New businesses in the city of Los Angeles will not have to pay business taxes for their first three years of operation under an ordinance the Los Angeles City Council passed on Friday.

The ordinance, which passed on a 10-0 vote, extends the new business exemption from two years to three years and removes a $500,000 revenue cap for businesses to qualify for it. The three-year exemption takes effect this tax year and extends to 2011 and 2012, after which the exemption would revert back to two years.

The legislation, which city officials have termed a “tax holiday,” comes as the city is grappling with an unemployment rate of 13.5 percent, higher than the countywide rate of 12.3 percent. Businesses have been fleeing Los Angeles and locating in surrounding areas in part because of the city’s high business taxes.

“I don’t think we on the Council fully realize the urgency of the situation with our economy,” said Council President Eric Garcetti during brief debate before the vote. “We need to make sure that people are put back to work as quickly as possible and this tax holiday legislation is one step towards that goal.”

The city had commissioned an analysis from the Marshall School of Business at USC on the effect of extending the exemption. That study claimed that extending the exemption would create 55,000 new jobs.

At least one councilmember was skeptical of that claim, but said he would support the ordinance anyway.

“I’m not 100 percent convinced whether the city will gain money and jobs or lose money, but I still think it’s a good idea to send the message to be more business-friendly,” Councilman Paul Koretz said.

Prior to the council vote, Mayor Antonio Villaraigosa held a press conference asking the council to pass the measure. “By approving these tax reforms, we will send the message loud and clear that Los Angeles is open for business,” the mayor said.

The legislation also included a “taxpayers bill of rights,” a series of 10 principles designed to make the business tax system clear and understandable to local and prospective businesses. Among the principles is the right to administrative appeal over tax assessments.