Businesses Press Mayoral Candidates on Tax Issue

One by one, Mayor James K. Hahn and his challengers have appeared before Los Angeles business groups in recent weeks, and each time, they have been confronted with the same vexing question.

Why, the candidates are asked, has so little been done to reform the city’s byzantine tax system for businesses?

Tired of hearing promises of reform in the last two mayoral elections but seeing scant change, the Los Angeles Area Chamber of Commerce, the Valley Industry and Commerce Assn. and other business groups set an Oct. 31 deadline for city officials to overhaul the complicated laws.

That deadline has ratcheted up the pressure on those running for mayor in the March 2005 election. And Hahn’s challengers are picking up the issue as one on which the mayor could be vulnerable.

“The mayor made a campaign promise three years ago to support business tax reform and make it happen, and three years later, that promise has not been kept,” said Councilman Antonio Villaraigosa, who is running against Hahn for a second time.

When Hahn ran for mayor in 2001, he vowed to implement reforms that were being developed by the Business Tax Advisory Committee, created during the administration of his predecessor, Mayor Richard Riordan. Hahn did implement a two-year amnesty for small businesses moving into the city, but other reforms have been delayed.

“The mayor has not been aggressive enough,” complained Valley Industry and Commerce Assn. President Bonnie Herman. “If it weren’t for the mayoral election season, would he be doing anything?”

Hahn and his four major challengers share common ground on some proposals, including the need to streamline a tax code that has 59 categories of taxable businesses, including one that lumps gardeners and attorneys together.

But candidates disagree on how much to cut the tax, which raises $380 million a year and accounts for about 11% of the city budget’s revenue. Deep cuts could hinder efforts to fund police and fire services when the city is already wrestling with cuts in state funds, warns Councilman Bernard C. Parks, another candidate.

Hahn heard the frustration of the city’s business leaders firsthand last week when he spoke to four San Fernando Valley chambers of commerce.

“Business is still leaving Los Angeles,” said Lynn Kremin-Levitt, board chairwoman for the Mid Valley Chamber of Commerce

Indeed, businesses looking to move to Southern California have bypassed Los Angeles for other cities, such as Burbank and Glendale, that do not charge any gross receipts tax.

In Los Angeles, the tax ranges from $1.18 to $5.91 per $1,000 of gross receipts, depending on the business. For a firm making $1 million in the highest category, the tax bill would be $5,910.

That might not sound like much, but Mel Kohn, chairman of the advisory committee, said it could make the difference between a business moving to Los Angeles or to Burbank. “The business tax is a tie-breaker,” he said.

None of the five major candidates supports abolishing the tax at this time, although former state Assembly Speaker Bob Hertzberg, one of the candidates, would like to replace it with a simpler system.

Instead, the mayoral candidates focus on more moderate reforms. In April, City Council members Wendy Greuel and Eric Garcetti proposed cutting taxes 5% a year for five years, for a total of 25%. Villaraigosa signed on to that motion. The three are now pushing for a 15% tax cut phased in over five years.

In June, Hahn joined Greuel and Garcetti in proposing that the tax be eliminated for businesses with gross receipts of $100,000 or less, which would cover 56% of the businesses in Los Angeles.

“I want small business to get started so it can grow into bigger business,” Hahn told the business leaders last week.

Under pressure to take a stand, Hahn said for the first time last week that he supports a phased-in 15% cut for businesses making more than $100,000, but would require provisions to protect police and fire funding. “I do need to balance our budget, but I think we can do that and still have tax relief,” Hahn said.

Greuel said an analysis to be released this week by the city Office of Finance will show that the $100,000 exemption would cost roughly $23 million over five years, and the 15% cut would cost the city $55 million during the five-year period, if it is phased in at 3% a year.

Parks, a mayoral candidate and chairman of the council’s Budget and Finance Committee, has presented himself as the businessman’s candidate. “The current system is not business-friendly. It is outdated, burdensome, complicated and expensive,” he said.

Still, he has held off endorsing the $100,000 exemption and the 15% to 25% cuts until he knows how much the reforms would cost.

“When I vote for it, I want to know it’s going to cost X number of dollars,” Parks said.

Parks and Councilwoman Jan Perry have suggested an alternative approach. Businesses that move into the city and make $500,000 or less are now exempted from the gross receipts tax for two years. Parks and Perry want to expand that to five years.

“This is a good incentive for businesses,” Parks said.

Villaraigosa said he believes five years is “too long,” and state Sen. Richard Alarcon (D-Sun Valley), another mayoral candidate, said the exemption should be limited to one year.

Hahn also said the two-year amnesty should be given a chance to work before there is any consideration of an extension.

Villaraigosa jumped on the tax issue early by signing the Greuel-Garcetti motion proposing the 25% tax cut, although he said he would consider the 15% proposal as an alternative.

He also backs the exemption for firms with gross receipts of $100,000 or less.

Alarcon and Hertzberg support the $100,000 exemption and a proposal to roll back business taxes for larger businesses by at least 15%. “City Hall should not be in the business of nickel-and-diming mom-and-pop stores,” Hertzberg said.

Alarcon said he might support a 25% cut, “but I want to see what the impact is.”

The senator also proposes that the city impose a flat rate on all businesses that make between $101,000 and $200,000 to “simplify the process and allow enforcement to be more effective.”

Hertzberg said he planned to release a comprehensive plan soon.

“There are things we can do now,” he said.

But, with the election still six months away, Hahn, Parks and Villaraigosa could still enact major changes and then tout their roles in reforming the city’s business tax on the campaign trail

If the city politicians fail to act, Kohn predicted, business leaders will step up their involvement in the election. “There is going to be a reaction,” Kohn said.

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Where they stand

Businesses in the city of Los Angeles pay taxes of up to $5.91 per $1,000 on their gross receipts. Cutting that tax is a top priority of city businesses. Here is where the five major candidates stand on some current proposals.

Eliminate the tax for businesses with gross receipts of $100,000 or less.

Richard Alarcon: Supports

James K. Hahn: Supports

Bob Hertzberg: Supports

Bernard C. Parks: Undecided

Antonio Villaraigosa: Supports

Streamline and/or simplify the tax code, which has 59 categories of taxable businesses.

Richard Alarcon: Supports

James K. Hahn: Supports

Bob Hertzberg: Supports

Bernard C. Parks: Supports

Antonio Villaraigosa: Supports

For businesses with gross receipts over $100,000, cut the tax by 15%.

Richard Alarcon: Supports

James K. Hahn: Supports

Bob Hertzberg: Supports

Bernard C. Parks: Undecided

Antonio Villaraigosa: Supports

For businesses that move into the city and have gross receipts of $500,000 or less, waive taxes for first five years.

Richard Alarcon: Opposes

James K. Hahn: Opposes

Bob Hertzberg: Tentatively supports/leaning toward

Bernard C. Parks: Supports

Antonio Villaraigosa: Opposes

Exempt writers, directors and others in the entertainment industry from gross receipts tax if they make less than $300,000.

Richard Alarcon: Supports

James K. Hahn: Undecided

Bob Hertzberg: Tentatively supports/leaning toward

Bernard C. Parks: Undecided

Antonio Villaraigosa: Undecided

Graphics reporting by Times staff writer Patrick McGreevy