LA Council to explore raising threshold to exempt small businesses from tax

The Los Angeles City Council directed city staff today to explore raising the financial threshold of its small business tax exemption program.

In a 13-0 vote, the council instructed the Office of Finance with assistance from top city analysts to report on the feasibility of raising the program’s threshold, as well as potential fiscal impacts. The report will also examine how other cities implement business taxes.

Council members John Lee and Traci Park were absent during the vote.

The program originally eliminated taxes on businesses with gross receipts of less than $5,000. In 2005, the council increased that threshold to $50,000, and it was increased again on July 1, 2006, to $100,000.

During that time the city also implemented a similar initiative for new businesses, but it expired in January 2016.

Councilwoman Monica Rodriguez, who introduced the motion in December 2025, said the city created the program 20 years ago, and officials now want to “advance some thoughtful policies around expanding that exemption to capture more opportunities for small businesses.”

The city requires businesses to pay a specified amount per $1,000 of taxable gross receipts for each tax classification. Some business taxes are based on a flat rate per tax period and others are based on the amount of vehicles, machines, devices or equipment used, the number of employees, square footage of the area, seating capacity, or the scale of fees collected, according to Rodriguez’s motion.

On average, restaurants and other small businesses are required to pay $1.27 per $1,000 of gross receipts annually.

Over the years, the city has implemented incentives and exemptions to small and new businesses, but some of these efforts have expired or are in need of an update.

Rodriguez acknowledged that the council is having difficult conversations around fiscal circumstances, noting there’s apprehension about reducing business tax revenue for the city.

“We know what our challenges are with our general fund and our fiscal circumstances,” Rodriguez said. “We have an obligation as a city to make sure that we’re also giving space for small businesses to effectively compete, particularly at a time when we see a number of other surrounding cities that are, frankly, more competitive and creating a hospitable environment for businesses to open in their city.”

Meanwhile, city staff are also examining ways to provide regular and emergency assistance to Los Angeles restaurants, as well as provide additional support to legacy restaurants in financial crisis.