It was standing room only at City Hall as the council’s Ad Hoc Committee on Business Tax Reform approved a plan by a 3-0 vote that would result in $95 million in tax cuts for businesses across the city. Mayor James Hahn stopped by for the Oct. 28 vote to throw his encouragement behind the reform, saying it would bring more jobs to the city. In the Valley, business leaders are anxious to see what impact the plan’s breaks for the entertainment industry will do for the local economy. The plan would change the way in which production companies are taxed. The lower tax bracket for production companies would move from $50,000 to $2.5 million, and the upper bracket would move from $4.2 million to $12 million. Additionally, writers, directors and other entertainment industry workers would no longer pay gross receipts taxes provided they make less than $300,000. Both of the entertainment industry reforms would take effect in July 2005. Steve Caplan, senior vice president of the Association of Independent Commercial Producers said that the action sent a clear message to small and medium sized production companies that the city wants their business. “It’s a significant portion of our industry that would be affected and would benefit from this change,” said Caplan. “Production companies will be employing more crew members, renting more equipment from vendors and suppliers and taking up more hotel rooms.” Caplan said the AICP, which represents about 250 commercial production companies, was encouraged to see the entire business community get behind the reform effort. “Our industry and members are going to keep lobbying for this until it becomes law,” Caplan said. “We think that these are significant changes, and that they can have a real impact and send a real message that the city values industry and jobs and economic development.” The tax reform proposal’s next stop will be the City Council Budget and Finance Committee. The committee’s chair, Bernard C. Parks has said that he wants to proceed carefully in tax reform because of the revenue that the gross-receipts tax bring to the city. However, the committee is likely to approve the recommendations as two of its members, Councilmen Tony Cardenas and Greig Smith voted for the reforms on Oct. 28 and Eric Garcetti co-wrote the reform proposal with Wendy Greuel, who is not on the Budget and Finance Committee. Janelle Erickson, communications manager for Greuel’s office said that the councilwoman expects that the reform will pass through the city council before the end of the year. “She sees that there is really no reason why this should not pass,” said Erickson. “We have a proposal on the table that pays for itself and provides relief for business.” The reform would eliminate the city’s business tax on companies with less than $100,000 in revenues, about 61 percent of the businesses in Los Angeles. Those companies would be free of taxes starting in July of 2006 while smaller companies making less than $50,000 would see their taxes eliminated by July 2005. The reform would also change the city tax codes, eliminating most of the current categories that determine how much tax a business pays, leaving seven instead of 75. Businesses that make more than $100,000 per year would see a 15 percent reduction in their taxes starting in January of 2006. The reduction would come gradually, with tax rates decreasing incrementally each year, depending on how much tax revenue the city receives. Greuel claims that more business audits and business growth spurred by tax reform will generate enough revenue to cut taxes by 15 percent in five years. The first reform to take effect would be an exemption from business taxes on bad debt, starting on Jan. 1. The city-appointed Business Tax Advisory Committee supported the reform. “Speaking for BTAC, we were very pleased that the ad hoc committee moved forward,” said Mel Kohn, chairman of BTAC. “We’re very happy they moved forward prior to the Oct. 31 date, which we supported.” Several city business groups demanded that the city enact meaningful business tax reform before Oct. 31, and Kohn said that the approval of the ad hoc committee met the requirements of the deadline, despite the fact that the City Council has yet to approve the reform. “The concept of change is important,” Kohn said. “The message is very important to send out, that L.A. is open for business.”
