If you build it, they will come. It you tax them, they will leave.
Fearing more business might move out of town, the Los Angeles City Council agreed Friday to reduce the taxes for certain Internet-based companies to prevent them from moving to other municipalities.
The council approved an ordinance to create a new business tax category for businesses that "generate revenues by providing access to Internet-based electronic applications or Internet-based search engines."
Currently, those businesses fall under the city's highest tax category, according to City Council President Eric Garcetti. He conceded that reclassifying the businesses would reduce the city's tax revenue by about $3.4 million this fiscal year, but said the financial loss would be far greater if the businesses were to move out of Los Angeles in favor of other municipalities with lower taxes.
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"If they were to up and leave, it's not just the $3.4 million that you're looking at, it's the entire $6.8 million, and I think that's very key and important to note," she said.
Garcetti said the mayor's office reported that 1,000 Internet-based businesses have already left the city because of what they felt were onerous taxes. He said Friday's ordinance was crucial in preventing more businesses from moving out.
Gary Toebben, president of the Los Angeles Area Chamber of Commerce, praised the ordinance, calling it "the first step in a strategic plan to revise our tax codes so that we can target high-paying jobs for the citizens of our community and grow the tax base for Los Angeles."