GM Court Victory May Cost City $50 Million : Lawsuit: The decision finds a manufacturers’ tax is unconstitutional because it discriminates against outsiders.

The General Motors Corp., once a major San Fernando Valley employer before leaving its Van Nuys 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 Constitution,” according to the panel’s published opinion, dated late last month.

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

Ironically, while the city attorney’s office has been fighting the suit, Mayor Richard Riordan and Councilman Richard Alarcon have been helping GM officials find a buyer for the vacant 100-acre Van Nuys plant.

Alarcon, who represents the Valley district that includes the plant, said he has not heard of the lawsuit. Nonetheless, he defended the city’s efforts to find a buyer to develop a commercial and industrial strip at the plant site.

“It doesn’t change the fact that we need put a business in that site. We need to create jobs,” Alarcon said.

A spokeswoman for Riordan said she could not get details on the suit and declined to comment.

Sources have said that a deal between GM and a Woodland Hills partnership is close. City officials are pressing for the construction of a development with retail stores along Van Nuys Boulevard and industrial business in the back.

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In its lawsuit, GM has asked for a refund on the business tax it paid on sales since 1981, a total that is to be determined later in court. City officials, however, 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 a year. It is one of the largest sources of city revenue.

The tax works like this: Manufacturers within the city pay a business tax that is calculated based on the gross receipt from products they manufacturer 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 in-town firms.

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

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

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