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LA Daily News: The Valley Exposed: The adult film industry generates little tax revenue

Porn Valley- The 200 adult-entertainment companies operating in the San Fernando Valley rake in an estimated $1 billion a year, but little of that makes it into city tax coffers.

Tax exemptions granted to all types of movie production companies – including adult entertainment – allowed them to pay just $1.4 million in city business taxes last year, a fraction of the $435 million collected in the entertainment capital of the world.

And the porn industry is granted an additional tax exemption on sex toys, novelties and other products shipped out of state – up to 90 percent of some companies’ business.

“I’d say that’s a perverse outcome of Los Angeles’ tax policy,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

“Our preference would be for a local community or a state to treat all taxpayers equally and have an overall tax and regulation climate that is attractive to business. Because government should not be in the business of picking winners and losers.”

To be sure, the adult-entertainment industry pays millions of dollars in federal and state payroll, property and sales taxes. It also pays workers’ compensation and some firms contribute to 401(k) plans for their employees.
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But its contributions to business-tax revenue is negligible, said Terry Manocchio, chief of the tax and permit division in the city Office of Finance.

Adult studios can tap the city exemption for movie production companies that allows them to compute business taxes on costs, rather than higher gross-revenue figures that all other industries must use to compute taxes.

In 2005, the City Council also approved a measure designed to stem runaway film production that caps taxes at $145 a year on movie production costs of up to $2.5 million.

That would apply to most adult studios in the Valley since producers typically make 40 to 60 videos a year costing $20,000 to $40,000 each – or about $2.4 million.

But even if their costs are significantly higher, the council measure also caps the tax at $12,495 when annual costs hit $12 million.

Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., questioned whether the adult-entertainment industry needs such an exemption.

“I’ve never heard of a runaway (adult) film production,” he said.

The city’s tax exemption on exports dates back to at least the 1960s, when the city was trying to retain large export manufacturers like tire companies, Manocchio said.

Even though many of the manufacturers still left the city, the exemption was never lifted.

Now, any effort to lift it would have to be put before voters.

“It would be an increase in taxes and we would have to go to the ballot,” Manocchio said.

In all fairness, the aerospace industry also benefits from the exemption because many of its products also are shipped out of state.

But Manocchio notes that aerospace – unlike the adult-entertainment industry – still contributes to the city’s business-tax coffers.

“If you look at the tax from aerospace, there’s not too much because (the product) is all sent out. But there’s a lot of subcontractor support for aerospace – companies that make bolts, washers, hinge doors.

“And a lot of those people who supply those parts are contributing because those are taxed.”

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