LOS ANGELES (AP) — The heart of car culture may be beating in Los Angeles, but the nation's second-largest city has allowed two-thirds of its new automobile dealerships — and the sales tax revenue they generate — to slip away during the past quarter-century.
It seems few noticed as the gleaming cars and SUVs on dealers' lots left town to escape what critics call punitive business taxes.
Tough economic times have changed that.
Mayor Antonio Villaraigosa announced this week, days before the Los Angeles Auto Show, that he wants to eliminate business taxes on new car dealers in an effort to lure them back and keep the dealers that are left.
The business tax is self-defeating because it brings in limited revenue while scaring away auto dealers that would generate substantial sales tax revenue, the mayor said.
"For too long, L.A.'s business tax has driven auto dealers outside the city limits," Villaraigosa said. "It's time to reform the way we tax auto dealers so that we can bring more jobs and more sales tax to our city."
Since 1986, some 95 car dealers left Los Angeles for cities like Glendale, Burbank and Pasadena that have much lower business taxes or none at all. Glendale, for instance, has no gross receipts business tax, while auto dealers in Los Angeles are charged $1.27 per $1,000 in gross receipts, whether the dealers are profitable or not.
There are now 52 dealerships selling new cars in Los Angeles. Last year, those dealers accounted for $3.6 million in business tax revenue but a whopping $29 million in sales tax revenue for the city. The city's share of the sales tax is roughly 1 percent of the price of a new car.
"It's time to stop surrounding cities from using LA's broken tax system to lure businesses and jobs away from us," City Council President Eric Garcetti said. "Targeting car dealers is a big first step. But we must eliminate the business tax all together. LA's costly and cumbersome tax scheme is one that taxes businesses even when they lose money."
Garcetti and Councilman Mitch Englander plan to co-sponsor a motion instructing the city attorney to prepare an ordinance eliminating new car dealer gross receipts taxes. It's unclear when a draft will be completed for a City Council vote.
Not everyone is on board with the plan.
City Administrative Officer Miguel Santana and Chief Legislative Analyst Gerry Miller urged caution in making any changes.
"Complete elimination of the business tax would be poor public policy," said their analysis, released Tuesday. "This would increase the tax burden on residents or result in decreased city services which would make Los Angeles a less desirable place to do business."
The mayor's $4.3 billion budget proposal for fiscal year 2011-12 relies on business tax revenue of $439.2 million.
Villaraigosa planned to promote his no-tax proposal to auto manufacturers and dealers in town for the auto show, where more than 50 vehicles are set to make their worldwide or North American debuts.
He made his announcement Tuesday at Beverly Hills Porsche, which is relocating next year to the Westwood area of Los Angeles and will benefit from a three-year business tax holiday for new businesses through 2012. It's only the second dealership in 25 years to open in the city.
"When this move is done, this Porsche facility will still be called Beverly Hills Porsche, but let me tell you, that's fine with me. I say give Beverly Hills the name, we'll happily take the sales tax," Villaraigosa said.
Beverly Hills Porsche sold $100 million worth of cars last year, which could bring Los Angeles about $1 million in sales taxes.
The dealership's president, Geoff Emery, said the mayor's office helped with some red tape, but he was mainly interested in the site because it's off heavily traveled Interstate 405.
The 200-member Greater Los Angeles New Car Dealers Association said LA's business tax has been an important factor in dealer relocation decisions.
"Eliminating the business tax for new auto dealers in Los Angeles is a win-win, generating higher sales and higher sales tax for the city," said Charlie Gill, the association's executive director. It has been working on getting rid of the business tax for 17 years.
"It was so obvious then, back as early as 1973, that it was hamstringing dealers in Los Angeles," Gill said. "Up to now the question has been whether to grow in L.A. or somewhere else. Now, there's this real sense L.A. is a real friendly place to do business in."
Bert Boeckmann, the president and owner of San Fernando Valley's Galpin Motors, whose stable of new cars includes the world's largest dealer of Ford Motor Co. vehicles, has already paid more than $500,000 this year in Los Angeles business taxes and contributed millions in sales tax revenue.
"It is the one thing that impedes competition with other cities," he said. "In the past, there has been no incentive to be in Los Angeles."
Boeckmann was considering a move of some of his new car operation to property he owns in Burbank, where he owns property. But he said Villaraigosa's proposal may change that thinking.
The business tax was the main reason Bob Smith BMW moved out of L.A.'s Canoga Park neighborhood to the city of Calabasas, where there's no business tax, Tim Smith said.
Now, because of the mayor's proposal, Smith said he's considering Woodland Hills and Canoga Park for a new Bob Smith Mini Cooper dealership.
"I think it's a very smart thing to do," Smith said of eliminating the sales tax.
- Mayor Antonio Villaraigosa