LA Gross Receipts Tax Review: What It Means for Burbank

Los Angeles is weighing changes to its business tax structure that could have direct implications for Burbank, where city officials have long marketed a comparatively lighter regulatory environment as a draw for small business owners and studios alike.

The L.A. City Council voted unanimously on Feb. 25 to study raising the gross receipts tax exemption threshold, a figure that has sat at $100,000 since 2007. Councilwoman Monica Rodriguez, who authored the motion, argued the two-decade-old threshold has left Los Angeles at a competitive disadvantage against neighboring cities, with Burbank and Calabasas named specifically in her motion as municipalities that have drawn businesses away from the city.

The L.A. Office of Finance is now tasked with analyzing scenarios involving exemption caps of $200,000 and $500,000. If the threshold were adjusted purely for inflation, it would land around $160,000, reflecting roughly a 56% increase in consumer prices since the original figure was set.

The study matters to Burbank for a straightforward reason: the city benefits when L.A.’s tax burden pushes small business owners across the city line. Any softening of L.A.’s business tax could reduce that incentive.

Burbank does not levy a gross receipts tax. Businesses operating here pay a flat business license fee, a structure that becomes increasingly attractive to entrepreneurs running operations where revenue looks large on paper but margins stay thin. That dynamic plays out acutely in industries like child care, catering, and light manufacturing, sectors with meaningful Burbank footprints.

The case for L.A.’s reform is illustrated by operators like Paloma Corona, who runs two bilingual preschool centers in Mid-City called Little Sprouts Language Immersion Preschool. Her centers bring in roughly $200,000 per year in gross receipts, but after rent, insurance, workers’ compensation, groceries, and taxes, she takes home less than a third of that. She and her husband have discussed relocating outside Los Angeles to reduce operating costs, though she said leaving would mean abandoning the client families she has spent years building relationships with.

“Relocating for someone like me will be losing everything,” Corona said.

Her situation reflects the structural problem Rodriguez is trying to address. Los Angeles taxes gross receipts, not profit. A business with $200,000 in revenue and $160,000 in expenses pays the same rate as one with $200,000 in revenue and $50,000 in expenses. Among the 88 cities in Los Angeles County, only a handful use a gross receipts model, including Santa Monica, Culver City, Inglewood, Hawthorne, and Gardena. Most other cities use flat fees or per-employee calculations.

The gross receipts tax currently generates $837 million annually for Los Angeles, a number that matters considerably given the city is facing a roughly $1 billion budget shortfall. Rodriguez’s proposal arrives at an uncomfortable fiscal moment, and any reduction in the tax base will require the city to identify offsetting revenue or make cuts elsewhere.

For Burbank’s business community, the practical effect of L.A.’s potential reform is uncertain. A higher exemption threshold would relieve some pressure on L.A.-based small businesses, potentially reducing the number of operators who see relocation as their only option. That could modestly cool demand for Burbank commercial space from L.A. refugees, particularly on the south end of the city where small storefronts along San Fernando Boulevard and in the Magnolia Park corridor have attracted transplant businesses in recent years.

At the same time, Burbank’s appeal extends beyond tax structure. Lower commercial rents, available parking, a more streamlined permitting process, and proximity to the studio ecosystem all factor into the calculus for businesses weighing a move.

The L.A. Office of Finance has not yet set a deadline for its report. The council’s unanimous vote suggests genuine political will behind the study, but translating that into actual tax code changes against a backdrop of fiscal pressure is a different challenge. Burbank economic development staff will be watching the outcome closely. The city has spent years positioning itself as the sensible alternative to doing business in Los Angeles. Whether that pitch gets harder or easier to make depends partly on what L.A. decides to do next.