BTAC Set to Send Tax Reform Proposals to Council By SLAV KANDYBA Staff Reporter Fourth District Councilmember Tom LaBonge and his staff walked on Riverside Drive in Toluca Lake last week and stopped at Shears Pleasure Barber Shop and Trader Joe’s to thank their owners for paying city taxes. This week, some of LaBonge’s colleagues will have an opportunity to begin chipping away and revamp that tax system, which has not seen revision in a half-century. At the council’s disposal will be recommendations from a committee that was created by the City Council specifically to draft tax reform proposals. Convened in 1999 and scheduled to be disbanded in June, the committee is scheduled to share its findings with the Council this week. “There’s basically four scenarios and they’re trying to take all the ideas and create logical progressions,” said Norman Huberman, a contractor law instructor at the West Valley Occupation Center and member of the Business Tax Advisory Committee. Tax reform has had overwhelming support and no known opposition in the Valley. Among business organizations, the Valley Industry and Commerce Association, Valley Economic Development Center, United Chambers of Commerce and ValleyVOTE have given their support to one of BTAC’s latest proposals. After years of deliberations, meetings and discussions, BTAC has boiled the proposals down into the mixed bag that pulls from ideas generated by a research firm, committee members, councilmembers and community members at large. “We’ll either recommend them (all) or a hybrid,” said Mel Kohn, chairman of BTAC and a CPA with Kirsch, Kohn and Bridge LLP. One of the proposals would change the city’s tax categories from 59 to five, and make them based on profitability, said Councilmember Wendy Greuel, who has been involved with the tax reform push and who wants the new tax system to be compliant with the North American Industry Code System, which the federal government uses. Currently, taxes are levied on gross receipts, which do not reflect a business’ profitability enough, Greuel said. She said she wants the new system to be “as simple and equitable” and have it as a “strategic investment in economic development” of the City and the Valley. BTAC members shaped the proposals based on recommendations made by MBIA MuniServices, a Fresno-based firm that specializes in municipality “revenue enhancement.” Although MBIA’s 169-page report released in January was returned by BTAC for more analysis, BTAC’s new proposals are essentially a reworked version with modifications. Told that it could not reduce or increase the tax base, which now stands at $360 million per year, MBIA came up with scenarios that were included in the report, said MBIA’s Director of Marketing Beverly Raine. “We came forward with recommendations based on the parameters we were given,” she said. On April 12, BTAC will discuss whether its own modified proposal will fly. In early March, ValleyVOTE endorsed this proposal, saying that it is “intended to reduce the overall business tax collections by at least 15 percent by 2010.” Essentially based on what’s referred to as the Greuel-Garcetti Amendment, BTAC’s proposal, if passed by the City Council, would install a gross receipts tax system with five tax rate categories, NAICS-based assignment based on industry ratio of net receipts to gross receipts, and other features. BTAC members and Greuel said they believe the new taxes will be “equitable.” Kohn said he felt MBIA’s recommendations were solid because they were done “without politics” and in a “political vacuum.” When BTAC’s recommendations finally enter the political arena of the City Council this week, an ad hoc committee composed of councilmembers Tony Cardenas, Greig Smith and Wendy Greuel will decide about what to present before the entire council. At that point, BTAC’s job will be done, Kohn said, culminating with a white paper and a disbanding before June. While there are plans to do away with the business tax eventually, they are being prolonged because of the state’s poor financial situation, Greuel said. If passed, the new tax system would be in place beginning with the 2006 fiscal year. Under the new model, every business now taxed at a higher rate than what it’s now taxed under will be brought to the new rate in five equal steps, according to BTAC documents. Meanwhile, small and medium businesses, which comprise about half of the tax base, will have an option of paying a flat tax of about $145 up to a certain number of gross receipts. But before that happens, BTAC and councilmembers say businesses that do not pay taxes on scheduled deadlines are standing in the way of productive tax reform. Kohn sees compliance and reform as going hand-in-hand one step further: “If we increase compliance, the increased revenue will help fund tax reform recommendations.”
