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Wednesday, Dec 6, 2023

Who Is a Manufacturer? Definition Undergoes Change

Follow the changes at Burbank-based Certified Thermoplastics Co. and you can literally see the ever-changing dynamics of the manufacturing industry of the San Fernando Valley. The company changed from an aerospace contractor to plastics producer over the past three decades, adjusting to changes in the world economy. Here in the Valley, as well as throughout the nation, the gradual erosion of traditional aerospace manufacturing has paved the way for the rise of the services and technology industries. That’s happened all across the nation and has been documented in the media, as has offshore outsourcing, the hot button topic during this election year. The latest twist in all of this, however, has to do with a definition of manufacturing. Just last week, the U.S. Congress passed legislation that will provide tax relief to manufacturers, lowering the rate by 3 percent, from 35 percent to 32, through 2010. The action, expected to be signed into law by President Bush, was an answer to a long-protracted scuffle with the European Union over U.S.-imposed taxes on foreign goods that was ruled illegal by the World Trade Organization. But under the JOBS Act, as the tax bill is called, who is a manufacturer? Within the answer lies the issue. According to the bill, the motion picture industry, the pre-eminent Valley economic sector that employs thousands and takes in billions globally, is a manufacturer. While that may raise eyebrows of traditional manufacturers, it makes perfect sense to Bert Sanchez, a professor of business at Pierce College and the director of the International Trade Center there. “In theory I can argue the motion picture industry is correct,” Sanchez said, immediately pointing out his conflict of interest. “We, the school, benefit because they film at Pierce” and fees paid to the school by the filmmakers provide extra funding to the college. Jack Kyser, the chief economist at the Los Angeles County Economic Development Corp., suggested the popularity of DVDs supports the motion picture industry’s claims. “Content is becoming very durable,” Kyser said. But Kyser stopped short of expanding the definition of manufacturing. In fact, he said that may not happen soon if ever. “Manufacturing is defined by NAICS (the national tax classification system),” he said. “Once you go through a major definition (change), it’s very painful and it is a very expensive process.” The obvious discrepancy in the latest tax bill will be especially noticeable to the ‘other’ entertainment industry in the Valley pornography. The JOBS Act does not count manufacturers of adult DVDs Valley companies such as Vivid Entertainment, Wicked Pictures and others as, well, manufacturers. High tech inclusion But, the bill does include the high-tech industry, and virtually all technology-related industry sectors. That was good news for Dimitri Nikouline, the president of Woodland Hills-based MuranoSoft, a software developer. Nikouline said he hasn’t even heard of the JOBS Act and is hasn’t considered its implications for his firm. But it’s a matter of time before he will. “Every year my tax accountant takes advantage of all the new laws that take effect,” Nikouline said. The reason why everyone from smaller firms such as MuranoSoft to mega-giants Disney and Time Warner are being considered manufacturers is inside the Beltway, on Washington D.C.’s K Street. The powerful lobbies for the entertainment and technology industries that take up office space there succeeded at swaying Congress to expand the definition. While whether or not its going to stay that way will be tweaked, LAEDC’s Kyser said, local government is having its own definition battles. The City of Los Angeles’ zoning department was having problems classifying the recently opened Northridge franchise of Edible Arrangements. The fruit basket and decoration store’s co-owner Patty Younan was “tossed back and forth between three different managers,” because they weren’t able to decide how to classify her business, she said. “We (don’t) manufacture wood, but we put together baskets,” Younan said. Further, she suggested that “one of the biggest problems that this law is going to have is if the city doesn’t know how to classify us,” it will be harder for new franchises to get the required permits to open up shop. “You don’t try to define (manufacturing) after the law goes in effect,” she said. “Define it, then explain it otherwise it creates a mess.” LAEDC’s Kyser said he expects a “shift in corporate strategy.” As the definition of who is a manufacturer changes, Younan imagined the extent to which it can go. “My son can be a manufacturer,” she said. “He manufactures broken toys all day.” The Jobs Act and the Valley The JOBS Act is expected to be signed by President Bush before the Nov. 2 election. Several Valley industries will be directly affected when it does. The bill will: -Expand the definition of manufacturing to include the motion picture industry and software developers, among others. Producers of porn films and other adult-themed goods were excluded. -Lower taxes on manufacturers by 3 percent, from 35 to 32 percent, through 2010, expected to save companies up to $100 billion.

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