L.A. Ranks First in State With Highest Business Taxes

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L.A. Ranks First in State With Highest Business Taxes

By CONOR DOUGHERTY

Staff Reporter





Business taxes in Los Angeles remain the highest in the state, potentially handicapping the city’s retention and development efforts, according to an annual tax rate survey released this week by Kosmont Cos., a real estate consulting firm.

Taking into account the cost of utilities, utility taxes and business taxes, the survey ranked Los Angeles as more expensive than both San Francisco and Oakland. L.A.’s business taxes also exceeded those of other municipalities in the county.

“We are still the most costly place to do business,” conceded Jonathan Kevles, director of Mayor Hahn’s business team.

Even such expensive locales as Beverly Hills and Santa Monica were found to be cheaper to do business, at least on the basis of taxes. The least expensive cities in the county are Santa Clarita, Lancaster and Carson.

These smaller communities have an advantage in seeking to lure business with lower fees and licenses. Other tactics include playing up streamlined bureaucracies that expedite licensing and permitting.

It’s an approach, said Larry Kosmont, president of Kosmont Cos., that plays to the desire of many businesses, especially the large, national chains, to take a “time is money” approach to development.

While Los Angeles remains at a disadvantage in its tax structure, Kosmont said taxes are not the sole component in determining business development. Businesses generally weigh factors such as rent, location, workforce and security before taking into account the cost of business taxes. So, for example, a major law firm might still prefer to operate downtown, even though taxes are higher.

Still, said Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County, the effect of taxes cannot be discounted. “Right now, when you have business profitability under siege, (the cost of business taxes) becomes a bigger issue,” he said.

The Kosmont survey noted several years ago that smaller communities were competing successfully against larger, well-established commercial centers. The phenomenon was attributed in part to Los Angeles’ gross receipts tax, which critics have said puts the city at a competitive disadvantage to neighboring communities that don’t have such a tax.

This year’s findings tend to support a recent proposal by the Valley Industry and Commerce Association to do away with the city’s business tax and replace it with alternative revenue sources. The proposal is being considered by a task force first formed by former Mayor Richard Riordan.

At present, the city estimates that 40 percent of local businesses are not in compliance with the gross receipts tax. Kevles said that if L.A. can increase the pool of businesses complying, the city could reduce the overall cost of doing business.

Power, wage factors

When the annual Kosmont survey was released last year, there was concern that the utility crisis would lead to large increases in the cost of electric power and natural gas. This was especially true in communities that rely on Southern California Edison rather than the municipally owned Department of Water and Power.

Where the city could see a leveling of the playing field with outlying communities is in legislation that has undercut those communities’ reliance on incentive-laden redevelopment zones to lower the cost of licensing, fees and in many cases assist in property acquisition.

California Senate Bill 975, which became effective Jan. 1, extended the definition of public works to include any project that received financial assistance from a government source, not just projects wholly funded by a municipal agency. The change requires businesses to pay workers “prevailing wages,” which the survey said are “loosely defined but almost always well above the minimum wage.”

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