LOS ANGELES — The heart of car culture may be beating in Los Angeles, but the nation's second-largest city has allowed two-thirds of its new automobile dealerships — and the sales tax revenue they generate — to slip away during the past quarter-century.
It seems few noticed as the gleaming cars and SUVs on dealers' lots left town to escape what critics call punitive business taxes.
Tough economic times have changed that.
Mayor Antonio R. Villaraigosa announced last week that he wants to eliminate business taxes on new car dealers in an effort to lure them back and keep the dealers that are left.
The business tax is self-defeating because it brings in limited revenue while scaring away auto dealers that would generate substantial sales tax revenue, the mayor said.
"For too long, L.A.'s business tax has driven auto dealers outside the city limits," Mr. Villaraigosa said. "It's time to reform the way we tax auto dealers so that we can bring more jobs and more sales tax to our city."
Since 1986, some 95 car dealers left Los Angeles for cities such as Glendale, Burbank and Pasadena that have much lower business taxes or none at all. Glendale, for instance, has no gross receipts business tax, while auto dealers in Los Angeles are charged $1.27 per $1,000 in gross receipts, whether the dealers are profitable or not.
There are now 52 dealerships selling new cars in Los Angeles. Last year, those dealers accounted for $3.6 million in business tax revenue but a whopping $29 million in sales tax revenue for the city. The city's share of the sales tax is roughly 1 percent of the price of a new car.
"It's time to stop surrounding cities from using L.A.'s broken tax system to lure businesses and jobs away from us," City Council President Eric Garcetti said. "Targeting car dealers is a big first step. But we must eliminate the business tax altogether. L.A.'s costly and cumbersome tax scheme is one that taxes businesses even when they lose money."
Mr. Garcetti and councilman Mitch Englander plan to co-sponsor a motion instructing the city attorney to prepare an ordinance eliminating new car dealer gross receipts taxes. It's unclear when a draft will be completed for a City Council vote.
Not everyone is on board with the plan.
City Administrative Officer Miguel Santana and Chief Legislative Analyst Gerry Miller urged caution in making any changes.
"Complete elimination of the business tax would be poor public policy," said their analysis, released Tuesday. "This would increase the tax burden on residents or result in decreased city services which would make Los Angeles a less desirable place to do business."
The mayor's $4.3 billion budget proposal for fiscal year 2011-12 relies on business tax revenue of $439.2 million.