Los Angeles drops business tax on car dealerships

Hoping to lure car dealerships back to Los Angeles, the City Council voted Tuesday to eliminate the business tax for new auto dealers.

Dealerships are sought after by cities because they generate substantial sales tax revenue. But officials say nearly 100 dealerships have left L.A. over the last 25 years, with some businesses migrating to nearby cities such as Glendale, which exempts them from the gross-receipts tax.

“For too long, Los Angeles’ business tax has driven auto dealers outside the city limits,” Mayor Antonio Villaraigosa said in a statement released after the 12-0 council vote. “By taxing our new car dealers, we are chasing away needed jobs and revenue.”

The city reaped $3.6 million in gross-receipts taxes from car dealerships last year, according to the mayor’s office. It collected more than $23 million in sales tax.

Officials hope the loss of money from the gross-receipts tax will be offset by new sales-tax income.

City lawmakers have stepped up their effort to attract car dealers to Los Angeles in recent years and last year succeeded in drawing two luxury car dealers from Beverly Hills. The mayor said his business team helped persuade one of them to make the move by accelerating the permitting process.

Councilman Eric Garcetti, who cosponsored the motion Tuesday, said the money lost to the elimination of the gross-receipts tax would be offset if five new-car dealerships opened.

He said the city has lost out on up to $60 million each year in potential sales tax that could have been generated had no dealerships left the city. “That’s millions of dollars we could have used to fill potholes,” he said. “That’s millions of dollars that we could have used to staff fire stations.”

He and others argue that a total phase-out of the city’s tax on gross receipts would spur companies to expand and encourage others to move to L.A., eventually increasing revenue from other types of taxes. The city’s taxes are among the highest in the county.

But budget officials have urged elected officials to take a cautious approach, saying the elimination of the gross-receipts tax could increase the tax burden on residents or result in reduced city services.

kate.linthicum@latimes.com