For years, academia, economic development leaders, the business community and policymakers have discussed the need to improve L.A.’s business environment. Over the last two years, efforts to improve business competitiveness in the City of Angels have focused on tax reform.
From targeted tax reform for car dealers to clarifying statutes of limitation for tax rules to reforming how businesses process overpayment or underpayment of taxes, the debate on how to improve L.A.’s business climate has been extensive and wide-ranging. Most recently, the Business Tax Advisory Committee has been working on a recommendation to reform the city’s tax system by phasing out the tiered gross receipts tax, a tax on the total gross revenues of a company.
I believe this is a significant opportunity to improve the business climate and encourage investment in Los Angeles.
The city is enduring a 13.1 percent unemployment rate, which is significantly higher than the state and national averages. Currently, Los Angeles does not have a long-term tax structure that encourages business startups or advances robust job growth within the city. That is why business groups like the Valley Industry and Commerce Association have been supporting the phasing out of the gross receipts tax.
For a short-term aid to business, the city has provided some relief for fledgling companies in the form of a three-year business tax holiday for companies starting up in or relocating to Los Angeles. This does provide a useful incentive.
But is it enough? In short, no.
While the current three-year tax holiday helps businesses gain their footing in Los Angeles, the antiquated gross receipts tax guarantees higher taxes are just around the corner. This is a fundamental problem; companies are looking five to 10 years down the road as they map their path to success. Therefore, it is difficult to judge the success of a tax holiday because it might help those companies that only want to locate in Los Angeles. But, if a company is “mobile” or has location flexibility, it makes business sense to locate in a neighboring city or another location entirely and avoid the long-term tax burden.
All is not lost for our city, however. Los Angeles holds a significant competitive advantage over many cities across the nation. We enjoy favorable size and business density, world-class academic institutions, great weather and access to international goods movement hubs. These benefits can do much to build a robust local economy offering high-wage jobs for all skill levels.
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