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Tuesday, Sep 26, 2023

Flight of Firms From L.A. Not Always Fault of Business Taxes

Flight of Firms From L.A. Not Always Fault of Business Taxes By SHELLY GARCIA Senior Reporter When officials at Branam Enterprises Inc. moved from Chatsworth to Santa Clarita a few years ago, they weighed several factors where they and their employees lived, the cost of buying their own facility instead of renting as they had been doing and their space needs, much larger than the building they were occupying at the time. “For us, it was a matter of convenience,” said Leslie Tolle, marketing manager for the company’s West Coast operation. “I would say the tax situation really didn’t have anything to do with it.” Branam is not alone. Many of the companies that have made a move into the cities that surround L.A. in recent years say the Los Angeles city business tax that has garnered much attention and focus of late had little, if anything, to do with their decision. Rather, they cite a slew of reasons that range from the sheer availability of sites to accommodate their needs, proximity to where executives and employees reside, more attractive, newer buildings in well-planned business parks and even the weather as the more important determinants for their moves. Although the evidence is anecdotal, and it is difficult to separate such local concerns as the gross receipts tax, and statewide issues such as family leave laws and workers’ compensation insurance, from other operating issues, the laundry list of reasons provided by companies that have recently relocated suggests that underneath the business tax lurk far more difficult problems that will have to be solved if the city is to retain its business base. “We have to look at land in a different way and say how can we recycle this, how can we have higher quality growth in a developed urban area,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., “and it’s going to be very difficult.” This year to date, some 45 companies have relocated throughout the Los Angeles area, according to the LAEDC, including eight greater Valley-based businesses. Only three of those companies relocated from Los Angeles city locations in the Valley to surrounding cities. Some, such as Image Entertainment Inc., stayed within the city borders moving from one location in Chatsworth to another. Some, like Deluxe Media Entertainment, which went from Glendale to Burbank, moved from one incorporated neighboring city to another. And some, United Online Inc., for example, even relocated from an outlying city (Westlake Village, which does not have a business tax) to Woodland Hills, within the city’s jurisdiction. While it doesn’t include all of the companies that have relocated, the LAEDC list does suggest a more complex set of factors influencing these moves than the cost of doing business. Complex problems Officials working on the problem of business tax reform also recognize the multitude of underlying factors involved. “Anyone coming into the city or making a decision to leave the city will take all the factors you mention into account,” said Mel Kohn, managing partner at accounting firm Kirsch Kohn & Bridge LLP and chair of the Business Tax Advisory Committee working on reform. “My personal feeling is business tax can be a tie breaker, and that’s the whole point of business tax reform.” That may be true for a few companies. Thermal Research & Development, which designs and manufactures exhaust systems for race cars, moved from Winnetka to Lancaster late last year in part to get out from under the city’s business tax. But while Chuck Asher, president of Thermal Research, said he was happy to get away from the city’s gross receipts tax, he also noted that taxes were not the only or even the biggest reason behind the company’s decision. “We wanted a building of our own, and it wasn’t cost effective to do (in L.A.),” said Asher, whose company employs seven workers. “The largest motive was the price of real estate, but on top of that a real perk was getting away from the business tax as well as we were able to find a state Enterprise Zone to help out with some of the other costs.” A company that relocates to one of California’s enterprise zones is eligible for $33,000 in tax credits per year for each employee that also resides in the enterprise zone area. That proviso can save a company, even a small business, millions over the five years that these credits are available. But some areas within the city of Los Angeles are also earmarked as enterprise zones, and for many companies, costs are just one part of the equation. According to the Kosmont-Rose Institute Cost of Doing Business Survey, published annually by Los Angeles-based Kosmont Cos. in association with the Rose Institute of State and Local Government at Claremont McKenna College, the additional cost of locating a business in the city of Los Angeles versus Santa Clarita is $700,000 over a 10-year period. The survey considers utility and lease costs as well as business and other taxes. Larry Kosmont, CEO of Kosmont Cos., points out that the difference is far more dramatic for office users, who bear the brunt of the city’s tax policies five times the rate for industrial users. But he adds, “The decision matrix is not solely about business taxes.” Quality-of-life factors And for some employers, particularly those with industrial or warehousing operations, the added freight is not nearly as important as the savings in commute time and the quality-of-life benefits they associate with their moves outside the city of Los Angeles. When Branam made its move, the company’s general manager lived in Santa Clarita, but just as important, so did about half of the company’s employees. “They wanted to be closer to home, so that was another factor,” Tolle said. With the bulk of homebuilding in recent years pushing out into Santa Clarita, Simi Valley, Moorpark, Conejo Valley and Antelope Valley, more and more top executives at Valley companies as well as their workers are now commuting into the Valley floor, and as the population in these once outlying areas has grown, so too has commercial development, giving these companies alternatives they did not have before. But perhaps most important, these executives say, they were hard-pressed to find a property comparable to the sites they located in outlying areas. Such was the case when Brendon Bonnar, the president of Natural Oils International, a supplier of oils for products like beauty lotions, and Flexible Alternatives Inc., which manufactures shipping containers, began looking for a new location after Caltrans announced that the agency planned to take back the site the company occupied in Arleta. “We’d been looking at staying in the San Fernando Valley, but there was no new construction there that had the type of concrete tilt up with open space and clearance height that we could find that was reasonably priced,” said Bonnar. “So we expanded our search to include Simi Valley and Moorpark and Camarillo.” It wasn’t just the limited supply of properties in the Valley that influenced Bonnar’s decision to move to Simi Valley. Just as important was the ability to move to a well-planned business park that offered a better working environment, more amenities for the company’s officers and employees and even a climate that averages temperatures five to seven degrees cooler in summer than the Valley floor. “I’m looking at trees and mountains and it’s all neat and tidy and you don’t feel as if you’re all boxed in,” said Bonnar. “There’s a cool breeze blowing and it’s pretty pleasant. You don’t get that in the San Fernando Valley. It’s just blah.”

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