Proposed entertainment tax dubbed illegal: attorney cites case law; lobbyists converge on City Hall.

Proposed entertainment tax dubbed illegal

Attorney cites case law; lobbyists converge on City Hall

An attorney for an entertainment industry coalition says a tax proposed by the Los Angeles City Council on such things as movie tickets and baseball games is unconstitutional, and she has the California case law to prove it.

But that hasn't stopped legislators in California and Nevada from introducing bills proposing similar statewide taxes, said attorney Lisa Specht, who is concerned that such a tariff in the country's entertainment capital could set loose a surge of these laws across the nation.

Specht, an attorney with the law firm Manatt, Phelps & Phillips, was hired this month to head the lobbying effort of a coalition of entertainment firms and theater owners.

The City Council is favoring the 10 percent entertainment tax to help balance the city budget over a 10 percent tax on cable television proposed by Mayor Tom Bradley.

It appears the final decision on the issue may rest with Bradley, who has line-item veto power on any changes the council makes to his budget.

The council must approve its final version of the budget by June 1. Bradley then has five days to veto things, and the council has five more days to override his vetos. The council's recent vote to replace the cable tax with an entertainment tax was 8-4, two votes short of the 10 needed to override a mayoral veto.

Now it appears the tax issue could wind up in court, although Specht said she'd rather see the issue settled without a lawsuit.

Then she pointed to a 1986 California Court of Appeals case in which an admissions tax in Pleasant Hill was found to be unconstitutional -- a violation of the First Amendment right of free speech. It also has been argued successfully in court that cable is protected speech, although many states do tax cable television.

Specht seems especially concerned that other cities may take their lead from Los Angeles.

"Forty-eight hours after the council passed the motion, the State of Nevada introduced the same legislation. There is an 8 percent bill now floating around in Sacramento," Specht said. "This could turn into a nationwide tax on entertainment."

Both cable operators and the powerful Hollywood entertainment industry claim their customers simply can't afford one more price hike and will be forced to give up whichever form of entertainment is taxed. Both say the cost of their service (subscribing to cable or buying a movie ticket) has reached a business "threshold" point, or a point of diminishing return, at which price hikes mean significant loss of business. Both groups are lobbying hard at City Hall.

The entertainment industry has a petition drive going, and the Los Angeles Cable Operators Association has had a massive, public awareness advertising campaign going. Cable companies also turned out in full force for the last meeting of the city's Board of Telecommunications Commissioners.

At that meeting, association president John Gibbs said Los Angeles cable is in "a time of crisis, especially a crisis in terms of prices, in terms of jobs we can provide."

He said his company, Continental Cable-vision, has conducted studies that show if prices were raised $3 per month, 12 percent of customers say they would definitely drop cable, and 7 percent say they probably would. For every $1 of a rate increase, the company would lose $2 in revenue, he said.

Lance Drummond, president of the telecommunications board, pledged to meet with the mayor on the issue.

"I will not be a hypocrite and say I favor this tax after screaming about rate hikes," he said at the meeting.

The mayor said he opposes the entertainment tax because he believes movies and sports events are the entertainment of the poor, while cable television is a luxury. Bradley, said mayoral spokeswoman Val Bunting, believes poor people are "more likely to take their family out and go to the movies" than to subscribe to cable.

Statistics from the National Association of Theatre Owners show that the highest frequency rate of movie attendance in any demographic group is among teenagers, who account for almost half of all ticket sales. However, the theater association also said its statistics show that three out of four families with children go to the movies.

The cable industry said often the only entertainment the poor can afford is cable, especially in parts of the city where broadcast reception is poor.

It is estimated that the cable tax would generate up to $20 million annually, while the entertainment tax would generate $18 million, about 75 percent of which would come from movie theater ticket sales.