cost close to $1 million. The city also has to pay attorneys fees related to the matter.

These costs led Councilman Todd Gloria to vote against returning the funds, because he said the city couldn’t afford it right now.

“I’m concerned, number one, that we’re adding to our city’s deficit,” Gloria said.

He added that he had heard there could be other courses of action taken that would cost less, and he would rather investigate those before simply refunding the money.

Send your comments to Elizabeth.Malloy@sddt.com

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1 UserComments
Andrew Kean 9:32pm October 25, 2009

By the headline I was expecting to find info on a court challenge to the fees. Makes me wonder why are they considering issuing refunds. Thank You, A