Update: State court backs city.
The city assessed the tax on GM and DaimlerChrysler's gross receipts based on wholesale vehicle and parts sales to Seattle dealerships. The companies challenged it because neither maintains a sales-related office in the city, bases employees there nor directly solicits sales there.
Assistant City Attorney Cynthia Seu said: "It's a tax on the privilege of conducting business in the city. It's not an income tax or sales tax."
She said she doesn't expect the decision to have an impact on business and occupational taxes in about 45 other Washington cities because the appeals court simply reaffirmed Seattle's prior interpretation of the law.
The decision directly addresses Chrysler's taxes for 1986 through 1995 and GM's taxes for 1986 through 1998. Combined, they involve $4 million to $5 million, including interest, according to former Assistant City Attorney Steven Gross.
The tax applies to all manufacturers, in or out of the automotive business, Gross said.
In the case, the automakers unsuccessfully argued that they have insufficient connections to Seattle to justify tax liability because they don't directly sell vehicles there.
But appeals Judge William Baker said: "They conduct substantial marketing activities in Seattle. They send sales, service and parts representatives on a monthly basis to visit their Seattle dealers. These representatives discuss market conditions with the dealers. They also impart information about new products and discuss retail customer satisfaction levels."
The court also said the two companies direct millions of dollars worth of advertising to the city, cover the costs of warranty repairs by Seattle dealers and train dealers there in sales and management techniques.
The companies declined to discuss details of the case.
"We're not at a point where we can comment because it's pending litigation," said DaimlerChrysler spokeswoman Elaine Lutz.
GM spokesman Jay Cooney said his company disagrees with the ruling, believes the tax is "fundamentally unfair and punitive" and is evaluating its options, including a further appeal.
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