Tax: The auto industry is a staple for the local economy, generating over 25% of the city’s total sales tax revenue per quarter. City of Santa Monica


The auto industry, which is a staple for the local economy, suffered with new dealership sales falling by 8% and rising interest rates affecting leasing

Santa Monica’s economy remains relatively stable according to recently released sales tax figures but inflation concerns are weighing on some of the city’s most valuable revenue generators.

Sales tax for the City of Santa Monica for the first quarter of this year, 2023, was 0.2% below the same period, January through March, last year, 2022. However, actual sales were down by 2.2%. (The figure excludes accounting adjustments and delayed payments.)

The effects of inflation on various taxable goods pricing materialized this quarter, with buyers paying less for the cost of new vehicles as financing costs escalated over the three-month period.

The auto industry is a staple for the local economy, generating over 25% of the city’s total sales tax revenue per quarter. Moreover, 16 of the top 25 sales tax producers in Santa Monica are associated with the auto industry. New dealerships sales fell 8% and auto leasing declined 14%. According to the City of Santa Monica, analysis confirmed falling pump prices caused a fuel-service station’s 12% decrease.

Although, not everyone has suffered it seems. “It is a very interesting market, there’s a lot of money out there. There are certainly headwinds: interest rates/gas prices/mortgages domestic and political unrest … And yet, despite all that, my business is selling more cars,” said Mike Sullivan, CEO of LAcarGUY.

“That’s a funny statistic though, because we were so severely limited, with production, micro chips, parts availability, etc. for nearly three years…. Now manufacturers are able to build more cars and in fact, we are selling more. During the shortage for those years margins went up. But volume went down dramatically. Now, the good news for consumers is there’s much more availability. Discounts and deals are available and it looks like we will continue to build more and create much more of a ‘buyers market,’” Sullivan told the Daily Press.

“The big take-aways from this quarter is that while the overall sales tax is down ever so slightly, this is primarily due to a drop in auto leasing activity in Santa Monica,” said Jennifer Taylor, Economic Development Manager with the City of Santa Monica.

“Rising interest rates have impacted our residents’ demand for leasing cars. Retail and restaurants are nearly always slightly down this quarter – year on year – as it’s post-holidays and cooler weather, people are dining out a bit less, trying to follow New Year’s resolutions, etc. I think this quarter was also particularly wet so the outdoor dining was impacted. Overall, though, casual restaurant sales and hotel sales are trending upwards from the same quarter last year so that’s good news and continues the positive trajectory for many of our local business sectors.”

Weakened demand for office and medical/biotech supplies drove business-industry downward 11%. Cautious shoppers scaled back discretionary purchases on apparel, sports goods/bikes; however, general consumer goods rose 4% overall as audit recoveries boosted the home furnishings segment tax base.

Positive areas remitting bigger filings included plumbing/electrical supplies, quick service restaurants, hotels, and grocery stores. The City’s district tax dipped slightly; eating out and building related gains were offset by reductions in auto, general retail, and gasoline sellers.

Net of aberrations, taxable sales for all of the Southern California region were down 0.9%.

Scott fell in love with Santa Monica when he was much younger and now, after living and working in five different countries, he has returned. He's written for the likes of the FT, NBC, the BBC and CNN.