SMALL BUSINESSES MAY GET TAX BREAK; PROPOSAL WOULD HELP LOW-INCOME FIRMS, HOME-BASED WORKERS.

Byline: Patrick McGreevy Daily News Staff Writer

Charging that the city's tax reform efforts have not given enough attention to small businesses, Los Angeles City Controller Rick Tuttle on Thursday proposed waiving business taxes for firms making less than $5,000 a year.

Also, Tuttle proposed cutting taxes for firms making less than $18,000 a year by two-thirds.

The two-pronged proposal probably would affect around 10,000 small businesses, many of them home-based operations that are protesting stepped up efforts to collect taxes from companies registering under a newly enacted home occupation ordinance, according to Tuttle's office.

``Rather than penalize those who are making the least, I believe we should give them a break,'' Tuttle said in a letter Thursday to Mayor Richard Riordan.

Businesses that make less than $18,000 a year - whether it is $50 or $17,999 - are required to pay a minimum business tax of $106.43, according to Tuttle.

Under that system, the effective rate for those making $5,000 would be 2.13 percent of gross income, compared to a .59 percent rate for those who make $18,000.

``This is, in my opinion, inequitable, regressive, inefficient, and should be changed,'' Tuttle said.

The controller proposed that firms that make less than $5,000 per year in gross income no longer would have to pay any business tax, while firms that make between $5,000 and $18,000 per year would pay a business tax of $30.

Tuttle's proposal received initial support from Joel Fox, president of the Howard Jarvis Taxpayers Association, who noted the state and federal governments reduce the tax burden on low-income earners.

``On the surface, I would say that is appropriate,'' Fox said.

Riordan, who is overseeing a current study of city tax laws, is open to new ideas, but Tuttle's proposal needs to be made part of the study so officials can determine its financial impacts on the city, according to Robin Kramer, the mayor's chief of staff.

``These are very interesting ideas, and certainly part of the goals of the restructuring of the cumbersome and complicated tax system is that it should not be discouraging businesses but encouraging them,'' Kramer said.