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Tax break approved for car dealerships in Los Angeles

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Car dealerships that sell new vehicles will be exempt from paying the city of Los Angeles’ business tax under a plan intended to bring back sales from neighboring municipalities.

The gross receipts tax, which businesses must pay regardless of profit, will be waived for dealerships that sell new cars, regardless of whether those dealerships are currently in the city or move in in the future. The tax can range from $1.01 per $1000 to $5.07 per $1000 of sales.

Auto dealerships generated $3.6 million in gross receipts taxes for the city of Los Angeles last year. City officials believe that by waiving that tax, more dealerships will move into the city and increase the flow of sales tax dollars. This fiscal year, the city expects to receive $5.4 million in sales tax. 

“We’ve been driving away new car dealers out of the city of Los Angeles for many years,” said Councilman Mitch Englander.

The city has 52 car dealerships. Twenty-five years ago, there were 147 new auto dealers in city limits. 

During today's discussion on the proposal, Councilman Bernard Parks questioned whether this would be seen as an "incentive" for a particular class of businesses, which is prohibited by state law. A representative with the City Attorney's Office said that while this is unchartered territory, he believes the tax break is legally defensible. 

The tax will be waived through 2020.

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