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Ordinance cuts business taxes for Internet-based firms in L.A.

The measure, signed by Mayor Villaraigosa at a Westside Internet firm, will affect an estimated 1,400 businesses. Some of them had threatened to move out of the city if the rate was not reduced.

March 22, 2010|By Phil Willon

Los Angeles Mayor Antonio Villaraigosa on Monday signed a measure to cut business taxes for Internet-based firms, many of which last year saw their tax rate jump from the lowest in the city to the highest.

The change, unanimously approved by the City Council on March 5, will affect about 1,400 businesses in Los Angeles.

Some of those companies had threatened to leave the city if the tax rate was not reduced. Villaraigosa signed the ordinance at the Westside Internet firm Shopzilla, one of the companies that had considered relocating.

"Not only is this ordinance good business policy, it is a proactive step toward increasing revenues and committing the City to long-term fiscal health," Villaraigosa said in a written statement. "We are sending a message loud and clear that Los Angeles will fight to keep good-paying and high-growth jobs in our city."

Council President Eric Garcetti, who wrote the ordinance, said the change was critical because Internet-based businesses by their very nature are nimble and can "pack up and move anywhere in the world very quickly."

During the council debate over the measure, some members expressed concern about making the rate change retroactive to Jan. 1, saying it would cost the city $3.4 million in revenue at a time when the city faces a $212-million shortfall. But Garcetti argued that the city stood to lose even more tax revenue if the companies left town.

"This change to our tax code will help us retain these businesses and the jobs they create," he said Monday.

The city's Office of Finance last year started to reclassify Internet-based firms into a higher business-tax bracket. Until then, Internet companies were considered to be "multimedia" businesses and subject to a tax rate of $1.01 per $1,000 of gross receipts. Under the new classification, they were placed in the "business and professions" category, which has a tax rate of $5.07 per $1,000 of gross receipts.

Under the measure signed Monday, Internet companies will be subject to the same tax rate as multimedia firms, the lowest rate.

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