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Driving the Profits Home : Auto Dealerships Mean Income for Cities Still Hurting From Prop. 13's Dent in Tax Revenues

June 02, 1985|JULIO MORAN | Times Staff Writer

In Hermosa Beach, city officials want to close portions of a street and two alleys to accommodate expansion of two auto dealerships, the owner being the largest taxpayer in the city.

The city expects the move to nearly triple its annual sales tax revenues from the two expanded dealerships, to $500,000 from $185,000.

Carson city officials recently used state redevelopment law to loan auto dealer Don Kott $750,000 for 10 years to build two auto dealerships on a site vacated by another dealer. Instead of a lot that could have remained empty for years, city officials expect the new dealerships to generate about $600,000 in tax revenues this year.

Meanwhile, Torrance is enjoying the tax benefits of two "auto rows" and, unlike other South Bay cities, it has room for more. By the end of the year there will be 17 auto dealerships--selling everything from Volkswagens and Hondas to Mercedes-Benzes and Maseratis--that could provide city coffers nearly $3 million in 1985 sales tax. In 1984 Torrance had 14 dealerships that generated $2.3 million in sales tax.

For the Record
Los Angeles Times Thursday June 6, 1985 Home Edition South Bay Part 10 Page 10 Column 3 Zones Desk 1 inches; 23 words Type of Material: Correction
Torrance realizes more than twice as much in sales taxes as in property taxes. A story on auto dealerships in the South Bay section June 2 incorrectly said the opposite.

Auto dealerships are big business for local governments, many still reeling from Proposition 13 slashes in property tax revenues. In Hermosa Beach, for example, property tax revenues are about equal to sales tax revenues, yet businesses use only 3% of the city's land, according to the city Planning Department. The situation is similar in other South Bay cities except Torrance, which has more industry and commerce and realizes about twice as much in property taxes as in sales taxes.

Looking for Tax Sources

Keith Julian, manager of economic planning and development for the Southern California Assn. of Governments, said cities are looking for other revenue sources. In many cases, he said, cities are reevaluating land-use plans for better economic benefits, including creation of auto centers where five or six dealers sit near each other.

"Cities have begun to reexamine their economic needs and sources," Julian said. "One of the things they identified was sales taxes. The sales tax has always been there, but now it has become that much more important because of the cuts in property taxes."

Many cities have turned to sales tax revenues and developed pro-business stances. City councils in Redondo Beach, Hermosa Beach and Manhattan Beach have recently approved construction of hotels; Redondo Beach officials are looking eagerly for the opening of the remodeled and renamed South Bay Center as an enclosed mall that will be called the Galleria; and Hermosa Beach officials are excited about the opening last week of a shopping center that is expected to produce as much as $600,000 a year in sales tax for the city.

But none of those businesses can affect a city's take in sales tax like an auto dealership. Various city officials say a single dealership can provide more sales tax than any restaurant or grocery, that a dealership with medium-priced cars will match a major department store and that a dealer of expensive autos will exceed the department store's sales tax revenue. All businesses provide cities with one percentage point of the 6.5% Los Angeles County sales tax. For an auto dealership, that means that for every $15,000 car sold, a city gets $150 in taxes.

Advantages Claimed

"Auto dealerships generate low traffic flows," said Hermosa Beach Councilman Jack Wood. "They have compatible hours with adjoining residential neighborhoods and relatively small buildings with a small number of employees."

There are no central auto centers in the South Bay, but along La Brea Avenue in Inglewood, Sepulveda Boulevard in Manhattan Beach, Pacific Coast Highway in Hermosa Beach and Redondo Beach and on Hawthorne Boulevard and Pacific Coast Highway in Torrance, rows of new- and used-car dealerships line the streets, separated by a block here, two blocks there.

Auto dealers know they are wanted and often use that to get concessions like more space, as in Hermosa Beach, or financial considerations, as in Carson.

"They are obviously important to any city's tax revenue base," said Inglewood City Manager Paul Eckles. Inglewood has 10 dealerships that contribute about $1 million a year, or 20% of the city's sales tax revenues.

In small cities such as Hermosa Beach, where sales tax from auto dealers makes up about a third of the city's sales tax revenues, dealerships tend to be more important. Losing an auto dealership there could mean a cut in public services.

But for larger cities like Carson and Torrance where land is still available, the rich just seem to get richer.

In Carson, where five dealerships have ample room to store and display hundreds of cars, auto sales tax revenues are higher by almost $500,000 than in Inglewood, where the 10 dealerships are crowded into smaller spaces.

The deal between Carson and Don Kott, who has been in the auto business for about 40 years, will be mutually beneficial, both sides agree.

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