No one knows whether exempting new businesses from the city's gross receipts tax actually pencils out, but on a 10-2 vote the council decided to keep it going for another three years. Only Paul Krekorian and Jan Perry voted against the extension. From KPCC:
Since 2010, 11,100 new companies have claimed the exemption and the City of Los Angeles has waived $30.1 million in new business tax receipts. Moving forward, the city could lose $16.8 million a year in revenue, according to the City Administrative Officer. However, those same new businesses accounted for $8.8 million in other taxes such as parking, transient occupancy, and fire and police permits. "This office is unable to determine whether there has been or will be any net gain to the city as a result of the extended [new business exemption], due to the complexity of the economic analysis required to quantify offsetting revenue increases," according to a report from the City Administrative Officer.
The real answer is to overhaul the gross receipts tax itself so that all L.A. businesses could benefit, not just the start-ups. Instead the council simply band-aided the antiquated system. "We don't know whether this is generating a single penny in new tax revenues or creating a single new job because," said Krekorian. The CAO's report suggests as much: Only 20 percent of the 11,100 establishments that have benefited from the tax exemption routinely include a sales tax that goes to the city. We're talking restaurants, gas stations, and stores. The remaining 80 percent fall into service categories - law firms, accounting firms, medical practices - where the city doesn't always receive tax revenue. "I think we're really buying a pig in a poke," said Krekorian.