Tax Holiday is the Start of Real Business Tax Reform in Los Angeles

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June 29, 2010

Tax Holiday is the Start of Real Business Tax Reform in Los Angeles         

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.

And that’s The Business Perspective.



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Comments

Here is what tax holidays do for the community: http://www.cnbc.com/id/44769782 Absolutely nothing. Certain businesses will benefit by keeping more of their money at the expense of the LA City general fund. By losing 400 mil. a year, the City will be desperate and will eventually have to raise DWP rates, airport fees or simply borrow more money. The other option will be to cut LAPD and LAFD budgets. If this happens and I am a business owner - I am definitely not moving to LA. Also, businesses that could have outsourced, have already done so. The reason is not because of the business tax, but because the overall business model allows them to do it. If I am an internet business, I could be in China and still do the same amount of business in LA. Conversely, if I am a restaurant owner and I am doing well, I am not moving to Nevada just because of the business tax. To me, this is just a publicity stunt for special interests. Putting more money in the corporate pockets does not create jobs - the current presidency has proven it numerous times.
Posted by: LACitizen @ 1:53:00 pm
I believe comprehensive business tax reform in the City of Los Angeles is a must. As a veteran BTAC member, I know the committee faces a major challenge. It must work to make recommendations to the Mayor and City Council that shift their collective thinking while finding the right path to move the Cityâ??s business tax policy from being considered the worst in Los Angeles County. From my viewpoint, Los Angeles can no longer afford to maintain an uncompetitive environment for businesses; especially, small and middle market companies. We must push the reset button and make LA the first choice for any business to locate. We must go from WORST to FIRST!
Posted by: Micahel Banner @ 12:32:00 pm
Comprehensive business tax reform in the City of Los Angeles is a must and BTAC has a major challenge. It must work to make recommendations to the Mayor and City Council that shift their collective thinking and find the right path to move its business tax policy from being known as the worst in Los Angeles County to policies that create an environment where L.A. is the first choice for any business to locate. We must go from WORST to FIRST!
Posted by: Michael Banner @ 8:45:00 am
 

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