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Maintaining a Reduced Business Tax for Internet Businesses

This week, Council District 12 Councilmember Mitchell Englander voted to support a comprehensive analysis of the impact and effectiveness of Ordinance #181127, which temporarily reduced the internet-based business tax rate.

In March of 2010, the City Council and Mayor approved Ordinance #181127 (CF 09-1914) to reduce business tax rates for internet-based businesses. The intent of this action was to create jobs by reducing the cost of locating or expanding a business within the city, and to retain these extremely mobile businesses in the City. This effort to target internet-based businesses, as well as other desirable business categories, was the result of extensive discussions and analyses both in City Hall and in the business community where various business tax reforms were considered, including extension of the business tax holiday, freezing the current tax base, and possibly eliminating the gross receipts tax.

The reduction in the City’s internet-based business tax rate that was enacted in 2010 is set to expire, since the tax-rate reduction is only effective through 2014. This pending ‘sunset date’ will allow the City to measure its effectiveness before taking the next steps. The City is now at the decision point whether to continue this reduction or further modify it.

To ensure that the City’s policymakers have comprehensive information regarding the impact of this prior Council action, City staff should immediately begin an analysis of the past five years of data, as well as tax year’s preceding this period, to determine the true impact to businesses and the local economy of this tax reduction.

Eliminating the business tax for one industry is the first step toward eliminating the business tax entirely throughout the City of Los Angeles. Councilmember Englander remains committed to ensuring that the City of Los Angeles continuously works to be more business-friendly and reduce taxes for businesses in every industry.

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