Hahn Supports Tax Exemption for Small Firms

Four days after two Los Angeles City Council members proposed exempting small businesses from local business taxes, Mayor James K. Hahn announced his support for the modest plan to boost the city’s economy.

“Our goal is to help businesses grow,” Hahn said at a hastily arranged news conference in a North Hollywood boutique thick with burning incense. “We think that will grow our tax revenues eventually. And that will help put more people to work here in Southern California.”

Los Angeles business leaders have been pushing city officials for years to change the way businesses are taxed, complaining that the arcane tax structure and high rates drive businesses away and retard the city’s economic growth.

Last week, council members Wendy Greuel and Eric Garcetti, who have led reform efforts, asked the city’s finance department to analyze the effect of simply eliminating taxes on businesses with gross receipts of less than $100,000 a year.

Hahn said Tuesday that the proposal -- which he said would affect 56% of local businesses -- would deprive the city of less than $5 million a year in tax revenue.

But, the mayor added, the reform would significantly simplify collection and put a few hundred dollars in the cash registers of the city’s small businesses.

The city estimates that it will collect about $360 million this fiscal year in local business taxes. But many businesses do not pay their taxes, in part, officials say, because the system is so complex.

“We’re mindful that it’s an expense for the city, but it’s an investment,” Hahn said, expressing optimism that the improving local economy would help the city make up the difference.

Just last month, Hahn came under attack from council members and business leaders for proposing to balance the city’s budget in part by taking several million dollars from a fund created to reduce taxes on businesses. The City Council later restored the money.

Tuesday, business leaders applauded the mayor for taking an important, if small, step toward reform.

“It’s a message issue as much as it is an economics issue,” said Martin Cooper, chairman of the Valley Industry and Commerce Assn., a San Fernando Valley business group and one of the leading proponents of tax reform.

Cooper and other leaders say they have seen businesses move to nearby cities such as Glendale and Burbank that they say offer a better business environment.

“Small businesses are very hard to maintain,” said Rodney Payne, who owns the From the Ground Up Boutique where the mayor made the announcement Tuesday. “This reform is a great thing for all small businesses in the city of Los Angeles.”

Payne said he would use the $700 he anticipates saving to invest in his store and build up his inventory.

But business leaders stressed that they wanted the mayor to do much more in the coming months. A city advisory committee convened in 1999 has proposed that the city cut taxes 3% a year for five years starting in 2006.

“We demand that there be tax reform this year,” said Mel Kohn, a San Fernando Valley accountant who is chairman of the advisory committee.

Hahn said Tuesday that he was not ready to endorse broader reforms, but said that he was “very interested in doing that.”