Wednesday, January 04, 2006

Business tax reform is here

After years of false starts and shelves full of dusty reports, the city has made good on its commitment to real business tax reform. My colleague Wendy Greuel has been the uncontested leader on this issue, pushing past the limits that had previously stalled out other would-be reformers. Together, we introduced the Greuel-Garcetti tax reform package, which helps individual creative artists, small businesses, small- and medium-sized production companies, and lowers the tax rate overall.

Starting this year, the city will cut business taxes across the board, towards a five-year goal of a 15% reduction. The reform is funded by AB63 monies, meaning that new revenues from folks who don't pay their business tax makes this possible without hurting the city budget.

Here are the highlights from the reforms that go into effect this year. Remember, even those who are exempt still need to file with the city Office of Finance to demonstrate exemption.

Small Business:

  • 2006: all businesses with gross receipts of $50,000 or less will be exempt from the business tax.
  • 2007: businesses with gross receipts of $100,000 or less will be exempt from the gross receipts.
  • Altogether, this means that 60% of the city’s businesses will pay no business tax.

All businesses:

  • will receive an across the board tax cut of 3.1%.
  • will continue to receive annual cuts of up to 4%.
  • Over five years, rates will be reduced by 15%--and we'll keep looking at how to lower rates further.

Creative Artists:

  • Writers, directors, actors with gross receipts of $300,000 or less are now exempt from the business tax.

Production Cap:

  • Production companies are taxed based on cost rather than on gross receipts.
  • In the past, companies with gross receipts of $50,000 or less paid a flat fee. Companies with costs betweenn $50,000 and $4.2 million also paid a flat fee, increasing incrementally, capped at $12,711 for companies with costs that are $4.2 million or higher.
  • New system: companies with gross receipts of $2.5 million or less will pay a flat fee of $147. Companies with gross receipts between $2.5 million and $12 million will be taxed $1.30 per $1,000 and companies with $12 million or above will pay a flat fee of $12,711.