The City of Los Angeles’ gross receipts tax is a major obstacle to attracting and retaining job creators in the City.
That’s why the proposal by Mayor Antonio Villaraigosa and motion by the City Council to provide a three-year tax holiday for new businesses is an important step in the right direction. It also dramatically reinforces the need for comprehensive tax reform to encourage all of our existing businesses to retain and grow new jobs in Los Angeles.
Los Angeles has the distinction of having the highest gross receipts tax rate of all 88 cities in L.A. County and one of the highest of any major city in the United States. In our information-driven economy where customers are as likely to be overseas or across the country as they are to be next door, many businesses are very flexible about where they locate their offices.
This has created an environment where entrepreneurs looking to start a business can locate anywhere and established L.A. businesses are recruiting targets for other states.
The proposal under consideration calls for a three-year moratorium on paying any gross receipts taxes for new businesses that choose to locate in Los Angeles. Currently, the City offers a two-year moratorium for new businesses that gross less than $500,000 per year. The motion would eliminate that cap and make any new job creator eligible. An analysis by the University of Southern California
concluded that this tax change would be revenue neutral initially and quickly lead to an increase in revenue as a result of the new jobs created in Los Angeles.
The timing of this proposal coincides with the Business Tax Advisory Committee’s (BTAC) work on broader tax reform. Created by the L.A. City Council late last year, BTAC is comprised of nine tax experts who are studying how to fix a very onerous system. The committee’s preliminary recommendations call for an across-the-board tax reduction to bring Los Angeles in line with neighboring cities. Another recommendation is to streamline the City’s tax administration process which according to the committee resembles the IRS of the 1980s rather than a conduit for economic growth.
While cutting taxes during a city budget deficit may sound counterintuitive, the 15 percent reduction adopted four years ago actually increased revenue for the City. History shows that the BTAC recommendations could be the shot in the arm that Los Angeles needs to get its finances back on track. The more businesses that locate and expand in Los Angeles, the more jobs, tax revenue and overall economic activity will result. In a city that has 50,000 fewer jobs than in 1980, this would be an important step in the right direction.
We encourage City Council to act on this tax holiday for new businesses as soon as possible. At the same time, let’s move forward on the BTAC recommendations, which will help us fix the system for thousands of businesses who already invest in Los Angeles. When that happens, it will be clear that Los Angeles is willing to fight to retain the jobs and job creators in our community.