By HOWARD FINE
Legislation that would exempt home-based writers and other creative artists from local business taxes passed the state Assembly last week, over the strenuous objections of local cities and business groups.
The legislation AB 83, authored by Assemblyman Tony Cardenas, D-Sylmar would apply only to cities in L.A. County and especially targets the city of Los Angeles. Two years ago, the L.A. City Council required home-based writers to obtain business permits and start paying business taxes of $5.91 per $1,000 in annual gross receipts.
The bill now goes to the state Senate, and could be on Gov. Gray Davis' desk later this summer. If it passes, the legislation would ease the tax burden on tens of thousands of writers, actors, musicians, directors, editors and other entertainment-industry artists in L.A. County.
But the Cardenas bill would also deprive the city of L.A. and the other 87 cities in the county of several million dollars in tax revenues. Proponents say that another measure now working its way through the Legislature would more than offset any revenue losses by allowing cities access to state tax files to hunt down businesses that currently escape local detection. That measure, AB 385, authored by Assemblyman Wally Knox, D-Los Angeles, also passed the state Assembly last week.
The California chapter of the Writers Guild of America, which last year had pushed unsuccessfully for a local business tax exemption and is again pushing this year, says tax relief is necessary because the region's major studios no longer treat writers as full-time employees. Rather, writers have become independent contractors who no longer receive benefits, said Mark Ryavec, a consultant to the Writers Guild.
"In the entertainment industry, we've seen a change in employment practices from a studio system to a floating labor pool," said Ryavec. "Yet cities like L.A. are treating these employees as full-fledged businesses, even though they are really employees who have been denied benefits people who are struggling to make ends meet."
L.A. officials and local business leaders see the issue differently. They see the bill as an attempt by one industry to exempt itself from paying local business taxes and fear that other industries might follow that lead.
"If you start exempting groups of people from paying business taxes, then who's going to be next? Will it be software writers?" asked Jerry Jeffe, legislative manager with the Los Angeles Area Chamber of Commerce. "As it stands now, more than one-third of all businesses don't pay business taxes in the city of L.A. (because they escape detection). That places an unfair burden on the rest of the businesses who do pay their business taxes. If you start exempting groups, it makes this burden even more unfair and will discourage people from locating their businesses here."
Furthermore, Jeffe said, the Cardenas bill could delay the effort to reform the city's antiquated business tax system. It would not only result in a revenue loss, but could also lead to uncertainty over future revenues if other industries decide to pursue exemptions.
L.A. city officials also oppose the bill, in part, because they believe the power to determine which businesses pay local business taxes should lie with City Hall, not Sacramento.
"It's the wrong way to do tax policy to have special interests pay lobbyists to change local tax codes in Sacramento," said Deborah La Franchi, L.A. assistant deputy mayor for economic development. "It sets a precedent of industries circumventing the city by going to Sacramento, which could lead to very big revenue losses."
La Franchi noted that under the current business tax reform proposal, home-based writers would get the biggest tax cut of any industry: a 70 percent cut from $5.91 per $1,000 in annual gross receipts to $1.70. Also, she said, any business taking in less than $5,000 a year in revenues would be completely exempted from business taxes under the proposal.
John Griffin, a spokesman for Cardenas, said that the bill would still allow cities to determine what activities constitute a business.
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