Beginning in January, state law will allocate tax revenues generated by automobile leases to the municipalities where each deal is cut.
Gov. Pete Wilson this week signed a bill changing existing rules so that the tax revenue from a leased automobile no longer will be divided by municipalities throughout the county where the person leasing a car lives.
Local and state officials said the change is expected to bring thousands of dollars in additional tax revenues to cities throughout the state with auto dealerships. Much of that money is needed to help cover local expenses such as police and fire protection, street repairs and trash collection, officials said.
In Thousand Oaks, officials estimate that about $750,000 in tax revenue was lost last year under the current system. In Cerritos, the estimated annual loss is about $1 million. And in Lancaster, about $60,000 more a year will go to city coffers with the law change, officials said.
“We’re very pleased,” said Gary G. Hill, finance director in Lancaster. “What it does is correct an inequity in the allocation method. It’s a noticeable amount.”
Officials said that although municipalities collect 1% of a new car’s sales price, they are experiencing revenue drops because they get very little from lease transactions. While lease deals were once a small portion of the auto business, they now account for about one-third of all new car transactions, officials said.
The new law is not expected to generate more sales or overall revenue, but it will send more of the existing revenues directly to municipalities with dealerships.
State Sen. Cathie Wright (R-Simi Valley), who wrote the bill, said the new law, which is effective Jan. 1, will help local budgets by eliminating an unfair tax provision.
“If we must have taxes, they should be fair and equitable,” Wright said.
Hill, also a member of a reform group called Cities for Restoring Direct Allocation of Motor Vehicle Lease Tax Revenue, said the new law harms some localities while helping others but was necessary.
The State Board of Equalization revealed in a recent analysis that Wright’s bill would dramatically help some cities, but at the same time would hurt those cities without automobile dealerships or auto malls, which currently receive a share of the lease tax revenue.
Still, the state Legislature recently passed the bill unanimously, noted Jesus Arredondo, a spokesman for Wilson.
Arredondo said the new law will mean municipalities that must provide standard services to existing dealerships will receive their due.