The City of Los Angeles has the highest gross receipts tax rate of all 88 cities in L.A. County — a distinction that also puts it among the highest of any major city in the United States. This, coupled with the fact that technology now allows businesses to locate almost anywhere, has left the City struggling to attract and retain businesses, jobs and tax revenue.
In 2009, at the urging of the L.A. Area Chamber and other business organizations, the City convened a Business Tax Advisory Committee (BTAC), similar to the one created in 2001 which recommended a 15 percent business tax reduction that resulted in job growth and more money for the City’s coffers.
Comprised of nine citizens, including several tax experts, BTAC was charged with making recommendations to reform the City’s tax code, and doing so in a way that is revenue neutral. The Committee went to work studying immediate and long term solutions to fixing the City’s draconian tax practices and changing the often complained about review processes used by the Office of Finance. Recognizing the stakes and implications for the City, BTAC and the independent economist selected by the City to assist the committee, researched many scenarios for reducing the gross receipts tax, including complete elimination.
The draft results of the study are in, and the bottom line is that it would be a trifecta for the City, unemployed workers and business owners if the gross receipts tax was completely eliminated. Estimates show that taking this bold step would create approximately 130,000 jobs and make up for lost revenue by generating millions of dollars in additional revenue from other City taxes. This one single act by the City Council could be the economic stimulus that our unemployed workers and city coffers are both looking for.
While elected officials and staff at the City review this initial study, Mayor Antonio Villaraigosa and City Council President Eric Garcetti have already indicated early support for eliminating the gross receipts tax. Much remains to be done to figure out the best way to phase in this much needed tax reform, but there is no question that the results of this study are positive and exciting. If we can reduce unemployment in Los Angeles and grow overall tax revenue at the same time by implementing BTAC’s visionary recommendations, everybody in Los Angeles will be a winner.