Calling it a way to attract new businesses to the city, Los Angeles Mayor Antonio Villaraigosa on Friday signed into law a three-year extension of the business tax holiday for new firms.
Villaraigosa said exempting all new businesses from the business tax for three years has become a "key tool" in the city's portfolio to attract businesses.
"Extending this common sense policy will spur economic development, create jobs and generate revenue for the city," Villaraigosa said at a signing ceremony held in the Westwood offices of HKS Architects, which relocated to Los Angeles because of the tax holiday.
Villaraigosa said the tax holiday gives businesses time to establish themselves.
The 2010 measure was originally developed by Councilman Richard Alarcon and former Councilman Greig Smith as part of an overall review of the city's business tax system.
The city Office of Finance estimates the tax holiday has proven popular and it has seen a doubling of the firms grossing more than $500,000 a year applying for the exemption.
"The demonstrated success of the business tax holiday has had a positive effect on job creation in our city," Alarcon said. "When a program works this well, it is definitely worth keeping around."
Councilman Eric Garcetti, who has pushed business tax reform, said he wants to see the city eliminate its gross receipts tax entirely.
"My overall goal is to get rid of the city's gross receipts tax, which
makes L.A.'s tax rate the highest in the county and taxes businesses even when they lose money," Garcetti said.
The city has adopted a plan to phase out the gross receipts tax over the next 15 years.
However, some city officials have voiced concern there is no evidence the tax holiday has had a major impact on firms locating in the city and they've asked for data to support continuing the exemption.
Councilman Paul Krekorian, who chairs the Budget and Finance Committee, had raised question over its value as well as if it was fair to other businesses, which might be in competition with a firm receiving a tax break.
The City Council agreed to his request for a study on whether the tax holiday does draw more business to the city.
Villaraigosa said he has no objection to the study, but figures available show that in 2011 there were 516 new firms grossing more than $500,000 that applied for the exemption. So far, this year, there have been 1,213 applications for the exemption.
Among the companies that have moved to Los Angeles are Google, BYD, Beverly Hills BMW, Farmers Insurance, Blackline Software, Gensler and Coda, among others.
City Administrative Officer Miguel Santana said that even with the new business tax holiday, the city has seen an increase in tax revenue, from $418 million to more than $450 million.
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