How can the Los Angeles City Council keep hundreds of professional careers here in Los Angeles while creating opportunities for thousands more jobs? Make it easier and more attractive for Internet-based companies to do business in our community. Next week, the Council will consider a Chamber-supported motion to do just that and we urge them to act quickly.
The problem is that the city’s business tax code does not include a category for Internet-based businesses. As a result, these companies often select “Multimedia” as the tax category which best fits their operations. Recently, the city’s Department of Finance notified some of these companies that they are being moved into a higher tax bracket and must now pay up to 500 percent more in gross receipts taxes. One firm’s tax liability would jump from $200,000 to more than $1 million per year. Another company is currently in litigation with the city over its reclassification, after winning the same court fight several years ago.
All of this is bad for business and our city’s economy. Hundreds of jobs are immediately threatened when these companies seriously consider moving out of Los Angeles. Internet-based companies would seem to be a perfect match for Los Angeles, but today many of these companies are exploring leases in other cities and states that don’t charge a local business tax at all.
Fortunately, Mayor Antonio Villaraigosa and City Council President Eric Garcetti understand the urgency to keep these companies here and attract new businesses to Los Angeles. Next week, the Council’s Jobs & Business Development Committee will consider creating a new tax category for Internet-based companies.
This action is a smart step. These Internet-based companies want to be in Los Angeles. It’s where their employees live. But the motion may still face an uphill battle.
During difficult fiscal times, some Councilmembers may be reluctant to vote for a new tax category at the lowest rate even though these businesses, under the new category, will be paying the same exact tax rate as in the past. It may be tempting to estimate the potential additional revenue from a higher tax bracket without accounting for the real likelihood that much of this tax revenue would disappear if these companies pick up and move.
We need your help today to send the message that the L.A. City Council should vote yes for jobs by adopting this new tax category for Internet-based businesses. The last thing Los Angeles needs is more job losses. It is time for action.
Gary Toebben is the President & CEO of the Los Angeles Area Chamber of Commerce. For more, visit Fox & Hounds Daily.