Los Angeles City Council Considers Raising Small Business Tax Exemption Threshold

The Los Angeles City Council is exploring an increase to the financial threshold for its small business tax exemption program, potentially offering tax relief to more businesses within the city. The move comes as council members seek to balance fiscal responsibilities with the need to foster a competitive environment for small businesses.

Council Vote and Proposed Changes

On February 26, 2026, the City Council voted 13-0 to direct the Office of Finance, with assistance from city analysts, to report on the feasibility of raising the program’s current threshold. The report will also examine fiscal impacts and review how other cities approach business taxes. Councilmembers John Lee and Traci Park were absent during the vote.

History of the Small Business Tax Exemption

The current program exempts businesses with gross receipts under $100,000 from city taxes. This threshold has been raised incrementally over time: initially set at under $5,000, it was increased to $50,000 in 2005 and again to $100,000 in 2006. A similar initiative for new businesses existed but expired in January 2016.

Rationale for Re-evaluation

Councilwoman Monica Rodriguez, who introduced the motion in December 2025, emphasized the need to adapt the program to current economic conditions and to remain competitive with neighboring cities. She stated the goal is to “advance some thoughtful policies around expanding that exemption to capture more opportunities for small businesses.”

Current Business Tax Structure

Los Angeles businesses currently pay a specified amount per $1,000 of taxable gross receipts, varying by tax classification. Taxes can be based on flat rates, vehicle counts, equipment usage, employee numbers, square footage, seating capacity, or collected fees, according to Rodriguez’s motion. Restaurants and other small businesses typically pay $1.27 per $1,000 of gross receipts annually.

Fiscal Considerations

Rodriguez acknowledged the council’s ongoing discussions regarding the city’s financial situation and potential concerns about reducing business tax revenue. She highlighted the importance of creating a supportive environment for small businesses, particularly given the competitive landscape in surrounding cities.

Additional Support for Restaurants

Alongside the tax exemption review, city staff are also investigating ways to provide both regular and emergency assistance to Los Angeles restaurants, with a focus on supporting legacy restaurants facing financial difficulties.

Who is Councilmember John Lee?

John S. Lee is currently serving as a member of the Los Angeles City Council for the 12th district. He assumed office on August 30, 2019, and his current term ends on December 11, 2028. Lee was re-elected outright in the primary on March 5, 2024. He is currently an independent, having previously been a Republican [Wikipedia].