Apple and Amazon are transforming Culver City. Should they pay more in taxes?

Inside the 8-year-old light rail station, Culver City Mayor Meghan Sahli-Wells gazed at the bustling skyline of this once sleepy Westside suburb known for movie studios, auto repair shops and affordable single-story homes for aerospace workers.

Everything has changed for this city of 39,000 people sandwiched between Los Angeles and Santa Monica. The mayor pointed to the north, where a five-story building with red trim is now being constructed — a future home for HBO’s West Coast headquarters.

To the southwest, the historic Culver Studios — a site that once was home to such movie productions such as “Gone With the Wind” and “Citizen Kane” — has been transformed by Amazon Studios since it started leasing space there in 2017. “All of it is Amazon,” she said, scanning construction several blocks away.

“Let’s face it. We’re kind of hot right now,” Sahli-Wells said. “There are a lot of major companies that are locating in Culver City. Especially as we welcome some of the wealthiest corporations on the planet, it would be appropriate to ensure that all businesses are paying their fair share.”

Culver City has become one of the fastest-growing digital media hubs in Southern California as Amazon, Apple, China-owned TikTok and other firms have expanded into the area, drawn to its location and movie history. The influx has brought thousands of new jobs to the city but also caused some growing pains. Now, Culver City officials are considering a tactic that Silicon Valley cities have pursued: raising business taxes to help manage the inevitable costs of growth.

If history is any guide, such a move could create tensions between the city and the towering tech giants reshaping it. Amazon and Apple have occasionally clashed with cities in other areas over proposed tax hikes or policies deemed unfriendly to their interests.

Colin Diaz, president of the Culver City Chamber of Commerce, said his members, which include Amazon and Apple, are “open to discussion,” but warned that some businesses may be forced to move.

“It will definitely cause businesses to leave,” Diaz said. “There would be a noticeable impact.”

Under the current tax, many businesses pay 0.1% to 0.3% of their gross receipts (depending on the industry type), while some companies pay a flat fee.

Discussions are in the early stages, however, and any increase would have to be approved by a majority of the council and by residents in a ballot measure.

The city hasn’t updated the tax since 1965, and has generated significantly less revenue than neighboring L.A., Beverly Hills and Santa Monica. A city committee has weighed various models for increasing business tax revenue, including one that would raise as much as $33 million annually, up from the annual $12 million, according to a presentation obtained by the L.A. Times. That hike, if implemented, would put Culver City in line with Santa Monica’s rates. On Wednesday night, a tax advisory group proposed a nearly $10 million increase.

City leaders say the extra money is necessary because it faces a projected $3-million operating deficit in its general fund starting in fiscal year 2023, mainly due to rising pension costs. By fiscal year 2029, that deficit is expected to grow to $6.8 million.

The financial crunch comes as the city must boost its housing supply in order to meet state guidelines. The city will need to accommodate 3,300 new homes over the next nine years. But that may not be enough to handle more than 7,300 new jobs the city expects to bring in by 2022.

TikTok says it could grow to about 1,000 people. Amazon’s staff is estimated to be 2,400 employees during 2021; HBO is expected to have 750 employees, and Apple will employ about 1,595 people once construction of its new building is completed, according to Culver City estimates.

“The real concern for Culver City, in this case, is that in many ways they’ve authorized these mixed-use developments ... without really understanding the bigger impact it would have on the city and the limits to the capacity of the train station, so now they’re in this trap,” said Kevin Klowden, executive director for the Center for Regional Economics and California Center.

Similar pressures have flared up in Seattle and the Silicon Valley, where rapid growth by technology companies has prompted cities to consider raising taxes to help pay for the growing demand on services.

While tech companies have been blamed for the surge in high-paying jobs that have driven up rents, cities have also been criticized for not prioritizing enough housing. In the San Francisco Bay Area, the prices of homes and apartments have soared to levels that many can’t afford, forcing some to live in their cars or park large RVs on city streets.

“We’ve gleaned lessons from big tech companies in other cities and we want to make sure that we’re learning those lessons and we’re moving forward in a positive and a productive way,” Sahli-Wells said.

In 2018, residents of Google’s hometown, Mountain View, passed a measure to dramatically increase the city’s typical $30 business license fee. The new fee, which is being phased in, would charge more for larger businesses based on employee headcount. For Google, the city’s largest employer with more than 25,400 workers, that will mean paying $3.6 million starting in 2022, money that the city says will go toward its transportation efforts.

“Mountain View has been blessed and cursed with the rapid growth of employment,” said Lenny Siegel, Mountain View’s former mayor who led the effort to increase the fee. “We really can’t handle much more employees given our housing and transportation situation. We already have too much.”

In recent years, large tech companies have pushed back on cities taxing them more based on the number of employees. In 2018, Amazon voiced its disapproval on a headcount tax in Seattle, suspending its plans to build an office tower until after the City Council’s vote. The council ended up approving the tax, only to repeal it shortly later.

In Apple’s hometown of Cupertino, city leaders in 2016 and 2018 explored a headcount tax only to have those efforts squashed by fierce opposition from business groups backed by Apple. Both Apple and Google have supported plans to address the Bay Area’s housing crisis.

“It’s not our taxes or regulation that is a threat to the companies, but their own growth,” said Siegel, who grew up in Culver City. “The companies are responsible for helping the community handle their growth.”

Culver City has a storied history in moviemaking. Its founder, Harry Culver, encouraged filmmaker Thomas Ince to move his studio from the beach to Culver City, which was incorporated in 1917. The city became known as “the heart of screenland,” where movies such as “E.T. the Extra-Terrestrial” and “The Wizard of Oz” were filmed.

Today, it is home to Sony Pictures Entertainment, the city’s largest employer with about 3,500 workers. But the city became more of a hub for streaming services when Amazon Studios moved into the historic Culver Studios in 2017, with plans to lease 530,000 square feet of the campus. Amazon also rents an additional 75,000 square feet at the Culver Steps across the street.

The company was drawn to Culver City’s long history and legacy of moviemaking, said Albert Cheng, Amazon Studios’ chief operating officer.

“Having our home here in Culver Studios represents what we see as our investment in this space, which is honoring (and building on) the legacy of the amazing history of what the studio has, (with) over 100 years of movie and television production ... and creating a foundation on which we can take the industry to the future,” Cheng said.

Other factors included the city’s central location, making it easier for employees to access, as well as its proximity to the airport and Amazon Studios’ partners such as agencies in Beverly Hills, Cheng said.

Cheng declined to comment on the city exploring an increase in the business tax. “The City Council will do what it’s going to do,” he said.

Apple joined Culver City after it purchased in 2014 streaming music firm Beats, which already had an office there. Since then, Apple has also leased space at One Culver and the Hayden Tract, and will eventually expand into a new office on Washington Boulevard. Next year, HBO’s West Coast office will move from Santa Monica to Culver City’s Ivy Station, inside a 240,000 square-foot-space.

HBO, Apple, TikTok and Sony declined to comment for this article.

The influx of Apple, Amazon and other tech and media companies has been a boon to local restaurants and other small businesses in the area.

Adam Guttentag, owner of Harajuku Taproom, said his pub on Sepulveda Boulevard has seen a roughly 20% increase in sales over last year, with more companies contacting him for holiday parties and happy hours. He declined to disclose sales figures.

“Overall, the development is a positive thing,” Guttentag said. “(It’s) a lot of good jobs, people with good disposable income. Those are people who enjoy fun dining experiences and those are all good customers for us.”

But the demand for office space from tech and media companies has driven up rental prices in Culver City at a faster pace than the rest of the L.A. metro market. Since the fourth quarter of 2010, rents for office space have increased 56% in Culver City, compared with 45% for L.A. County during the same period, according to CoStar Group, which tracks real estate trends.

Rising rents could make it harder for small businesses to absorb an increase in business taxes, forcing some to lay off workers or leave the area, said Diaz of the Culver City Chamber, which has representatives from Apple and Amazon on its board.

He said city businesses already contribute heavily to the city’s general fund.

“We’re not against the conversation of looking at a business license tax increase,” Diaz said. “We also would want there to be some restraint as far as spending.”

Ryan Patap, director of market analytics for CoStar Group, doesn’t think an increase in Culver City’s business tax will turn away large employers because they want to be closer to where the talent is.

“It doesn’t seem to me that it would upend fundamentals and change people’s decision making,” Patap said.

Sahli-Wells hasn’t said how much she wants to see the tax raised. That amount could depend on whether residents support a March ballot measure that extends a 0.5% sales tax until 2033.

“It’s a moment of growth — that’s what is happening right now,” Sahli-Wells said. “I don’t know how long it is going to last. I just want to make sure it goes smoothly.”