Council Eliminates Business Tax on Mutual Funds

Los Angeles - The City Council took steps today to make Los Angeles more attractive to the business community, including ending a tax on mutual funds and moving to extend a tax holiday for new firms in the city.

At the urging of Councilwoman Jan Perry, the council eliminated the gross receipts tax on mutual funds over three years.

Los Angeles is the only city in California to tax both mutual funds and mutual fund managers.

"At a time when job creation and retention is of the utmost importance, it is our responsibility to send a clear message that Los Angeles is a business-friendly city," Perry said. "The elimination of the mutual fund tax is the natural first step."

The elimination of the tax is expected to cost the city as much as $8.4 million in tax revenue. Councilman Bill Rosendahl questioned the wisdom of foregoing that money for basic city services like filling potholes and trimming trees.

But legislative Analyst John Wickham told the council that the city risked losing ever more revenue, about $12.5 million, if mutual fund managers decide to move outside of the city.

Mutual funds are taxed at the highest business tax rate in the city, $5.07 per $1,000 in gross receipts.

The council also supported a plan by Council President Eric Garcetti and Councilman Mitchell Englander to extend the sunset on a three-year business tax holiday for new firms in the city.

The 11-0 vote directs the City Attorney's Office to draft an ordinance to extend the final date to qualify for the tax holiday from the end of 2012 to the end of 2015. Qualifying businesses have their gross receipts taxes waived for the first three years they operate in the city.

The issue sparked debate, with some council members expressing concern the tax break is unfair and skepticism that the tax holiday has achieved its goal to bring new businesses to the city.

"We are differentiating, unfairly I think, between new businesses and the existing businesses that have been here paying their taxes ... that are employing Angelenos," Councilman Paul Krekorian said.

Councilman Bernard Parks, who chairs the Budget and Finance Committee, proposed that the ordinance be paired with a report on how many new businesses took advantage of the first three years of the business tax holiday and a financial analysis of how much tax revenue was waived and how much money in new fees was generated.