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L.A. Story Needed a Happy Ending

Charles Crumpley
Editor of the Los Angeles Business Journal

The fight to keep LegalZoom.com in Los Angeles was a compelling story. After all, it’s refreshing and fairly rare to see City Hall work with business groups in a business-friendly way.

Los Angeles can seem numbingly inured to the routine in which businesses often leave the city because of high costs, while City Hall seems not to care. But about 18 months ago, when LegalZoom started making noises about moving, it was as if the community stood together and said, “No, not this one. Not this time.”

The Hollywood Chamber of Commerce, City Council President Eric Garcetti and the Mayor’s Office, among others, worked together for months to come up with a way to keep LegalZoom tethered to Los Angeles.

The group’s task was a clear one: They only had to figure a solution or a compromise to a high tax rate that LegalZoom and some similar Internet businesses suddenly had to pay.

The task may have been clear, but it wasn’t easy. To get the tax changed or reinterpreted, the group had to go through the city’s Office of Finance. That’s where the troubles began.

The group at first couldn’t get the office’s attention. Then it couldn’t get much action. Garcetti and the Mayor’s Office were helpful but seemed powerless to do much. Apparently the Office of Finance viewed this whole matter as a bother to be put off, not as a legitimate issue that deserved attention and resolution.

“It was death by delay,” said the chief of the Hollywood chamber, Leron Gubler.

Recently, a compromise ordinance was finally crafted – about 18 months after the issue came up. It basically said that if a company provides information directly to customers through the Internet, without “substantial” involvement from a person, then that company would qualify for a low rate on its gross receipts tax, one aimed at companies that sell over the Internet. But if its main business is providing substantial one-on-one advice, then the business would still be stuck in the much higher tax category, the one that’s aimed at law firms and the like.

LegalZoom and other similar companies that do business over the Internet seemed safe from new high tax rates. But Antoinette Christovale, the head of the Office of Finance, said at a public hearing recently that in her opinion this new ordinance would not entirely shelter LegalZoom, because it doesn’t just sell legal documents such as wills over the Internet but also provides some one-on-one guidance. Apparently, LegalZoom provides a bit too much customer service to suit Christovale.

All that work over 18 months or so was pretty much torpedoed by that one comment.

Now, there are several things she could have done. Since the new ordinance is really a matter of interpretation, she could have interpreted it to apply wholly to LegalZoom. Or she could have said that LegalZoom can enjoy the low tax rate under the new ordinance, but the city will look for ways to tighten up the ordinance to prevent it from becoming a big loophole. Most of all, of course, she could have jumped on this 18 months ago and given the company a speedy resolution.

Instead, LegalZoom has told its landlord it intends to move out when the lease expires in June. That means its 400 jobs will leave Hollywood. What’s more, the company already has announced it is setting up an expansion office in Austin, Texas. More lost opportunity for Los Angeles.

The Hollywood chamber is staging a last-ditch effort to keep LegalZoom. Who knows? Maybe it’ll work.

But the message is clear: Even when you get the mayor and the council president on your side, powerful city bureaucrats like Christovale are so hostile to business that you probably will lose anyway.

That’s why the fight to keep LegalZoom in Los Angeles has turned out to be a profoundly disheartening story.

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