HOWARD FINE
Staff Reporter
L.A. businesses would be able to switch to a new tax system immediately or keep their old rates for a maximum of five years under the latest version of tax reform taking shape at City Hall.
But getting all of L.A.’s 229,000 registered businesses to switch over likely will require further tax cuts enacted by the City Council, city officials say.
“We expect most businesses to transfer over immediately after the tax proposal takes effect,” said Deborah LaFranchi, assistant deputy mayor for economic development. “But some businesses would face tax increases if they switched. For those businesses, we will have to reduce the tax rates further so that no one pays more than they do now.”
That’s because in March, when the City Council approved a business tax reform plan, it stipulated that no business should have its tax rate increased. This altered the proposal put forward by Mayor Richard Riordan and council members Richard Alatorre and Mike Feuer, which contained modest tax increases for about one-third of L.A.’s businesses to offset some of the revenue loss to the city through granting tax cuts to the remaining two-thirds.
The revised plan is now in its final drafting stages and is due to be released at the end of the month, La Franchi said. If approved by the council, the plan would be phased in between Jan. 1, 2000 and Jan. 1, 2001.
The tax breaks in the plan will cost the city between $25 million and $30 million, La Franchi said. The Riordan-Alatorre-Feuer plan that went to the council in March contained about $16 million in tax breaks.
Under the revised plan, there would be eight business tax rates, instead of the current 64. And businesses would be able to pay their taxes at the end of their fiscal year, while the current system forces them to pay at the end of the calendar year.
The plan also contains a first-year exemption for start-ups and exempts completely establishments with less than $5,000 in revenues.
The proposal has been stalled for nearly two months while city officials waited for 1998 city tax data to replace the outdated 1995 data in the original plan, La Franchi said.
Because of the delay, the plan will not go back to the full council before its strongest council backer, Alatorre, leaves office on June 30. Alatorre, who is the outgoing Budget Committee chairman, worked closely with Riordan’s office to develop the initial tax reform plan, which was released last fall. Council President John Ferraro will name both Alatorre’s replacement to the committee and the new chairman next month.
“We’re at a very preliminary stage; this system has a long way to travel before it’s concluded,” said Feuer. “What’s most important is that we get a system that is good for the business community.”
Meanwhile, city officials and business tax reform proponents are focusing their efforts on Sacramento, pushing for passage of AB 385 by Assemblyman Wally Knox, D-Los Angeles, which gives cities access to business data collected by the state. The bill, they say, holds the key to enacting future tax breaks that will be needed to make the reform plan work.
“This bill will allow us to find more businesses that are now not paying into the system,” LaFranchi said. “That should generate more revenues, some of which can then be redirected toward tax relief for those businesses that would have faced tax increases under the new plan.”
The Knox bill cleared the Assembly this month and is expected to be taken up by the state Senate later this summer.
