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.