GM Wins Court Fight on City Taxes

General Motors Corp., once a major San Fernando Valley employer before leaving its Panorama City operation in 1992, has won a significant court battle that could cost Los Angeles at least $50 million and jeopardize a city tax on other manufacturers.

In a lawsuit filed by GM, a state court of appeals ruled that the tax is discriminatory because it exempts manufacturers within the city from paying a business tax on the sale of their products while imposing that tax on out-of-town manufacturers.

“This decision has a potential for eroding our tax base in ways we cannot even imagine,” said Timothy Lynch, the city’s deputy city controller.

The three-judge panel ruled that “if the city’s business tax ordinance discriminates in favor of local manufacturers and against intrastate and interstate business, it violates both the federal and state constitutions,” according to the panel’s published opinion, dated late last month.

Although GM benefited from this exception when it built cars in Panorama City, it is now on the losing end of the deal because most of the GM cars and automobile parts that are sold in Los Angeles are made in Detroit and elsewhere.

In its lawsuit, GM has asked for a refund on the business tax it paid since 1981 for vehicles manufactured outside the city, a total that is to be determined later in court. However, city officials estimate the refund could be about $8 million. If other manufacturers file similar suits, the cost to the city could reach at least $50 million, including back taxes, according to a city estimate.

The tax on manufacturers brings in about $26 million per year and is one of the largest sources of city revenue.

Assistant City Atty. Ronald Tuller said the city’s tax was challenged in 1971 and was upheld by the state Supreme Court, with the exception of some provisions that have since been rewritten.

It works like this: Manufacturers in the city pay a business tax based on the gross receipts from products they manufacture and do not pay an additional business tax when the products are sold in the city.

But that is not the case for an out-of-town firm. GM, for example, must pay a tax in Detroit based on its receipts of cars and parts it manufactures and a business tax to Los Angeles when it sells the cars and parts in the city. GM argues that this gives out-of-town firms a disadvantage over local firms.

Tuller said the city will file court papers in the next week asking the state Supreme Court to review the decision.

Charles Ajalat, an attorney representing General Motors, was out of town Friday and could not be reached for comment.