Business Tax

Now that the Los Angeles City Council has done the right thing on charter reform, it should go for two in a row by placing another important item, business tax reform, on the June ballot. The city's business tax code system is not quite as convoluted as the existing city charter, but darned close. Right now, there are 64 tax categories, from a gross receipts tax on restaurants to a flat tax on bowling alleys. Several thousand companies fall into multiple categories.

In the debate over who should be the next mayor of Los Angeles, who would you suppose argues for elimination of a business tax to kick-start economic growth? Not the one-time investment banker who dropped out of the race early and says killing the business tax would leave a huge hole in the city treasury. Not the lone Republican in the field, who wants more modest business tax reform. Not a City Council fiscal hawk, also a candidate for mayor, who says cutting the tax could leave the city with a $400-million shortfall.

Acting on fears that a state proposition could make it difficult to raise local taxes after Nov. 6, the San Diego County Board of Supervisors voted Tuesday to enact a first-ever license tax for businesses in unincorporated areas. The new tax will cost each business, regardless of size, a flat rate of $100, plus $5 per full-time employee and $2.50 per part-time employee. However, Supervisor Brian Bilbray said the fee is certain to be reduced before the end of the year.

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.

The City Council approved a 4% reduction in business taxes in 2007, citing an increase in revenue during the current year. The reduction is part of a business-tax reform package passed in 2004 that is being phased in over five years when city revenue meets certain thresholds.

The city Office of Finance issued a revised report Thursday that indicates the city may be able to afford business tax reforms pending in City Council, including an exemption from the gross receipts tax for firms that earn $100,000 or less.

Business tax is going to be 10% of gross receipts. That is a big number! What is also "gross" is that the same package includes ". . . a doubling of a special levy that pays for trash trucks." New trash trucks with hydraulic arms are going to be bought to replace all of the present trucks under a new law that mandates use of 60-gallon trash containers. That must be more than a million containers that must also be purchased! Present trash collection is quite satisfactory, thank you. Why spend all this extra money on new trucks and back-breaking containers?

A City Council panel endorsed an ordinance Monday that would consolidate the 42 tax categories for businesses into nine as part of an effort to simplify the business tax system. The council's Budget and Finance Committee sent the ordinance to the full council for approval, also recommending that the business taxes be reduced by 4% across the board next year, as allowed for by previously adopted reforms, because revenue projections had been met.

The Los Angeles City Council gave final approval Tuesday to an ordinance that will allow more businesses to file their city taxes under one category, part of a larger effort to reform the city's cumbersome tax code. The measure, which passed unanimously, will allow businesses that receive 80% of their gross receipts from one form of commerce to file under a single tax rate. The change will result in lower taxes for about 11,000 businesses that now are taxed under a system of 47 categories.

Officials are considering a proposal to waive the city's business tax for new companies for a year and begin an aggressive marketing campaign to attract businesses that will increase the tax base in the financially strapped city. Councilman Mark Leyes, who last week advocated suspending the business operations tax, has also urged colleagues to exploit other conditions in the city that favor business growth.