Council OKs Simpler Business Tax Filing

The Los Angeles City Council gave final approval Tuesday to an ordinance that will allow more businesses to file their city taxes under one category, part of a larger effort to reform the city’s cumbersome tax code.

The measure, which passed unanimously, will allow businesses that receive 80% of their gross receipts from one form of commerce to file under a single tax rate. The change will result in lower taxes for about 11,000 businesses that now are taxed under a system of 47 categories.

The move is expected to cost the city as much as $2.9 million a year in lost taxes, but supporters said it will reap benefits by encouraging new businesses to set up shop in Los Angeles.

“We wanted to send a message to our businesses that they are welcome and that we are going to simplify the tax system in Los Angeles so they don’t have to go to outlying cities to be competitive,” said Councilwoman Wendy Greuel, chairwoman of the council’s Ad Hoc Committee on Business Tax Reform.

Mayor James K. Hahn, who pushed for the change last summer, will sign the ordinance into law when it reaches his desk, spokeswoman Julie Wong said.

Greuel also won approval Tuesday for a study that will examine the effect of eliminating the so-called pass-through tax, in which businesses are taxed on money they pay to subcontractors.

Business leaders and members of the citizens’ Business Tax Advisory Committee have pushed for the changes for several years.

“It’s part of the long-term process of reforming our business tax system in the city of Los Angeles to make it a more inviting business climate,” said Brendan Huffman, public policy manager for the Los Angeles Area Chamber of Commerce. “A lot of neighboring cities have a much simpler tax system, and some don’t have business taxes at all.”

Huffman said Los Angeles’ tax code is so complex that some small businesses spend more on accountants to decipher their taxes than on the actual fees.

Greuel said she hopes to introduce further reforms to the city’s business tax code. She said she will seek to raise the threshold of the small business exemption, which now allows merchants to avoid city taxes if they report less than $5,000 in gross receipts, and she will recommend new measures to attract growth industries to the city.