Business License Audit Program
The Santa Monica Municipal Code section 6.04.280 authorizes the City, under the Finance Department to audit and examine all the books and records of any person or entity engaging in business within the City. With the use of a self-assessed business license tax system, it is necessary for the City to verify the accuracy of the reported tax measures. Businesses may be audited at some point while operating in Santa Monica, either as a part of a randomly selected group or because there are red flags in the business license tax returns.
Types of Audit
This is the most common type of audit and is simply a letter from the Finance Department, requesting the entity in question to provide documentation substantiating the claimed gross receipts, deductions and apportionment scheme related to the business license tax filing. These types of audits are usually easily resolved and if it is determined that the entity incorrectly reported gross receipts, a Final Determination will be issued by the City.
If the City and the entity in question are not able to come to an agreement regarding the correspondence audit, often times the audit is escalated to a site audit. This type of audit involves City employees and/or third party agents, visiting the entity's place of business to inspect the books and facility to better understand how the business works.
The City strives to effectively and efficiently determine the correct tax amount due based on documentation provided by the tax payer, relevant tax statutes and regulations. Depending on the tax issues and the case circumstances the approach and process may vary. Typically, the process is as follows:
- The City will identity the tax issues under examination. An initial contact letter will be sent to the business in question requesting an explanation of the tax issue and documentation to support the claim (see Sample Audit Letter below). If no response is provided, the City will request the Franchise Tax Board tax transcripts for review.
- Once the necessary documentation is gathered, the City will evaluate the documentation and issue a preliminary assessment. The preliminary assessment letter will include the City’s position on the information provided, relevant statutes, proposed adjustments and all applicable penalties and interest.
- If the business does not agree with the proposed assessments and adjustments, a written protest must be submitted which clearly states the business’ position. Applicable documentation to support the claim must accompany the letter. The response must be postmarked, emailed or faxed by the date provided in the City’s preliminary assessment letter, otherwise the assessment will become final.
- The City will review the information provided to support any claim. If the City is unable to make a determination, a site audit may be required.
- Once the evaluation is completed, the City will issue a final determination.
At any time during the audit process, the business may contact the Business License office to discuss the audit and to work toward a speedy resolution. The names and telephone numbers of the Business License Administrator and the Administrative Analyst are provided in the City’s initial contact letter.
Important Information & Forms
For more information regarding the process, instructions and required documentation, please review the following:
- Frequently Asked Questions
- Business License Audit Program Guide and Instructions