Less Tax, More Business

0

If you have a business in the city of Los Angeles, you probably have two big complaints with City Hall.

One is the absurdly long time it takes – 18 months, in some cases – to get routine permits to start and operate your business. The other is the city’s gross receipts tax.

On the first complaint, the city has made some moves to pare back the permit-waiting time. Granted, they are grudging moves and have spotty results so far, but at least there’s been some effort. (For more, see the article on page 1 about Matt Karatz.)

As for the second complaint, the city this week could take a big step toward resolving it.

That’s because a report that analyzes reform options put forward by the city-appointed Business Tax Advisory Committee is to go to the council this week. And a preliminary draft of that report all but concludes what business operators have known for years: The city would be better off without the gross receipts tax.

If the city spiked that onerous tax, businesses would be more likely to move to Los Angeles or at least not leave. That would increase the other taxes the city collects. So much so that the city would come out ahead.

Now, this report could be one more that council members accept, say thank you and put on the shelf. Or they could take the recommendations to heart and eliminate the gross receipts tax or at least scale the tax rates way back.

One thing that indicates it may be the latter: Mayor Antonio Villaraigosa has said he favors killing the tax. It was a surprise when he said that recently in a speech to the Valley Industry and Commerce Association. Later, reporter Howard Fine of the Business Journal gave him a chance to walk back, but he stood pat.

“I do favor elimination of the gross receipts tax,” Villaraigosa was quoted as saying in the article that was published last week.

Fine also quoted City Council President Eric Garcetti saying he is open to the notion of killing the tax.

Now that two of the city’s top elected leaders are on record opposing the tax, it is far more likely the tax will be sent to death row or at least get a Lap Band.

The gross receipts tax is unfair to businesses in Los Angeles because it is not an income tax but a tax on revenue. That means if your business is scraping by with a 1 percent profit margin, you may have to pay every bit as much as the same-size business next door that’s got a fat 40 percent margin.

It’s also burdensome because the rates are steep. In Los Angeles, they range from $1.01 to $5.07 for every $1,000 in gross receipts. No other city in this region has rates that high (although Santa Monica’s rates come close), and some don’t have a gross receipts tax at all.

“Since a city tax represents a cost of doing business, cities having such a tax have a clear competitive disadvantage over cities which do not,” wrote the author of the report, USC professor Charles Swenson, in the draft.

According to his study, eliminating the tax essentially would result in more businesses moving to Los Angeles as well as staying put and expanding in the city. That would result in more property taxes, utility taxes and the like. Under one of his formulas, for every $1 in gross receipts tax the city would lose, it would gain more than $4 in other taxes.

Let’s hope the City Council members this week understand that it is in their economic best interest to kill the gross receipts tax, or at least dramatically chop back the rates.

And then get back to that permit problem.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

No posts to display