EDITORIAL : A NONTAXING DILEMMA; MAYOR'S BUSINESS TAX PROPOSAL APPEARS TO BE SMARTER, SIMPLER AND BETTER FOR THE CITY AND MOST BUSINESSES.

MAYOR Richard Riordan's proposal to overhaul the city's mind-numbingly confusing and staggeringly complex business tax code is as refreshing as it is long overdue.

For starters, it pares the 64 categories of taxes, covering all sorts of professional and business activities in the current code, to eight.

It reduces the overall tax burden on companies operating in Los Angeles by 8 percent a year, and banks on making up the difference through better compliance and an influx of businesses locating within the city's borders. The system now in use is so obscure that a retailer might fall into eight or nine categories and have to pay in each one.

``Many companies have nervous breakdowns trying to figure out which category they're in,'' said Riordan, explaining the need for reform.

Some business owners claim they have paid more to accountants to sort out the mess than they paid in taxes. Vast numbers of others simply didn't bother paying.

The code alone is responsible for some companies moving out of Los Angeles, and has been cited as a deterrent for others to relocate to the city.

In the past five years, Riordan diligently has tried to make Los Angeles friendlier to businesses. He has tried everything from marketing strategies to tax-free zones to empowerment zones to lure businesses into every section of the city.

But from the outset he knew that the best way to do it was to redo the tax system. And though it took five years for a task force of accountants and tax consultants to figure it out, Riordan has proposed what appears to be a simpler, more business-friendly tax code.

Remarkably, the proposal is laced with common sense - something that should be expected after several years of study.

For instance, gardeners, who were in the highest tax bracket with doctors even though many of them barely made enough money to eke out a living, are now in the lowest category.

The bottom line of the tax reform package is to encourage businesses to set up shop in Los Angeles, and not in neighboring cities like Glendale, Burbank, Culver City, Santa Monica and Beverly Hills.

The city collects $290 million in business taxes annually, which is near the top nationally, and a main goal of the new code is to keep the cash flow at or above that level.

Voters will have to approve the new system because it includes a tax hike for some companies. But before it is placed on the ballot for voters, the City Council will get a crack at it. And when lobbyists start knocking on their doors with baskets full of campaign cash, anything can happen.

Opposition is already bubbling within groups representing writers and artists, who claim any tax on their work violates the First Amendment. They were successful at getting the City Council to remove them from the city's home-business rules, and it's possible that the weak-kneed council will bow again to their demands.

This is one time we expect the City Council to act responsibly for the good of the city. Failure to help create a healthy business climate in Los Angeles ought to be enough for voters to give serious consideration to voting against incumbents in the April primary election.

Tax plan online

For the complete list of proposed categories and changes in the business tax code, visit our America Online site, keyword Daily News, or visit our Internet site at dailynewslosangeles.com.

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Box: Tax plan online (See text)