Panel Delays Vote on Business Tax Reform

A City Council panel balked at endorsing a proposal Thursday to waive business taxes for five years for firms that relocate to Los Angeles, deciding the issue should be considered with a broader package of reforms.

The Business Tax Reform Committee’s decision came as City Council members Wendy Greuel and Eric Garcetti released a letter disputing a recent report that concluded a package of reforms would cause a $95-million annual shortfall in revenue.

The proposal by council members Bernard C. Parks and Jan Perry to waive business taxes for five years runs afoul of federal constitutional requirements that similar businesses be treated the same by taxing entities, according to the city attorney’s office.

With a large Internet firm on the verge of making a decision on whether to move into Los Angeles, Chief Deputy City Atty. Terree A. Bowers suggested the council could create a new lower tax category just for Internet firms.

Councilman Tony Cardenas, the committee chairman, said the issue should not be acted on piecemeal, but should be considered when the panel takes up a broader array of tax reform proposals in the next few weeks.

“We need comprehensive business tax reform in the city,” Greuel said, agreeing with Cardenas.

Other tax reform proposals would waive the business tax on firms with annual gross receipts of $100,000 or less, cut taxes for all other firms by 15% to 25%, and eliminate business taxes for writers, directors and other entertainment industry workers who earn $300,000 or less in a year.

The city Office of Finance warned in a report last week that all of the major tax reform proposals would cost the city treasury about $95 million annually when fully implemented in five years.

On Thursday, Greuel and Garcetti sent the office a testy letter saying the tax proposals would be “revenue neutral” when considered in the context of other changes.

They said the finance office failed to consider that tax revenue is expected to grow by $84 million in five years as firms expand and new businesses start, that $20 million more will be received as a result of city audits of businesses, and that there is $12 million in a tax reform trust fund to further soften the impact of reforms on the budget.

Greuel and Garcetti said the report is “incomplete, mired in contradictions, fails to provide clear and objective analyses and reflects a bureaucratic perspective that will impede the creation of an attractive business climate in the city.”

Greuel said the Office of Finance planned to revise its report based on input received from her and other sources.