L.A.’s taxing question

Los Angeles is one of the few cities that still impose what is, in effect, a local income tax on business. One result is that startups and established firms seeking greener pastures seldom come here, opting instead for more competitive big cities around the country or smaller but more business-friendly municipalities in the region. Three years ago Mayor Antonio Villaraigosa decided to put up the welcome sign by throwing out the tax altogether — but just for a limited period. And just for new arrivals.

Now, Villaraigosa says the business tax holiday should never end. And that sounds like a great idea. The tax-free period was to expire next year, and while it would have been nice for Los Angeles to finally start getting some gross-receipts tax revenue from whatever new businesses have opened their doors within the last three years, that burden was part of what kept businesses away in the first place. If it were added back now, it could lead those new arrivals to leave and others not to move in. If they opted instead for an adjacent tax-free town like, say, Burbank, it wouldn’t be all bad — the region would keep the jobs. But then Burbank would get Los Angeles’ cut of property taxes (and, for a retail business, sales taxes).

The problem with making the gross-receipts tax holiday permanent is that only those businesses that arrived within the last three years, and new ones that arrive from now on, would get it. Stalwarts that have stayed in the city for decades and missed the three-year reprieve enjoyed by the newbies would be punished for their loyalty. As new companies — competitors, perhaps — got a tax rate and filing burden of zero, older firms would be stuck, in essence, underwriting them. That’s patently unfair.

The mayor explains, correctly, that the city cannot afford to live for now without the $440 million a year that existing companies pay in gross-receipts taxes. Losing it would decimate the Police Department and other essential services. So eliminating the tax for all businesses is not currently an option.

But that doesn’t make his alternative plan fair. And it’s that unfairness — Los Angeles’ penchant for a sort of randomness in policy — that really makes businesses question the value of setting up shop here. No doubt they like being courted and they like being offered incentives. But businesses old and new really need from City Hall the same things that residents deserve and are too often denied: simple permitting, quick and reliable answers to questions, understandable and fairly applied laws. A supportive, navigable and fair city government would go much further toward attracting and retaining businesses than would relief for some, but not for others, from business taxes.