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Tuesday, Nov 28, 2023


By DANIEL TAUB Staff Reporter A long-awaited tax equity study billed as the means to stop businesses from leaving Los Angeles has been released to jeers from business advocates who said it is long on jargon and short on solutions. The study offers multiple scenarios for rewriting the city’s business tax code, but leaves it to city officials to ask for further analysis of up to 25 different tax scenarios. “We’ve waited close to two years for this tax-equity study that tells us that if we want any recommendations, they could study some more,” said City Councilwoman Laura Chick, who represents the West San Fernando Valley. “That’s frustrating, to say the least,” Chick said. “I didn’t need to wait two years to find out that we have an overly complex tax code.” Chick is trying to stop five health maintenance organizations from leaving the city by revising what the HMOs claim is an unfair tax rate. Four of the five Blue Cross of California, CareAmerica Health Plans, Health Net and Prudential HealthCare, are based in Woodland Hills. The fifth, Maxicare Health Plans, is based downtown. The $331,000 study, formally known as “The Competitiveness of City Taxes and Fees,” was prepared for the city by a consortium composed of UT Strategies Inc., Arthur Andersen LLP, Landmark Partners and the Milken Institute for Job and Capital Formation. David Naney, a senior tax manager with Arthur Andersen who worked on the study, said the recommendations were detailed particularly the suggestion to create five new tax categories. “We gave them three clear recommendations of what you can do,” he said. “The first option is the one we were pushing the hardest.” Naney said city officials had become too dependent on the study without knowing exactly what it would include. “The study became like the Holy Grail,” he said. “The tax structure in Los Angeles is incredibly complex. There’s a lot of details we couldn’t get our hands on.” Larry Kosmont, president of Kosmont & Associates Inc., a firm that surveys tax rates in various cities, said business interests had hoped the study would recommend clear-cut solutions that could be implemented quickly. With the study falling far short of that, he said, L.A. now risks losing more companies to competitor cities. “Now we’re looking at more work, more analysis, which means more time,” Kosmont said. “The exposure increases with the amount of time it takes to restructure the business tax program.” The city’s current business structure contains 64 different categories with a tax of between $1.18 per every $1,000 in gross receipts a company brings in, and $5.91 for every $1,000 in gross receipts. The study offers three suggested tax structures to replace the current one: – a gross receipts tax with five tax categories with rates ranging from $1.30 per $1,000 in gross receipts to $4.90 per $1,000; – a gross receipts tax with a flat rate of $2.65 for $1,000; and – a payroll tax with a 1.1 percent tax on payroll. The study’s lack of conclusions did not surprise Michael Gagan, a Rose & Kindel lobbyist who is representing the five HMOs that are negotiating a change in their business tax rate with the city. Gagan said he does not expect any overarching change in the city’s tax structure to come from the report because he thinks elected officials fear that any alteration would hurt the city’s revenue stream. “What I am struck by is the deafening silence by which the report has been received by the city,” Gagan said. “It’s like nobody wants to embrace it and take the initiative to run with it.”

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