Delivering some relief to local businesses, Los Angeles Mayor Eric Garcetti on Wednesday signed into law a reduction in the top rates businesses pay in gross-receipts taxes to the city.
The business tax cut represents a 16 percent overall reduction over three years. The cut takes the top tax rate – paid by law firms and other professional service businesses – from the current $5.07 per $1,000 in gross receipts to $4.75 in next year, $4.50 in 2017, and $4.25 in 2018.
“Cutting our business tax will entice more businesses to stay, come and hire in L.A.,” Garcetti said in a statement issued after the signing.
Businesses have long complained about the gross-receipts tax, both because its rates are higher than in other cities and because it’s a tax on top-line revenues, before operating expenses and other business costs are factored in. Several major business groups have called for the elimination of the tax altogether, a stance supported by a special city committee two years ago. The say dropping the tax would drive business investment in the city.
But progress has been slow, in part because many city officials have been concerned about the prospect of replacing the $430 million in annual revenues the gross receipts tax brings in. Over the years, measures to exempt most small businesses and place Internet companies in a lower tax rate category have passed.
Nonetheless, local business groups welcomed this latest move.
“While this reduction in the gross-receipts tax is less aggressive than the plan recommended by the Business Tax Advisory Committee, it is a step in the right direction,” Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce, said in a column after the council initially approved the reductions earlier this month. “It is a clear acknowledgement by the mayor and city council that having the highest gross receipts tax in L.A. County and one of the highest in the United States is detrimental to recruiting new businesses and to retaining and growing existing businesses.”
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