Business leaders cheered last week's proposal from Los Angeles Mayor Antonio Villaraigosa calling for a 10 percent cut in the city's business tax rates.
The proposal, set out in a letter to City Council members, also includes raising the tax exemption thresholds for small businesses and startups.
"This is a significant step that we believe will help keep some businesses here and help other businesses keep their doors open," said Stuart Waldman, chief executive of the Valley Industry and Commerce Association, a business advocacy group. "We're glad the mayor is moving on this now."
In 2004, the city passed a sweeping business tax reform package that cut companies' gross receipts tax by 15 percent over four years. It also raised the exemption level to $100,000 in revenue, and exempted businesses less than two years old that have less than $500,000 in revenue.
But in recent months, as the local economy has worsened, business interests increased their pressure on city officials for further reforms.
Villaraigosa responded July 27 with his call for an additional 10 percent cut in the gross receipts tax and added increases to the exemption levels. He did not specify what the new levels should be.
"For macroeconomic reasons beyond our control, the business climate has gotten significantly worse," Villaraigosa said in a letter to the City Council. "Accordingly, I encourage the City Council to bring forward a new generation of business tax reforms, focused on the unique problems we face today and building upon the reforms undertaken in 2004."
But given the $500 million budget deficit, Villaraigosa added that any reforms that are enacted must be "revenue neutral."
The reaction from the City Council has been cautious. Council President Eric Garcetti said through a spokeswoman that while he supports further business tax reform, it must be done in a way that does not worsen the city's budget deficit.
Garcetti was set to introduce a series of motions in last Friday's council session calling on city staff to analyze the fiscal impacts of Villaraigosa's proposals and other business incentives for key industries like entertainment and biotechnology.
Business leaders want action, not studies.
"This can't wait; it has to happen now," said Sam Garrison, vice president of public policy for the Los Angeles Area Chamber of Commerce.
The moves toward tax reform come after an outcry from local business groups and technology companies over the city's decision to put several multimedia companies into higher business tax categories. Most of the companies had previously classified themselves into a technology category to claim a tax break. City auditors claimed some of those classifications weren't justified and have moved those companies into the city's highest business tax bracket.
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