LA "flying pretty blind" on elimination of business tax

Los Angeles City Councilman Eric Garcetti is working on a proposal to eliminate the city's gross receipts tax.
Los Angeles City Councilman Eric Garcetti is working on a proposal to eliminate the city's gross receipts tax.
Hector Mata/AFP/Getty Images

The timeline to eliminate the city of Los Angeles’ business tax has increased from five years to 15 years, and despite all of the reports on the subject, one Los Angeles city councilman today said they are “flying pretty blind” in creating the new policy.

Los Angeles businesses pay what is called a “gross receipts tax,” which is anywhere from $1.01 per $1,000 to $5.07 per $1,000 of sales, regardless of actual profit. The tax is frequently cited as an example of the city’s unfriendly business environment.

“One of the most striking statistics of our local economy is that the county of Los Angeles has grown in those 20 years in terms of the jobs it has produced. Los Angeles city has declined,” said Councilman Eric Garcetti at a meeting of the Jobs and Business Development Committee.

The Business Tax Advisory Committee has recommended eliminating the tax over a 15-year period, up from an original estimate of five years. The gross receipts tax represents about 10 percent of the city’s General Fund. In fiscal year 2008-09, the tax generated $453 million for the city.

Despite months of reports from BTAC, consultants and a USC professor, Garcetti said it is still unclear how much new business would be attracted to the city if the tax were eliminated.

“We’re flying pretty blind,” Garcetti said. “I think we’re flying pretty blind, but when we see the clouds … to me, some of the main predicates of all of this are quite flawed or don’t necessarily apply to us.”

Eliminating the gross receipts tax is just one initiative the city is pursuing in an effort to grow the local economy. Under the “business tax holiday,” companies that move into the city of Los Angeles can avoid the gross receipts tax for the first three years of operation. Last year, Mayor Antonio Villaraigosa announced new car dealerships will not have to pay the tax.

Councilman Bernard Parks, a member of the Jobs and Business Development Committee, expressed frustration that those programs hadn’t done more to attract new jobs.

“I don’t know if I would have voted for some of the tax breaks if I knew we were going to get so low a return in the city of L.A,” Parks said.

The gross receipts tax proposal will remain in committee for further discussion.