LOS ANGELES —During a press conference held at a downtown KIA dealership on Monday, Mayor Antonio Villaraigosa signed a city ordinance exempting new-car dealers from the city’s gross receipts tax, or business tax.
Last fall, Villaraigosa joined Councilmembers Eric Garcetti and Mitchell Englander in calling for a change to the tax structure for Los Angeles' new-car dealers. The three city officials had determined that the business tax was hindering sales tax revenue generated by car dealerships. According to a press release, dealers generated six times as much in sales tax revenues as was generated through the business tax.
"Today we eliminate a scheme that taxed car dealerships even when they lost money. We're sending a message that we want these revenue-generating businesses to be in Los Angeles," said Garcetti, who co-authored the ordinance.
L.A. has lost 95 dealerships in the last 25 years, but that trend is reversing course. Downtown L.A.’s “Auto Row” now has twice the number of dealerships than it did seven years ago. KIA of Downtown L.A., the site of the press conference, is the second new auto dealer to open in the city in 18 months. That dealership is expected to bring in about $55 million in sales per year, an amount that will bring more than $400,000 in sales tax per year to the city’s general fund.
KIA currently employs 50 people and is expected to hire another 15 for its expanding business. The passing of the new ordinance will help KIA and other dealerships open their doors to customers.
“Because of this ordinance, new auto dealers like ours will be unencumbered by the gross receipts tax, letting us expand, hire new employees, and generate more revenue for the City of Los Angeles,” said Mike Sage, vice president of Sage Auto Group. “We applaud the mayor for leading the way to make L.A. a more business-friendly city.”
According to the Greater Los Angeles New Car Dealers Association (GLANCDA), the city’s business tax has been driving dealers to open new stores in surrounding cities like Glendale, Calif., which has no business tax.
“The elimination of the business tax on the sale of new vehicles is the single most important thing the city can do to stop the migration of dealerships out of the city, to attract more dealers to locate here and to encourage those of us who are here to make investments in expansion,” said David Ellis, president of GLANCDA. “We believe the business tax relief provided by this ordinance will return large dividends to the City in the form of higher sales tax revenues. This ordinance sends the message loud and clear to the new car dealer community that Los Angeles is once again a great place to do business.”
Reforming LA's business tax is a core component of Villaraigosa's five-step plan for creating jobs in Los Angeles. The five steps are: (1) reforming LA's business tax, (2) reducing red tape, (3) partnering for economic growth, (4) improving LAX and the Port, and (5) building a 21st century transportation network.
“Ending the auto dealer business tax is smart policy that will pay dividends for years to come,” said Villaraigosa. “New dealerships mean new jobs for Angelenos and more revenue for our parks, libraries, and police officers.”