Consumers see businesses as partners in transactions they have voluntarily chosen to take part in. They might not always be happy with the exchanges they make, but they generally understand that they are making a tradeoff that benefits both parties.  

Policymakers, however, far too often see businesses as endless sources of money to fund their agendas.  

On occasion, businesses will reach a breaking point. So they defend their interests, as some in Los Angeles are doing. A coalition has launched a June 2026 ballot measure to repeal the gross receipts tax, which is levied on business revenues, not profits (and is often passed on to consumers in the form of higher prices). Even those that lose money still have to pay the tax. The consequences are unsurprising.  

“The city’s gross receipts tax has been a weight around the neck of every business in Los Angeles, and has been for decades,” says Jon Coupal, president of the Howard Jarvis Taxpayers Association. “This has accelerated business flight out of the city as well as the state.”  

Taxation affects “how entrepreneurs organize their businesses, how much to borrow and invest, and where they locate the businesses they create,” says the Stanford Institute for Economic Policy Research, and “influence(s) investment behaviors.”  

Gross receipts taxes have suffered “from severe flaws that are well documented in the economic literature, and rank among the most economically harmful tax structures available to lawmakers.”   

Eric Garcetti called for the abolishment of the gross receipts tax when he was Los Angeles City Council president, and a city advisory panel unanimously recommended killing the tax in 2011. Investment banker Lloyd Greif, who led the panel, told the Los Angeles Business Journal that it had become “a lightning rod for repelling businesses from the city.”  

As mayor in 2015, Garcetti signed a business tax reform plan, but it turned out to be nothing more than a “modest swipe” at ending the GRT. The top rate since 2018, which is assessed to law firms and other professional service businesses, is $4.25 per $1,000 in gross receipts. The lowest rate is $1.01, but the city apparently has a nasty habit of providing inadequate guidance on the numerous classifications “and routinely places businesses in higher-rate categories,” says Anderson Global.  

Critics complain that repealing the tax will blow an $800 million hole in the city budget. That is not the business community’s concern, though. It hasn’t mismanaged the city and spent recklessly for years.   

The projection is dubious anyway. More likely, revenue will increase. Removing a strangling tax burden will allow merchants, restaurants, service providers and other businesses to expand, attract new enterprises and create tens of thousands of jobs, boosting the Los Angeles economy and generating greater tax receipts.  

Gross receipts taxes are not as widespread as they once were, yet San Francisco and Beverly Hills also impose similar business taxes. San Francisco’s tax doesn’t kick in until a business has reached $2 million in gross receipts, which creates a perverse incentive for them to shut their doors or curtail operations once they’ve reached $199,999 in sales. Those that exceed $50 million in gross receipts are hit with an additional tax to fund homeless programs.  

Gross receipts taxes are easy ways for politicians to separate businesses and consumers from their dollars. They are simple to administer and not difficult to comply with in terms of paperwork and time, and because there’s no association with the benefits a company receives from government spending, or its costs to society, they provide politicians with a nearly hassle-free flow of cash.  

Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute and co-author of “The California Left Coast Survivor’s Guide.”