California business interests have begun to soften their wholesale opposition to tax increases as they face the deepening state budget deficit and the possibility that Democrats could find a way to raise revenue without Republican votes.

Key groups are now focusing their tax opposition on proposals that impact specific industries while remaining open to broad-based charges such as a temporary sales tax or vehicle license fee increase.

As major contributors to Republican causes, businesses could push GOP leaders to accept a deal with new taxes and spending cuts despite the legislators' long-standing opposition to any tax hike. Without immediate action, the state will not have enough cash next month to pay tax refunds or small companies that provide state services.

California Chamber of Commerce President and CEO Allan Zaremberg said this week that his group is "not opposed to all taxes" in the current budget environment.

"There's going to have to be a combination of revenues and real spending reductions," Zaremberg said. "But there are certain taxes that are going to hurt the economy worse than others, and those are targeted taxes that impact one industry disproportionately."

Zaremberg said the state chamber, which represents 16,000 businesses, opposes a proposed 9.9 percent tax on each barrel of oil extracted in California. It also opposes extending the sales tax to a number of services that the state currently does not charge, such as veterinary care, car repair and amusement parks.

Zaremberg and other business leaders have said any new taxes should instead be broad in nature. While he would not specify a particular proposal, his description could apply to the state's annual fee on motor vehicles or Gov. Arnold Schwarzenegger's temporary 1.5-cent sales tax.

"I think most businesses believe there will be tax increases as part of a final deal, so the question is, what's the formula?" said Joel Fox, executive director of the Small Business Action Committee and editor of the Fox & Hounds political blog. "Businesses have concerns about all taxes, I think that should be made clear. But we're working under the assumption that if there are taxes, how should they be levied?"

Democrats and gubernatorial aides believe Assembly Republican Leader Mike Villines moved toward that stance when budget talks began anew last week between both parties and Schwarzenegger.

While Villines insisted taxes were a last resort, he noted, "If you're going to raise taxes in California, it should be on something that would be fair and across the board, for everybody, in one fell swoop."

Still, most GOP lawmakers have taken no-new-tax pledges and could jeopardize their election chances should they vote for a budget with tax increases.

Republican legislators have suggested the potential for a trade that could provide some political cover. They want a permanent cap on state spending tied to inflation and population growth, as well as rollbacks in environmental and labor regulations for businesses and a more efficient state bureaucracy. Those trade-offs would require Democrats to make concessions that their core constituents oppose.

During the holiday break, business lobbyists were particularly concerned that Schwarzenegger negotiated alone with Democrats on a $18 billion majority-vote budget plan that used a controversial legal maneuver.

Schwarzenegger ultimately vetoed their plan. But the fact that he entertained their idea made businesses nervous about the possibility of enacting tax hikes on a Democratic majority vote rather than the two-thirds vote required in the state constitution. Businesses felt it would set bad precedent that Democrats might rely upon in subsequent negotiations.

Republican leaders boycotted those talks because they said the deal was unconstitutional. But that also meant Republicans had no say in which taxes the governor and Democrats were negotiating, which left business interests vulnerable. For instance, both Schwarzenegger and Democrats support the tax on oil extraction.

Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548.