Two entertainment industry tax-reduction proposals, both part of a package originally intended to help lure DreamWorks SKG to build its headquarters at the Playa Vista site near Marina del Rey, are working their way toward the L.A. City Council.
The proposals would lower business taxes on certain types of entertainment and multimedia companies doing business in Los Angeles. Both are currently awaiting approval from the city Budget and Finance Committee, and may come before the City Council some time in February.
Both proposals would create new classifications for certain entertainment-related business activities.
The first proposal, introduced by Councilwoman Ruth Galanter, would reduce the tax on gross revenues from the licensing of characters and other creative content from films, TV shows and video games.
The second, a proposed ordinance also originally introduced by Galanter, would create a new, lower tax classification for businesses that sell multimedia products or services.
Businesses that create multimedia products and those that license creative products both are currently classified as “Professions and Occupations” under the city tax code. Gross revenues for these activities are currently taxed at the City of L.A.’s highest level $5.91 per $1,000 in gross receipts.
The proposals would lower the tax to $1.18 per $1,000 in gross receipts.
Galanter said lowering the taxes is necessary to make Los Angeles competitive with neighboring cities, which have much lower tax rates on such activities.
She said that Venice-based Digital Domain, a multimedia company that is expanding rapidly and needs more space, has been wooed by Santa Monica. That city’s business tax rate is only $3 per $1,000 in gross receipts for multimedia entities.
“Digital Domain needs to make the decision whether to invest in adjacent property in Venice, (which is within the City of Los Angeles) or to move somewhere else,” Galanter said. “For obvious reasons, we’d like to keep them where they are.”
Taxes on licensing and multimedia activities in L.A. are among the highest in the county, in part because the tax code was written long before “multimedia” existed.
Glendale, Calabasas, Westlake Village and unincorporated parts of L.A. County have no business tax on these activities, while Burbank charges only $6 or $7 per employee per year, according to Steve MacDonald, director of L.A.’s Business Team.
It was L.A.’s relatively high business tax that prompted Vortex Media Arts Inc., a rapidly growing CD-ROM game developer, to move from Los Angeles to Burbank two years ago, according to Vortex co-founder Rick Giolito. Since moving, the company’s revenues have increased tenfold, and its staff has grown from eight employees to 35.
“If this tax reduction goes through, we can now consider Los Angeles as a place we can move back to,” Giolito said. “It was not an option until this happened.”
Mayor Richard Riordan is a strong proponent of the tax-reduction proposals, and last week he sent a letter to the three members of the Budget and Finance Committee urging them to approve and pass the proposals to the full City Council.
Riordan took the action because Councilman Mike Feuer, a member of the committee, has questioned whether the proposals should go to an immediate vote. Instead, Feuer has proposed that they be considered as part of an overall study of the city’s tax code that is now under way.
Both tax-reduction proposals were originally drawn up by the City Council in December 1995. They were part of a set of reforms proposed by government officials to help lure entertainment companies, and especially DreamWorks, to Los Angeles.
Riordan, in his letter, said a study has shown that passage of the proposals would reduce the annual tax intake by only $560,000, out of a city revenue base of $270 million.
“This small budget hit will be more than made up over time by retaining and attracting firms that otherwise would not locate in the city,” Riordan wrote.