Los Angeles Business Journal

L.A. Approves Business Tax Exemption for New-Car Dealers

By Howard Fine Tuesday, July 3, 2012

Hoping to keep auto sales in Los Angeles and bring other dealers to the city, the City Council on Tuesday approved a nine-year business tax exemption for all car dealers selling new models in the city.

Since 1986, Los Angeles has lost nearly 100 auto dealerships to surrounding cities, depriving the city of $43 million in annual tax revenues.

“For too long, Los Angeles’ business tax has driven auto dealers outside the city limits,” said Los Angeles Mayor Antonio Villaraigosa. “We are finally reforming the way we tax auto dealers so that we can bring more jobs and more sales tax to our city.”

The move to eliminate gross receipts taxes for auto dealers is the latest salvo in a war between Los Angeles and Beverly Hills over luxury auto dealerships, which generate large amounts of sales tax revenue for their host cities. In the last 18 months, Los Angeles has lured Beverly Hills BMW and Beverly Hills Porsche from their namesake city.

Upping the ante, Villaraigosa and City Councilman Eric Garcetti last fall proposed eliminating gross receipts taxes for auto dealers moving into the city. In order to comply with a state law forbidding cities from giving incentives to dealers that relocate, that proposal was amended to include all auto dealerships.

The ordinance will be retroactive to the start of this year and will expire at the end of the 2020 tax year. By that time, the gross receipts tax for all companies in the city may be eliminated, if the City Council approves a plan this fall for a phased scrapping of the tax.

Beverly Hills has responded by announcing its intent to craft its own incentives for auto dealerships.