Tax Advisory Panel Promises Recommendations Soon

Forget the candy and flowers.

When business owners in the San Fernando Valley, and throughout Los Angeles, note the first anniversary of the city’s Business Tax Advisory Committee, what they want to see--in lieu of theater tickets and a Hallmark card--is results.

Charged with bringing the city’s antiquated business tax code out of the Pleistocene era and improving the maddeningly low rate of tax collections, 19 members of the business community began meeting last year.

In the 12 months since that Aug. 19 meeting, expectations have been great, but news about the progress of the so-called BTAC has been meager.

A very unscientific poll of a handful of Valley business owners turned up only one who was familiar with the reform efforts. But his knowledge was scant and he could point to nothing the committee had done to make his business life easier.

Hopefully, that’s about to change, committee members say.

This summer has brought some significant successes, they note, and in the fall the group plans to release recommendations for revised tax rates and code simplification that should push the panel back onto the business radar screen.

“What we’ve done is laid the foundation for the future,” said Encino CPA Mel Kohn, the soft-spoken diplomat who chairs the advisory panel. “Yes, it’s taken time. But you can’t make recommendations without a foundation.

“When the next report comes out, we will really be more visible.”

The committee, which includes members appointed by Mayor Richard Riordan and each of the 15 Los Angeles City Council members, is an offshoot of the mayor’s business tax reform efforts of the late-1990s. That was a period during which “We were crashing against the rocks of charter reform,” and not making a whole lot of progress, according to committee co-chairman Jack Walker, who represents the Los Angeles Chamber of Commerce.

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Once the committee began meeting, the search began for data upon which to base recommendations for change, Kohn and others said. In many cases, the data were deficient.

“I think people would be astounded at what we’ve been able to accomplish, given the obstacles,” said Kohn.

OK. So what has the committee been able to accomplish?

Kohn and others counted among their successes the $315,000 set aside for reform efforts in the 2000-01 city budget. Coming as part of a $4.4-billion budget package, the funds, which will be paid from the $2.8 billion general fund, barely constitute a rounding error.

But it’s something.

“Even though it’s not a lot, it’s significant, because it means [the committee] convinced the city to put resources behind the reform effort,” said Peter Wong, senior advisor to Los Angeles City Councilman Mike Feuer, who heads up the Ad Hoc Committee on Tax Reform. (The BTAC reports to Feuer’s ad hoc panel.)

Much of the money, $170,000, will pay for three staff members in the Tax and Permit division to “support business tax reform and tax collection activities.” An additional $125,000 will be used to hire accountants to study making changes in the way the tax formulas are devised, and to possibly eliminate taxes on intra-company transactions and so-called pass-through revenues. In the latter case, a business is taxed on funds it collects for a third party.

Also, $20,000 will be spent to upgrade the business tax hotline and Web site, which is not exactly user friendly.

In addition, Wong said the committee was “instrumental” in helping drum up business support for AB 1992, a bill by Assemblyman Gil Cedillo (D-Los Angeles), that would require the state to share with cities information on who pays state taxes.

The bill was approved by the Assembly in May, and now awaits a hearing, possibly today, in the Senate Appropriations Committee, according to David Galaviz, legislative director for Cedillo.

Information from the state Franchise Tax Board shows that there are at least 260,000 Los Angeles businesses paying state taxes. City of Los Angeles records show only 200,000. Depending on whom you talk to, the missing 60,000 and other missed tax payments could amount to $60 million.

Harnessing a bigger chunk of that missing revenue will be the key to tax reform, committee members said, because the programs ultimately approved by the City Council will need to be “revenue neutral.”

“Our goal is to raise revenue before we pass that revenue on to businesses” in the form of rate reductions, said Kohn. “There is going to be some cost to the reforms and we want to fund that by raising revenue. And the revenue will be raised primarily through compliance.”

For example, the committee has backed a plan to allow companies that have multiple lines of business--say a combination retailer and auto repair shop--to pay taxes based on only one rate.

For example, consider a big-box retailer that also sells auto repair services and operates a restaurant. That one store is required to pay taxes at three different rates.

Allowing businesses to pick one rate could cost the city $3.5 million per year, according to Hilary Norton Orozco of the Central City Assn., who chairs the BTAC subcommittee on rates.

“We think we’re going to make that back through compliance and overall increased participation in the system,” she said.

Assuming that some of the AWOL tax funds are captured, deciding how they will be spent, and which businesses get tax relief, will be among the most politically charged decisions the committee will make.

Initially, the panel will target “growth industries,” with good-paying jobs and the potential for rapid expansion, according to Norton Orozco, whose subcommittee will issue its report on rates and simplification in early November.

She declined to list what industries the committee has in mind, preferring to wait until the panel has received more data on what the growth industries are.

“We’re working with local economists to determine the growth industries, [and] the industries in which we are losing ground to our neighboring cities due to our high tax rates,” said Norton Orozco.

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Businesses and industries that don’t find rate relief in the first cut may get a break in a later phase of the reform program, an effort that is expected to last at least four more years.

In the meantime, the committee continues with the less-than-exhilarating business of devising ways to streamline the appeals process and to make the tax-paying experience a tad less taxing.

“A lot of the stuff we could talk about doesn’t have a lot of sizzle,” Walker notes, “but is important to taxpayers.”

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Valley@Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.