BUSINESS GROUPS BACK TAX REFORM; MAYOR'S PLAN PRAISED BUT COULD FACE DELAYS.

Byline: Rick Orlov Daily News Staff Writer

Mayor Richard Riordan's call for a sweeping overhaul of the city's business tax system drew strong support Tuesday from economists and the business community, but others may resist putting it on the ballot in June, when voters will consider charter reform.

The proposal to reduce 64 tax categories to eight, provide an 8 percent or $23 million cut in business taxes and increase the number of firms paying taxes was formally released at an early morning event in the downtown offices of Royer Studios.

``Royer Studios was one of the multimedia firms that benefited when we changed their tax rate,'' said Riordan, who stood on a podium with the slogan ``Tax Reform 1999'' on a purple and gold banner.

``Our present tax system has turned business away and discouraged others for too long,'' he said. ``We need a tax system that will encourage businesses to stay in Los Angeles, to move to Los Angeles, to create the high-paying jobs we need.''

He said his proposal, if approved by voters, would result in the largest tax cut in city history. Voter approval is needed because of Proposition 218.

In addition to reducing the number of tax categories and the tax rates, Riordan's proposal would exempt businesses grossing less than $5,000 a year from paying the tax and give new businesses a one-year exemption. Riordan said increased compliance by older businesses and an increase in new businesses, each paying after a year, would offset revenue losses from cuts.

He also proposed increasing the maximum paid by the film industry for a major production from $12,700 to $22,370.

City Council President John Ferraro said he will appoint an ad hoc committee of five members to review the proposal, but he said he would have some concerns about placing it on the June 1999 ballot.

``Both (charter reform) commissions have asked me to keep the ballot fairly clean of other issues so there could be a focus on the reform issue,'' Ferraro said.

Erwin Chemerinsky, chairman of the elected Charter Reform Commission, said commissioners are concerned that a city tax measure on the ballot could distract voters from the charter reform issue.

``We think it's important the June election focus on charter reform,'' Chemerinsky said. ``We worry that the more that is on the ballot, there is a greater chance of confusion.''

Riordan spokeswoman Noelia Rodriguez said the mayor doesn't believe the tax measure would distract attention from the charter reform issue.

``The voters will be able to deal with both issues,'' Rodriguez said. ``In fact, you could make an argument that having charter reform and tax reform on the ballot, particularly with the support from business, could drive up turnout.''

Because there will be no citywide races and perhaps only one City Council runoff - for the 7th Council District seat vacated by state Sen. Richard Alarcon - turnout is expected to be low.

In 1995, at the last such election, there was a 14 percent turnout. In 1991, the turnout was 19 percent.

Councilman Richard Alatorre, who worked with Riordan on the tax proposals, said he is confident that, with only some modifications before being placed on the ballot, they would be approved by the voters.

``These proposals are good for the city,'' Alatorre said. ``For years, we have heard the city isn't friendly to business. This makes us competitive.''

Several council members said they have been briefed on the tax reform plan and welcomed the proposals.

Some, including council members Laura Chick, Mike Feuer and Joel Wachs, said they wanted more details.

One aspect likely to draw protests is Riordan's proposal to keep a tax on writers and artists working in their homes, although at the lowest rate of $1.20 per $1,000 gross receipts.

Writers and artists say they believe charging them a business tax for doing creative work in their homes may violate their First Amendment rights. Riordan said he understands the concerns and is open to discussion.

``You could make an argument that if they were working at a studio on a script, they wouldn't be paying these taxes,'' Riordan said.

His proposals drew enthusiastic support from business organizations.

``This is something we have eagerly awaited,'' said Carol Schatz, president of the Central City Association of downtown businesses. ``The results of these studies show business has been the major taxpayer for the city, and if we want to remain competitive we need to make these changes.

``The business tax system now is Byzantine and has to be changed.''

Steve Lew, chairman of the Valley Industry and Commerce Association, called it a step in the right direction.

``Meaningful simplification can be very beneficial to all companies,'' Lew said. ``When you have a tax cut of this magnitude, it is moving in the right direction.''

VICA, however, would have to review the proposal before taking a formal position, he said.

Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County, praised the proposal as long overdue.

``This is an important step in sending out the message that Los Angeles is open to business,'' Kyser said. ``It also helps make the city more competitive with its neighbors and, one hopes, will bring business back to the city.''

As for the changes affecting the entertainment industry, Cody Cluff of the Entertainment Industry Development Corp. said studio personnel understand the proposals.

``Although there will be an increase for the big productions, there will be no change for the smaller films,'' Cluff said. ``That's where we're concerned and where there has been some loss of production.''

Larry Kosmont, who produces an annual guide on the cost of doing business in cities and has been critical of the Los Angeles tax structure, called the Riordan plan an important first step toward reform.

``It sends two messages: one, that Los Angeles is willing to simplify its tax codes and, secondly, there is a small tax reduction. Both of these are good messages,'' Kosmont said.

``It doesn't mean that Los Angeles will become a bargain city in which to do business, compared with its neighbors, but it's a start. What we have to see is the City Council get behind this and not abandon business.''

If the tax reform is successful, Kosmont said, the city should look for other reductions in the future.