L.A. Businesses See Hope for Tax Overhaul
Thanks in part to a pumped-up lobbying effort, Los Angeles business owners believe this could be the year they finally get some relief from the city’s Byzantine tax code.
An ad hoc committee of the Los Angeles City Council is poised to decide next week on a plan for overhauling the system for taxing businesses. The full council is expected to vote by year’s end.
Streamlining the complex code, which taxes companies’ gross revenues, has been a top priority for the business community for more than a decade.
“It’s incoherent and perceived as unfair,” said Jack Walker, a director of the Los Angeles Area Chamber of Commerce and co-chairman of the Business Tax Advisory Committee, created during the administration of former Mayor Richard Riordan to lobby for changes in the code. Walker added that the tax has provided fodder for critics who say Los Angeles is unfriendly to business.
Architect Clifton Allen agrees with Walker. His firm has called Los Angeles home for 30 years. But every time his Hollywood Hills lease comes up for renewal, Allen said, he can’t help but be tempted to move outside the city limits to escape the business tax.
“Business tax reform is a huge issue,” Allen said. “Something needs to be done.”
The code requires every business located in Los Angeles -- whether it’s a law firm, an auto body shop, a freelance writing operation in someone’s home or a fast-food restaurant -- to pay taxes on its gross receipts. The amount ranges from a low of $1.18 per $1,000 to a high of $5.91. For a firm in the top bracket with $1 million in revenue, the annual tax bill would be $5,910.
Critics complain about the code’s complexity. Businesses are divided into dozens of seemingly arbitrary categories -- attorneys lumped with gardeners, waste disposal firms with advertising agencies. Christmas tree lots are in a separate category, as are public dance halls and circus parades.
Among the proposals on the table are to:
* Exempt businesses with less than $100,000 in annual revenue -- which would exclude 60% of those now paying the tax.
* Reduce the tax by 15% over five to 10 years.
* Slash the number of tax categories and tax rates.
* Exempt writers, directors and other entertainment industry workers who have annual gross receipts of $300,000 or less.
Under a proposal aimed at architects and other businesses that rely on contractors, the tax wouldn’t be applied to revenue that is passed through to contractors.
That would be welcome relief for architect Allen, who says 40% to 60% of his firm’s billings for a project typically go to contractors -- which, if they are located in the city, also pay tax on the money.
Playing to politicians’ fears that companies are fleeing to Burbank, Glendale and other nearby cities to avoid the tax, more than 400 people -- Allen among them -- descended on City Hall this month to make their case on the business tax and other issues.
“It makes a difference when you show up and the council members see the faces of business leaders they recognize as successful businesspeople in the audience,” said chamber lobbyist Brendan Huffman.
It doesn’t hurt that city elections are set for March. Mayor James K. Hahn, who during his 2001 campaign promised some form of business tax relief, is facing a tough reelection bid.
The campaign to overhaul the business tax typifies a new strategy by the Los Angeles chamber. Criticized in the past as lacking organization and connections, the chamber has stitched together a broad coalition of more than 30 groups, including the Southland Regional Assn. of Realtors, the Valley Industry and Commerce Assn., the Hollywood Chamber of Commerce and the Greater Los Angeles African American Chamber of Commerce. In all, about 30,000 business are represented.
The chamber is using this diverse group to push for a wide range of economic issues, including the business tax overhaul and a November ballot measure supporting state funding for embryonic stem-cell research.
Among its tactics: orchestrating letter-writing campaigns among chamber members and urging them to contact their council representatives directly. Huffman has been known to pick up businesspeople at their places of work and drive them to City Hall.
“We’re all saying the same thing now,” said George Kieffer, an influential attorney and political veteran who serves as chairman of the chamber’s board. “Politicians are recognizing us as a constituency.”
Pressure for change is coming from other quarters as well. In September, Local 347 of the Service Employees International Union, which represents 10,000 city workers and is the most powerful city employee union, said it was backing business tax reform, which it sees as a job-creation issue. The Writers Guild of America and the Screen Actors Guild also have expressed support.
If there’s a potential deal breaker, it’s the city’s looming $330-million budget deficit. The city estimates that it will collect $385 million in business taxes this year, and finance officials have forecast that the primary reform proposals would drain about $95 million a year from the $5.3-billion budget.
Backers of tax relief such as City Council members Wendy Greuel and Eric Garcetti dispute those estimates, contending that business growth fostered by the reduced tax burden would itself generate new tax revenue.
Recycling savings from business tax relief is an argument that appeals to Esther Glaze, owner of Consulting Plus, an educational training firm she operates from her mother’s garage in South Los Angeles.
Her company brings in $25,000 a year, and the $100 a year in business taxes “isn’t much,” Glaze said. “But we could sure use that money for the business.”
