L.A. Mayor Richard Riordan’s long-stalled business tax reform proposal could get a big boost this week from Sacramento, where a measure that would provide the financial underpinning for tax reform is set for a vote in the state Assembly.

The measure, by Assemblyman Gil Cedillo, D-Los Angeles, would allow L.A. and other cities to tap into the state income tax database to track down local scofflaws and collect unpaid business taxes. If it is signed into law, L.A. could realize an estimated $30 million to $60 million a year in additional tax revenue, enough money to pay for the broad-based tax cuts in the Riordan plan that was approved 14 months ago by the L.A. City Council.

The new revenue would not be used to pay for liability from the Rampart scandal, however. The City Council passed a motion last month specifying that at least 80 percent of the money be spent on business tax cuts.

Small portions of Riordan’s tax-reform plan are already being implemented, but the rest is in limbo, awaiting passage of the Cedillo measure.

Of course, if this all sounds familiar, it should; this is the third time such a measure has come before the state Legislature in the past three years. But this time, the Writers Guild of America has dropped its long-standing opposition, saying it has received assurances from the city that tax collectors won’t go hunting down the vast majority of screenwriters who work at home.

“The logjam could finally be breaking,” said L.A. City Councilman Mike Feuer, who chairs the council’s budget and finance committee. “This agreement is a very important breakthrough.”

Businesses have long been frustrated by the city’s arcane tax code and have been pushing to reform the system and lower rates for several years. The frustration was evident once again last week when Federated Stores of Cincinnati, which owns Bloomingdale’s and Macy’s, filed suit in Los Angeles Superior Court seeking $1.4 million from the city for allegedly discriminating against out-of-town business owners.

The suit claims that the city’s tax system unfairly exempts locally based manufacturers from paying certain taxes that those from out of town must pay. The legal action follows a $50 million judgment against the city in a similar lawsuit filed in 1998 by General Motors Corp. Since the judgment, other companies based outside L.A., including Eastman Kodak Co. and Vons Cos., have filed similar suits against the city.

The city made some changes to its business tax system after the GM ruling. At the same time, Mayor Riordan was pursuing sweeping business tax reform as a centerpiece of his second administration. But he saw his plan largely stalled by the City Council in March 1999 when it refused to grant the tax increases necessary to make the plan “revenue neutral.”

With those tax increases rejected by the council, the Mayor’s Office was forced to rely on outside funds to offset revenue shortfalls to city coffers that will be caused by lower business tax rates.

And that’s where AB 1492 comes in, said Rocky Delgadillo, deputy mayor for economic development. “It will allow us a significant amount of resources to lower the tax burden in L.A. and provide for simplification of the tax code,” he said.

No instant relief

Even if the Cedillo bill, known as AB 1492, passes the Assembly, it still faces what many say is its most significant challenge: getting support of Republicans in the state Senate who are wary of giving cities broader taxing authority. And Gov. Gray Davis has not yet signaled his position on the bill; last year he vetoed a similar measure.

And passage of the bill does not guarantee instant tax relief for L.A. businesses. In fact, implementation of the two most significant portions of the Riordan plan simplification of the tax code from the current 64 classifications down to eight, and an overall lowering of tax rates is still at least a year away.

It could take a couple years to hunt down and get scofflaws to pay up, and council members may not want to grant tax cuts until they see those revenues start to roll in. With the city potentially facing tens of millions of dollars a year in liabilities from the Los Angeles Police Department corruption scandal, general fund dollars are now regarded as off limits for tax cuts and even for many new services.

Also, a revamped tax reform plan is not expected to emerge until the fall, when a 19-member Business Tax Advisory Committee finishes studying various alternatives and makes its recommendation to the council’s budget committee.

“Right now, we’re looking for ways to simplify the tax code so that no business faces an increase in their taxes,” said Jack Walker, an attorney at the downtown law firm of Latham & Watkins and BTAC co-chair. “It’s an extremely complicated process that may not even be possible without AB 1492.”

In the meantime, business tax reform advocates have managed to push through a number of minor provisions. The most significant of those is a tax exemption for start-up businesses and entities with less than $5,000 in annual revenues. Feuer got those measures through the council last year, and offsetting revenues are included in the Riordan budget approved by the council this month. These exemptions start to kick in on July 1 and will be retroactive to Jan. 1, 2000.

Billing snafu

Also, a number of administrative changes are in the works, including tranferring responsibility for tax collection from the City Clerk’s Office to the Office of Finance created by the new city charter.

“Tax collection was always a stepchild in the City Clerk’s Office,” Walker said. “Through no fault of City Clerk Mike Carey, the department simply doesn’t have a whole lot of clout in City Hall.”

Due to that lack of clout, the City Clerk’s Office has been unable to secure sufficient resources to efficiently and thoroughly collect taxes. And that has resulted in some significant goofs. For example, the City Clerk’s Office a few weeks ago mistakenly billed an estimated 11,000 L.A. businesses that had already sent in their tax checks.

“This was a staff problem, when a new person came in and didn’t receive adequate training and sent out the mailers before the checking process was done,” Carey said. “It might have been avoided if we were not relying on a 1977 mainframe computer.”

The replacement for that outdated computer, a new system dubbed TAPS 2000, has been under development for years. The city has now completed much of that new system’s planning and development, and requests for proposals have been sent out to suppliers for the physical components of the system (software and hardware).

Once operational, TAPS 2000 is expected to greatly enhance the city’s ability to track down tax scofflaws and efficiently process tax collections. The system will be shared by the City Clerk’s Office and the new Department of Finance.

Another key change sought by the BTAC is the establishment of an outside review board to hear tax appeals from businesses. Walker believes such a panel could have prevented the Federated Stores lawsuit and similar suits that had been filed in past years.