Gross Receipts Tax Stifles Valley Biz

The Valley Industry and Commerce Association (VICA) has been fighting for reform of the business tax in the city of Los Angeles for over a decade. With the ongoing recession, it is imperative that the gross receipts tax be eliminated in order to boost business growth and economic development in the region. There has been some recent progress made toward eliminating the tax, however, there is still much more to be done. At a time when businesses are struggling and unemployment numbers are high, the state is looking to local businesses to create jobs and pull the state out of the recession. Having an egregious gross receipts tax only hampers efforts toward recovery and makes it more difficult to create the jobs that are needed. Fortunately, it seems that the city has finally started to agree. In its most recent move, the City Council voted to eliminate the business tax on new car dealerships — a boon to the Valley region which is a hub for car dealerships. While this is far from a comprehensive repeal, it is a step toward economic development. The City Council, acknowledging the damaging effects a gross receipts tax can have on economic growth, also recently voted to approve a tax holiday for new businesses. The television and radio industry is also seeking an exemption from this tax due to the negative impact it has had on their business. The gross receipts tax in Los Angeles is 9.5 times higher than the average for other L.A. County cities. VICA, along with the Los Angeles Area Chamber of Commerce, the Central City Association of Los Angeles and numerous other organizations and individuals have joined together to form the Ax the Tax Coalition to urge the city to eliminate the gross receipts tax. Businesses in the Los Angeles city portion of the San Fernando Valley have long been at a competitive disadvantage due to the city’s outrageously high business tax. Unable to compete with businesses in neighboring cities, many businesses closed or moved to areas with a less restrictive tax or none at all. The city of Calabasas is one such city without a gross receipts tax, while Burbank and Glendale have significantly lower tax rates. Last November, VICA discussed a report issued by the Business Tax Advisory Committee (BTAC) that recommended the city completely eliminate the gross receipts tax through a five-year phase-out plan. The report confirmed VICA’s long-held stance that the elimination of the tax on businesses would bring hundreds of millions of dollars in additional revenue to Los Angeles. Further, the report estimated more than 130,000 jobs would be created by new business entering the city following the welcome elimination of the gross receipts tax. While there have since been other studies conducted, the majority of findings continue to show an overall benefit to city businesses and the Los Angeles city budget with the elimination of the gross receipts tax The City Administrative Office, in response to a study by Blue Sky Consulting Group, which stated there was a potential for lost revenue, pushed to have all revenue losses made up through city cuts. This new plan called for a 15-year elimination of the gross receipts tax along with budget cuts. VICA and the business community opposed such a proposal. While the overall elimination has been the goal, the slow timeline was in direct conflict with the goal of attracting more business to the Valley. “No business is going to make a 15-year plan to move into the city,” said VICA President Stuart Waldman at a hearing in April. Finding a middle ground, BTAC proposed a five-year reduction with the tax rate cut in half, rather than a full elimination. While VICA is pleased with the overall move toward sweeping changes to the gross receipts tax, the fight to put an end to this tax will continue. The business community cannot and will not sustain this tax. Until the gross receipts tax is eliminated, Valley businesses will continue to struggle as they fight their way out of this recession against competitors from cities with little or no burdensome tax on gross receipts. While the Los Angeles City Council has begun to take the steps needed toward economic recovery, they must go further and eliminate this tax on businesses altogether. If the City Council continues to put off the changes that are necessary for economic development, the city will drift listlessly toward further economic deterioration of the region. How do you think the city should eliminate the gross receipts tax? Do you believe the city will lose revenue from the elimination of the tax? Email your responses or thoughts about the column to [email protected].