It's being billed as the largest tax cut in Los Angeles history.
But business leaders Tuesday said Mayor Richard Riordan's proposed overhaul of the city's antiquated tax system is more appealing for its simplicity than the prospect of whopping rate reductions, which are largely absent from the $23-million tax-relief plan.
Some advocates already are grumbling that the plan is merely symbolic, pointing to the proposed 8% reduction in the $290-million business tax burden as a drop in the bucket. Still, business watchers say symbolism is important for a city long perceived as hostile to its commercial residents. City officials estimate Los Angeles' business tax is 2 1/2 to 7 1/2 times larger than that of surrounding cities.
"It's not going to make Los Angeles the most inexpensive city in Southern California. Far from it," says Larry Kosmont, president of Kosmont & Associates Inc., which tracks the cost of doing business in more than 100 Southland communities. "But I think it sends the right message that the city is trying to clean up the code and make Los Angeles more business-friendly."
Speaking Tuesday before a downtown audience brimming with business leaders, Riordan outlined his plans to drag the city's 1930s-era business tax code into the next century. Essentially, the new code would whittle the city's existing 64 tax categories down to just eight. More important, businesses would calculate their entire tax bill using a single rate tied to their primary business activity, rather than paying multiple rates on different lines of business.
That seemingly minor change has huge implications for enterprises such as department stores, which currently must figure their taxes using as many as nine different taxing categories. It's a bookkeeping nightmare so time-consuming that some businesses have found that complying with the tax is more costly than the levy itself. Additionally, companies would be able to file taxes based on their own fiscal year, rather than conforming to the city's requirement that they file on a calendar year.
"These are very positive changes that should help many businesses add to their bottom line," said Barbara Rosenbaum, a CPA with Santa Monica-based Gumbiner Savett Finkel Fingleson & Rose Inc. "No one is going to make a killing with the tax savings. The administrative savings are the real benefit here."
A bound report of the mayor's plan calls for tax rate reductions in "virtually all industries" with some businesses seeing rate cuts as high as 80%. Most businesses would see only modest reductions, but some clear winners have emerged in the early going.
Among them are Los Angeles' newest and smallest firms. Start-up companies would be exempt from city business taxes in their first year of operation and companies with less than $5,000 in revenue would have to pay only a $20 filing fee. In addition, the minimum tax would be reduced to a flat rate of $75 for all categories, while the top tax rate would be reduced 9% to $5.40 per $1,000 of gross receipts. Small fry such as gardeners, who had been stuck paying the highest rates, have been reclassified to pay the lowest proposed rate of $1.20 per $1,000 of gross receipts.
Those changes would mean average tax savings of 14% for companies with fewer than five employees, and a 25% cut for the self-employed, according to the report.
"It's fantastic that the city for once is actually proposing to give somebody trying to start a new business a helping hand," said Steve Dworman, who publishes a newsletter from his Brentwood home. "If Riordan can get this passed, not only would I thank him, but I'd be happy to go mountain biking with him."
In addition, the mayor's plan offers fat rate reductions to businesses in key growth industries such as biotechnology and computers. Big sales tax generators such as car dealers would likewise reap substantial tax cuts, as well as old-line industries like apparel that employ significant numbers of workers but are feeling the pinch of offshore competition.
Garment manufacturers would see their average rates slashed 31%, with some contractors reaping reductions as high as 66%, according to Joe Rodriguez, executive director of the Garment Contractors Assn. of Southern California.
"We're thrilled," Rodriguez said. "We've been paying artificially high rates for years."
However, some industries would see their rates actually rise, most notably the motion picture industry. Long beneficiaries of a sweetheart agreement cut by the old movie moguls, production companies would face a maximum tax of $22,000 per film, up nearly 70% from their current ceiling. In addition, the city would begin collecting those fees upfront before issuing film permits, a compliance move estimated to funnel an extra $1 million a year into city coffers.
Riordan says he is confident he can get the film industry on board with his plan. But Jack Valenti, president of the powerful Motion Picture Assn. of America, is taking a more cautious view.