February 8, 2010
EVASION OF PROPERTY TAXES ON MOTOR VEHICLES
By: Kevin E. McCarthy, Principal Analyst
You asked what municipalities in Connecticut, and nearby states are doing to discourage people from registering their vehicles outside of their home towns or in other states to avoid paying property taxes on them.
EVASION OF LOCALLY-LEVIED PROPERTY TAX
Connecticut municipalities assess motor vehicles for property taxes and tax the vehicles at different rates. Consequently, some vehicle owners who reside in municipalities with higher tax rates try to reduce their tax burden by listing their vehicles in another municipality or another state with a lower tax rate. According to David Dietsch, the Waterbury assessor and president of the Connecticut Association of Assessing Officers, the phenomenon of people registering their vehicle in the improper municipality or out of state is most common in municipalities with high property tax rates and those located along the state's borders.
In most cases, vehicles in Connecticut are subject by law to property tax in the municipality where the vehicle, in the normal course of operation, most frequently leaves from and returns to or in which it remains. (Colloquially, a vehicle is said to be taxed where it sleeps.) The law presumes, with limited exceptions, that this is the municipality where the vehicle owner resides. The tax applies whether or not the vehicle is registered with the Department of Motor Vehicles. It also applies if the vehicle is registered in another state.
There are specific rules for taxing vehicles assigned to a firm's employees, recreational vehicles, and certain types of construction equipment. In practice, the Department of Motor Vehicles does not compare the address listed on an application for vehicle registration with the address listed on the driver's license of the owner to determine whether a vehicle is being registered in the proper municipality. However, knowingly providing false information on a registration application is a crime.
ENFORCEMENT OF PROPERTY TAXES
The number of vehicles operating within the state makes it difficult for assessors to enforce the above situs rules. Consequently, some municipalities including Bridgeport, Danbury, Hamden, New Haven, Stratford, and Waterbury have retained the firm Municipal Tax Services (MTS) to help them identify unregistered vehicles and improperly registered vehicles. The firm sends employees with cameras to identify vehicles that appear to belong to residents of the municipality that are unregistered or are registered in other states. The employee drives around the municipality using camera technology that automatically detects license plates, reads the license plate number, and compares the number to a property tax database. When an employee sees a vehicle with out-of-state plates or that is unregistered, he or she will use the database to determine whether the vehicle owner is already paying taxes on it. If not, the firm will take photos of the vehicle over a three-month period to determine whether it is being continually parked in the municipality. The company also has access to another database that can help prove residency based on government-reported mailing addresses and voting registry. Once residency is established, the municipality will send a letter to the vehicle owner inquiring about it, and request an interview on the subject.
According to Dietsch, these techniques have been helpful in identifying people who are seeking to evade property taxes, and Waterbury has collected approximately $300,000 in taxes from such people in the past year.
Rhode Island is the only nearby state that subjects vehicles to a property tax that is set at the local level. The tax rate varies significantly by town and Ken Mallette, president of the Rhode Island Association of Assessing Officers, has seen the phenomenon of people evading taxes by registering their vehicles in improper jurisdictions. It does not appear that the state has any specific mechanism to deal with this phenomenon.
On the other hand, Massachusetts has a value-based excise tax on vehicles with a statewide tax rate rather than a locally set property tax. The tax rate declines with the vehicle's age. New Hampshire has a similar tax and vehicles are registered at town clerk's offices or online. OLR report 2003-R-0902 (enclosed) describes other states with statewide vehicle taxes. New Jersey, New York, and Vermont do not subject vehicles to the property tax and so the improper registration of vehicles is not a property tax issue there.