L.A. officials are proposing to eliminate the city’s business tax on mutual funds.

Council members asked for a report on the matter after complaints by Capital Group Cos. last year. City administrators earlier this month came back with a proposal calling for the gross receipts tax on mutual funds with operations in the city to be phased out over three years. But a tax on fund management companies would remain if the proposal is adopted.

A City Council committee will take up the matter Tuesday. The proposal could go to the full council early next month.

Los Angeles is one of the only cities in the nation that taxes both mutual funds and mutual fund management companies. The gross receipts tax on mutual funds generates an estimated $8.4 million a year, while the tax on management companies yields roughly $12 million a year.

According to the Office of Finance, 44 mutual funds were operating in the city between 2008 and 2010; they are taxed at the highest rate of $5.07 per $1,000 in gross receipts. There were also 10 mutual fund management companies operating in the city during that period and they paid the highest rate.

Last year, the largest local mutual fund operator, L.A.-based Capital Group – the No. 1 company on the Business Journal’s list of local money management firms, in this edition – had raised concerns with city officials about the legality of imposing both taxes, calling it a form of double taxation. Also, since mutual funds are owned by investors, the company asked why an investor in Boston or Fargo, N.D., should have to pay a business tax to Los Angeles.

Council members Jan Perry, Greig Smith and Dennis Zine responded with requests for city administrators to craft a proposal to reduce taxes on mutual funds.

“The current taxing system has become overly burdensome,” Perry stated in her request. “We run the risk of being noncompetitive and of driving away high-quality professional jobs and businesses that have a high multiplier effect throughout the local economy.”

Chuck Freadhoff, a spokesman for Capital, said last week that the city is moving in the right direction.

“Although we would prefer the immediate elimination of this tax, we are pleased the city has recognized the importance of this issue and is moving forward,” he said.

Perry, who in March filed paperwork to begin running for mayor in 2013, favors the phase-out because eliminating the tax all at once would be too much of a hit to L.A.’s coffers, given a $300 million budget shortfall the city faces in the fiscal year starting July 1.

The city began taxing mutual funds in 1975, when several funds agreed to a nominal tax. Many of those original mutual funds are no longer based in Los Angeles, but the practice of taxing them continued. The city eventually classified mutual funds in its professional services category, which has the highest gross receipts tax rate.