I'd been looking for this location for a little while with no success, until on closer inspection of a couple of scenes, I noticed some street signs.
In the scene where Big Lonny's van is being vandalised, we catch a glimpse of a street sign for a 'Market St', however when scouting on Google Earth, only a handful of 'Market Street's' came up, one of which was for a location in Santa Clarita, because the area had changed beyond all recognition, and because initially the geography didn't seem to match up (hills in the background etc) , I discarded it as a potential location, and as none of the other 'Market Street's' matched up either, I decided that perhaps the sign was simply a product of the art department.
However, I did notice that during the '"illegal u-turn" scene a little earlier, a tantalising blurry street sign can just be made out, the sign was too short to be a name, which narrowed it down to a number… to me it looked like either a 6 or an 8… and what do you know, a quick Google Earth for 8th St and boom… took me straight to 8th and Market… Santa Clarita, right to the location I had previously discarded.
A proper comparison to the scenes indeed confirm that this is the location of the scene where Michael & Big Lonny almost come to blows, as well as the van vandalising scene, the scene of the illegal u-turn and the end scene where the Sheriff & Big Lonny tie the rope across the road in a failed attempt at mass decapitation.
The 'White Rock Chamber Of Commerce' & Big Lonny's house have both be torn down, a small park now resides on the site of the former, and a small office building on the latter. However the house next to Big Lonny's survives, as does the tree that Big Lonny ties the rope around.
Big Lonny's House/Van (& White Rock Chamber Of Commerce)/Attempted Decapitation Scene
Corner of Market St/Walnut St, Santa Clarita
Michael & KITT make their "illegal U turn" on corner of 8th St/Walnut St, Santa Clarita
Dropping Davey Off
Davey & Donny Fight
Location of 'White Rock Chamber Of Commerce' and Big Lonny's Van & House
The Illegal U-Turn
The Tree... Off With Their Heads!
The Neighbours House... About The Only Thing That Has Survived Redevelopment