City Moves to Exempt Car Dealers From Business Tax

In an effort to lure nameplate auto dealers back to the city after a 25-year exodus, the City Council took the first step Wednesday toward exempting new dealerships from the city's business tax.

The council voted unanimously to ask the city attorney's office to draft an ordinance, which would still have to come back to the full council for approval.

Councilmen Mitch Englander and Eric Garcetti and Mayor Antonio Villaraigosa  called for the tax break during a news conference last month to announce that Beverly Hills Porsche plans to move to Los Angeles, becoming just the second dealership to open in the city in 25 years.

In the same period, 95 auto dealers left Los Angeles for Glendale, Burbank, Pasadena and other cities that have low business taxes or none at all, according to the mayor's office. Los Angeles now has about 52 new car dealerships.

"Targeting car dealers is a big first step, but we must eliminate the business tax altogether," Council President Garcetti said last month. "L.A.'s cumbersome tax scheme is one that taxes businesses even when they lose money."

The business tax is self-defeating in that it produces only limited revenue while scaring away auto dealers that would otherwise generate substantial sales tax revenue, according to Garcetti. Last year, auto dealers generated about $3.6 million in business tax revenue, but $29 million in sales tax revenue.

Councilman Bill Rosendahl, who serves on the city's Budget and Finance Committee, wanted to know how the tax might affect the city's current budget, given a report this week that the city is running a $72 million deficit for the current fiscal year.

"I want to make sure we proceed with caution and fully evaluate the short- and long-term revenue implications of this proposal," Rosendahl said. He also asked for a report on the number of dealerships that have expressed interest in moving into the city limits.

Garcetti said luring just five new car dealerships back into the city would more than make up for the revenue lost by eliminating the business tax on new car dealerships.

Councilman Tony Cardenas voiced his support.

"As we are entering another tough budget year, it is innovative initiatives like this one that could help us improve our financial picture while also making us more business-friendly," Cardenas said.

The vote Wednesday comes despite the city's propensity to buy cars outside the city. A forthcoming report from the city's Commission on Revenue Efficiency found the Port of Los Angeles and the Department of Water and Power bought more than 1,000 vehicles, but none from Los Angeles dealerships, over a nine-month period starting in August 2010. The purchases totaled more than $60 million, which could have generated nearly $6 million in sales tax revenue for the city.

In May, the LADWP bought 912 pickup trucks worth about $28 million from dealerships in Alhambra and West Covina. In March, the port bought 11 Ford Escape Hybrids from a dealer in Costa Mesa.

Beverly Hills Porsche, which is expected to move into the city next year, generated about $100 million in sales last year. The mayor's business team estimated that the move will generate about $1 million for the city's general fund, which pays for basic services like policing and firefighting.

—City News Service