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L.A. sales tax increase might hamper some businesses

The proposed half-cent boost, which would raise the city's rate to 9.5%, would be felt most by sellers of building supplies, a report finds.

November 09, 2012|By David Zahniser, Los Angeles Times
  • Los Angeles City Council President Herb Wesson said the good the sales tax increase would do for the city budget far outweighs any business lost because of it.
Los Angeles City Council President Herb Wesson said the good the sales tax… (Francine Orr / Los Angeles…)

A half-cent sales tax pushed by Los Angeles City Council President Herb Wesson could have a slightly negative effect on business activity, with the biggest impact felt by sellers of building supplies, according to an analysis released Friday.

Beacon Economics, a consulting firm advising Los Angeles leaders, projected a decrease in sales of up to 1.3% if voters approve the tax March 5, with no effect at all for restaurants, supermarkets and service stations. However, the sale of building materials — among the most expensive purchases — could decline as much as 3.9%, the report said.

Jordan Levine, an economist with Beacon, said that for the city, the benefits from the increased taxes would outweigh any harm experienced by Los Angeles' economy. But his firm also suggested the increase — which would push the city's sales tax rate up to 9.5% — could create a "border city problem," with consumers turning to adjacent communities with major shopping destinations and lower tax rates.

If the tax measure passes, Pasadena, Glendale and Burbank — each of which have bustling retail activity — would have rates lower than Los Angeles.

Los Angeles "must consider the possibility that if consumer spending is quite high in neighboring municipalities … consumers near those neighboring municipalities may choose to go outside of the city to spend," the report said.

The firm's findings did not deter the council's Rules, Elections and Intergovernmental Relations Committee, which unanimously voted Friday to endorse the tax. Stuart Waldman, president of the Valley Industry and Commerce Assn., a San Fernando Valley-based business group, worried that construction companies could look outside Los Angeles for supplies.

"If somebody's spending $10,000 to fix up a house, or several hundred thousand dollars to build a house, all that sales tax adds up," he said. "And if it's easy for them to make a five-mile, round-trip drive" to a city next to Los Angeles "then they will."

Jacob Montazeri, owner of All Valley Sand and Gravel in Sylmar, did not voice such fears, saying that buyers care most about whether they can get a product quickly, not the size of the tax rate. "There might be a higher cost to the customer but I don't think it's going to impact our sales dramatically," he said.

So far, business groups have not taken a position on the sales tax measure, which comes up for a vote Tuesday. A sales tax generating $216 million per year could see a decline from lost business of up to $7 million, leaving the city with $209 million, the report said.

Wesson called that loss minor last week, saying it pales in comparison to the good it would do for the city budget. A $216-million shortfall has been projected for next year and Police Chief Charlie Beck has warned that without the tax, the city could be forced to eliminate 500 police officers.

In its report, Beacon noted that a handful of other cities in Los Angeles County — including Santa Monica, Inglewood, South Gate, Pico Rivera, El Monte and South El Monte — have higher sales tax rates than Los Angeles. Levine also said the ballot measure would do little to drive Angelenos to other cities to buy cars.

Taxes on such purchases are levied at a rate based on the city where the car buyer lives, not where a vehicle is purchased, he said. "If you live in the city of L.A., you're going to pay [L.A.'s] tax rate no matter what, whether you go to Long Beach or Beverly Hills" for a car, Levine said.

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