DANIEL TAUB Staff Reporter

When the Los Angeles City Council voted unanimously last week to slash the business tax for multimedia companies, it was the end of more than two years of pleas from the burgeoning industry.

Companies as large as DreamWorks SKG and Venice-based Digital Domain, as well as some so small they have since disappeared without notice, have complained that L.A. doesn’t treat one of the area’s fastest-growing industries fairly.

“We were screaming because the city wasn’t doing anything for our industry,” said William J. Manassero, executive director of the Software Council of Southern California, a Torrance-based trade association.

Last week, more than two years after Mayor Richard Riordan’s office first held a conference on the needs of the multimedia industry, the City Council voted 12-0 to approve an 80 percent business tax cut for the industry.

Multimedia companies operating in the city of L.A. will be taken out of the “Professions and Occupations” tax category the city’s highest business tax bracket, with a charge of $5.91 for every $1,000 in gross receipts.

They will be transferred to a new category with the city’s lowest business tax rate $1.18 per $1,000. The change is retroactive to Jan. 1.

The new tax category will include businesses that produce compact disks, software, films, tapes or other products that combine two or more media.

Companies that provide programming services to multimedia businesses such as software design and digital imaging services would also qualify for the new tax rate, as would companies that develop Internet services and World Wide Web sites.

Last week’s unanimous council vote was a victory long in coming.

In November 1994, the Mayor’s Office met with more than 100 leaders of the multimedia and entertainment industries to discuss their concerns.

“We talked and they put me on a task force a sort of multimedia task force that didn’t really do a lot,” Manassero said. “It had a few meetings and then sort of fell apart.”

But while the conference and subsequent task force were not considered a success, the formation of DreamWorks at about that same time brought new urgency to addressing multimedia companies’ concerns.

At the same time an incentive package for DreamWorks was being developed, L.A.’s Business Team, a business-development group formed by the Mayor’s Office, was receiving complaints from other multimedia companies about the city’s relatively high tax rate. That tax was leading them to consider relocating and expanding in other, lower-cost cities, such as Burbank and Santa Monica.

“It wasn’t so much groups coming to us, as lots and lots of individual cases,” said Steve MacDonald, director of L.A.’s Business Team.

The companies’ complaints were boosted by the draft version of a tax-equity study being circulated around City Hall this month. The draft study confirms that L.A.’s pre-existing tax structure placed it at a competitive disadvantage when competing for multimedia companies.

The study prepared by Landmark Partners and Arthur Andersen LLP cited Los Angeles as more expensive than any other local city or large, out-of-state city for multimedia companies to do business.

For example, while a multimedia company in L.A. prior to the tax code change would pay $5.91 per $1,000 in gross receipts, it would only pay $3 in Santa Monica, $2.15 in Seattle, $1 in Culver City and only a penny in Burbank.

The study, entitled “Competitiveness of City Taxes and Fees,” also stated that one-time development costs in L.A. would be $618,000, while the average cost in the other cities studied would be $335,000.

Complaints about those high fees led the Mayor’s Office and Councilwoman Ruth Galanter whose district includes the Playa Vista site where DreamWorks plans to build its headquarters to develop legislation to expand DreamWorks’ multimedia tax cut to all multimedia companies in L.A.

“The thing about the multimedia tax that brought it to a concenus was the DreamWorks deal. I think Ruth Galanter gets the major credit for doing that,” Riordan said.

Galanter and other council members said the reason the ordinance passed so easily is that L.A. multimedia companies which MacDonald said number between 750 and 1,000 are spread through the city’s 15 council districts. Also, the tax cut is only expected to result in a loss of about $560,000 in annual revenues to the city.

While last week’s decision was hailed by many in the industry, city officials admitted a tax change alone probably won’t immediately draw a large number of multimedia companies to L.A.

“It’s a key issue, but it’s one of many,” MacDonald said, adding that real estate issues, ease of obtaining permits and public safety also are important issues companies consider when deciding where to locate.

But the tax-rate change has convinced at least one company Cobalt Moon, which develops content for Microsoft Network and other companies to move from Santa Monica to L.A.

“One of the issues that came up is where we are going to get a better break,” said Matti Leshem, co-founder of Cobalt Moon. “We actually looked at a space, and we actually put a bid on the space, and we were hoping (L.A. city officials) would incentivize us.”

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