Council Gives Break to Small Businesses

By Olin Ericksen
Staff Writer

May 27 -- Profit took a back seat to promoting business Wednesday night as the City Council voted unanimously to give small entrepreneurs a local tax break expected to cost the City more than half a million dollars a year.

Any business that earns less then $40,000 a year will soon be exempt from a local $75 business license tax and penalties that have totaled in the hundreds to thousands of dollars, although the council upheld a one-time registration fee, which was reduced from $100 to $30.

The move, council members said, will hopefully foster a better business environment for new and small-time operators in Santa Monica, and follows the lead of cities such as Los Angeles in exempting small businesses from local business taxes.

“This is, I believe, a good first step,” said Council Member Kevin McKeown. “Forty thousand dollars is truly a small business, so there is an issue of economic justice in us doing this.”

The exemption is also expected to benefit many home-based businesses.

“If you consider storefront property and office rental costs in Santa Monica, you have to figure with forty thousand dollars gross, we are talking home businesses,” said McKeown. “You can’t have a store front with that kind of a gross.”

Yet for writers, producers and artists in the entertainment industry who do their work from home, the change does not go far enough.

Cheryl Rhoden, an assistant executive director of the Writers Guild of America West that claims thousands of members in Santa Monica, called the ordinance “a good first step,” adding that she was supportive of the change.

However, Rhoden also urged the council to raise the $40,000 threshold and follow the lead of Los Angeles, which by 2006 will give an exemption for all small businesses that make less than $100,000 and will eventually exempt those who earn less than $300,000 through “creative arts.”

“Our members are not businesses,” said Rhoden. “And they and many other residents of the city receive money reported to the Internal Revenue Service as (contract workers) and should not be the sole determining factor as to whether an individual should be cited a business tax.”

The move to give small businesses a break comes nearly six months after the Santa Monica launched an audit program that sifts through state income tax records to catch businesses that owe the City taxes and back penalties totaling hundreds to thousands of dollars.

The program -- legalized under a 2001 state law that give cities the right to review individuals’ state income tax records -- was protested by several small Santa Monica businesses who were hit by the tax and penalties.

Other entertainment guilds, unions and associations Rhodes spoke for include the Screen Actors Guild, the Directors Guild of America, the Film Musicians Secondary Market Fund, the American Federation of Musicians, the Recording Musicians of America, the International Alliance of theatrical stage employees, the Art Directors Guild, the American Federation of Television and Radio Artists and the Society of Composers and Lyracists.

“These individuals shouldn’t have to pay fees just because they live in Santa Monica and are looking for work,” said Rhoden, noting that many in the entertainment industry go through long periods without earned income.

Council members acknowledged that the ordinance needs to be changed in the future to address the specific concerns of those in the entertainment industry.

However, the staff report cautioned that any specific exemption given to the entertainment industry “will deprive that city of very substantial revenue.”