I was an early customer of Netflix. In late 1999, I signed up for its then-revolutionary service – DVDs of my choosing in the mail! I can keep them as long as I want! – and I was a happy customer.
But I wasn’t so happy a few years later when I saw an advertisement from Netflix touting new lower rates for those who sign up now. In other words, new customers were getting a better deal than old customers.
I asked Netflix to give me the lower subscription rate it was charging new customers. I got turned down. The discounted rate is for new customers only, the company said.
So, I thought, this is how Netflix rewards customers loyal from the beginning? It makes them pay more? I quit Netflix, never to return.
Of course, Netflix continued on as a successful company, even without the Crumpley account. I imagine the discount policy was effective; some M.B.A. probably had calculated correctly that the lower rate attracted enough new customers to more than offset the attrition from disaffected customers like me. Still, I can’t help but believe it would have been wiser for Netflix to do something – almost anything – to acknowledge and reward its existing customers. That way, Netflix would not only have brought in new customers, but it would have retained its old ones.
I bring this up because the city of Los Angeles lately has put out several press releases announcing businesses that are moving into the city, and each one reminded me of Netflix.
On Feb. 15, for example, the city announced that the BlackLine Systems accounting firm was moving its headquarters and 75 employees from Calabasas to the Woodland Hills area of Los Angeles. The press release said the company will enjoy the benefits of city’s new business tax holiday, which, among other things, gives the company a three-year exemption from L.A.’s gross receipts tax.
Then on Feb. 16, the city announced that Beverly Hills BMW was moving into the city limits – the first car dealership to do so in 25 years – and it will get the same three-year holiday from the gross receipts tax.
Early in the month, the city announced that the Gensler architecture firm with 250 jobs was moving from Santa Monica to downtown Los Angeles. Yes, it will get the three-year tax break.
Don’t get me wrong. This influx of businesses is a great thing for Los Angeles. What’s more, the city’s gross receipts tax is a good one to target because it truly is gross. Remember, that’s the tax that caused LegalZoom.com to leave Los Angeles for Glendale. (It’s a tax – and it can be a high one – on revenues, not profits, which makes it onerous for struggling firms.)
But the problem is a Netflix-like one. What does the city say to the existing businesses, the ones that have stayed in the city and have been paying the full gross receipts tax all along? Is there any reward for them?
Nope, you dope.
But if there’s any solace to it, maybe, just maybe, the effects of the city’s tax holiday will spark some change in the city’s tax stance. I mean, if the city’s policymakers look at the recent influx of businesses (and there are more than the three examples above), maybe it will really dawn on them how a relatively small change in tax policy can have an almost magical effect on business attraction. Someone must think, hey, if we dramatically lower the gross receipts tax on existing businesses, maybe the exodus of businesses will slow or stop.
Certainly, the city’s jobs czar, Austin Beutner, gets it. In an interview in the current issue of the Los Angeles Business Journal, Beutner said if there was one thing he could do to help the city’s business community, he’d lower the top rate of the gross receipts tax. That tax, he later told me, "is a terrible burden we’ve placed on businesses."
The city’s new three-year tax holiday appears to be off to a successful start in luring new businesses. And that’s great. Still, I can’t help but believe it would be wiser for the city to do something – almost anything – to acknowledge and reward its existing tax-paying businesses.
That way, the city will not only bring in new businesses, but it will retain more of its old ones.