Oped/16″/dt1st/mark2nd By MEL KOHN The Los Angeles business tax reform proposal submitted by the mayor’s office should be viewed as the initial step to tax reform in our city. In analyzing the proposal, the Valley Industry and Commerce Association, representing businesses in the San Fernando Valley, asked three questions: Does Los Angeles need to be a more business-friendly city? Does the Los Angeles business tax system need simplification? And does compliance with the city business tax rules need to be greater? The answers by VICA were yes to all three questions. The status quo is detrimental to business in our city. The proposal sent to the Ad Hoc Council Tax Committee addresses the questions asked by VICA. Los Angeles’ goal is to attract and retain businesses. Tax relief will be provided to businesses throughout the city in the amount of $23 million, a positive for the business community. The present city business tax system is complicated and cumbersome. The proposal condenses the present 64 tax rate categories to six, and eliminates multiple tax rate categories by utilizing a primary industry code system based on a company’s Standard Industrial Classification (SIC). The proposal also points out that the city is losing at least 27 percent of its annual business tax revenue, which is approximately $75 million, due to underreporting and non-compliance. The programs recommended are positive steps to increase compliance. Through the proposed amnesty program, many non-filers will be in the system. Besides the additional first-year revenue generated, revenue in subsequent years will also be increased. The upgrading of the business tax computer system and plan to review the collection and audit process will also reduce lost revenues from non-filers. A benefit of simplification of the business tax categories will be a reduction in audit times for businesses and an increase in compliance audits. The proposal should make Los Angeles more competitive and offset a portion of the tax relief through increased compliance. However, VICA believes the proposal does not answer all questions of tax reform, and further evaluation of the tax rates must be done. This primarily needs to be done for the businesses that are currently using multiple tax rate categories and which would be condensed to one rate. There are other issues that need to be addressed in the near future. The next step should be to analyze whether a tax on gross receipts is the better method for raising revenue. The proposal does not address other types of city taxes or identify other sources of city revenue. The effect of business tax relief should not be measured only by the tax reduction. The tax savings to businesses will create additional working capital and income. These dollars, not all of which would be spent in the city, will be put into the economy, whether for consumables or payroll. I have followed the progress of the current Los Angeles business reform proposal for nearly two years, both in my role as a CPA and business advisor and as a member of the business community. The concept of business tax reform has been the goal from the beginning. However, questions now generated by the report may defer the plan being put on the ballot in June. VICA believes tax reform is a process and every process needs a beginning. The proposal provides for further study of Los Angeles tax reform by the formation of a business tax advisory group to shepherd the process of future tax reforms. These reforms are needed because for every business that does not come to our city or leaves, the loss of revenue is not limited to city business taxes. Other revenues such as utility user taxes and sales tax are also affected. The concept of tax reform will benefit the whole city, both businesses and residents. Mel Kohn is managing partner of Kirsch, Kohn & Bridge CPAs located in Encino and is co-chair of VICA’s Local Issues Committee.