City OKs Payments in Double-Taxation Case

A 1995 court decision that found the city discriminated against some manufacturers by collecting both a seller’s tax and a manufacturer’s tax is still reverberating in City Hall.

The City Council Wednesday approved a $734,451 settlement offer to 218 companies that filed claims against the city based on its old taxing system.

That system required manufacturers headquartered out of town to pay a tax on the sale of their products, but exempted manufacturers located within the city.

When General Motors moved out of Panorama City, the company found itself in the position of paying both a manufacturer’s tax and a seller’s tax because its products were sold in the city but built elsewhere.

In 1995, after the state Court of Appeal found that the city discriminated against GM, the city dropped its manufacturer’s tax, imposing only a seller’s tax on all companies selling products or manufacturing goods here.

The city paid GM $7.2 million in attorney fees, back taxes and interest to settle the suit, but officials now estimate that, to settle claims with about 1,300 companies already filed, the total liability could reach $50 million.

Therefore, the council Wednesday also agreed to establish a judgment obligation bond to pay off similar claims. Bonds will be sold as settlements are reached to pay off upcoming claims.

“There just isn’t $50 million in general funds to pay off the liability,” said Gerry Miller, a city finance specialist.

Although a few council members expressed discomfort with using bonds to pay the claims, the council ultimately approved the sale.

The advantage of selling bonds rather than paying the settlement in installments is that the interest rate is much less, Miller said. The bonds will be sold at a rate of less than 4.5%; an installment payment would come with a 7% rate.