LEGISLATION; MOTOR VEHICLES; TAXATION (GENERAL);

TAXATION;

You asked which states have state motor vehicle taxes or fees on cars that are (1) based on the value of the car and (2) replace local property taxes on motor vehicles. You also asked if there have been proposals in Connecticut to substitute a state tax for the local property tax on cars. This report updates our December 6, 2001 report on this topic (2001-R-0893).

SUMMARY

A computer survey of state laws found 14 states that have state car taxes or fees that apply in lieu of property taxes. They are: Arizona, California, Colorado, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Montana, Nebraska, Nevada, and Utah. Mississippi has a hybrid system in which local authorities set mill rates and the state establishes a uniform motor vehicle valuation.

There have been several proposals to implement, or at least study, a statewide motor vehicle tax in Connecticut. Three legislative property tax reform commissions and tax forces made such recommendations between 1988 and 1995. None were enacted. The most recent property tax commission, in a report issued in 2003, looked at the issue, but was unable to agree on a specific recommendation. Since 1995, 13 bills have been introduced in the General Assembly proposing (1) eliminating the motor vehicle property tax, (2) establishing a statewide tax, or (3) requiring a study of the feasibility of eliminating the tax. None of these bills received a favorable report, though some had public hearings in various legislative committees.

STATEWIDE CAR TAXES

Arizona

Arizona’s vehicle tax applies to the vehicle’s “taxable value,” which is 60% of the manufacturer’s base retail price for the first year after initial registration. This value decreases by 16. 25% for each succeeding year. For the first year, the tax is $ 2. 80 for each $ 100 in value. For each following year, it is $ 2. 89 per $ 100. The minimum tax is $ 10.

Revenues from the tax are distributed according to a statutory formula to the state, counties, and incorporated cities and towns. Distribution to counties and incorporated cities and towns is based on relative population (Arizona Rev. Stats, §§ 28-5801, 28-5808).

California

California’s basic annual vehicle license fee (VLF) is 2% of the vehicle’s purchase price, depreciated over an 11-year period. The revenue is distributed to localities. Starting July 1, 2001, the state established a VLF offset equal to 67. 5% of the total tax due. The state maintained local revenues through a general fund appropriation. On June 20, 2003, the state director of finance rescinded the offset for registration renewals due on or after October 1, 2003, but newly elected Governor Arnold Schwarzenegger issued an executive order restoring the offset and rescinding the VLF tax increase (Cal. Rev. & Tax Code, § 10754, Ch 5 (S. B. 22), Laws 2000, Executive Order S-1-03, 11/17/03).

Colorado

Colorado’s annual specific ownership tax is based on a vehicle’s “taxable value,” which is 85% of the manufacturer’s suggested retail price, excluding federal excise taxes, transportation or shipping costs, and preparation and delivery costs.

Tax rates for passenger motor vehicles are:

(Col. Rev. Stats. , § 42-3-107)

Indiana

Indiana levies an annual license excise tax. The state determines a vehicle’s value when it is first offered for sale in the state using the factory advertised or port of entry price adjusted for any increase in the average price for new cars for the year. Vehicles are divided into 17 classes based on price and taxed at various rates, with more expensive cars taxed at higher rates. The rates decrease each year for 10 years as the vehicle ages and its value depreciates.

For example, the annual tax on a $ 22,000 car (Class XIII) is $ 300 when the car is new, $ 150 after five years, and $ 30 after 10 years. The minimum tax is $ 12. The tax is payable for each year the car is registered in the state.

Revenues from the excise tax are distributed to counties (Indiana Rev. Code, §§ 6-6-5-1 to 6-6-5-10).

Iowa

Iowa’s transit fee for passenger vehicles is 1% of the vehicle’s value plus $ 0. 40 for each 100 pounds of weight. The minimum fee is $ 10. If the vehicle is more than five years old, the value-based part of the fee is reduced as shown below:

Fees for 1993 models or older cars sold after January 1, 2002 are not based on value and weight, but are set by statute as follows:

(Iowa Code, §§ 321. 109; 321. 113).

Kansas

Kansas imposes a state motor vehicle tax based on a vehicle’s depreciated value. The tax rate equals the average rate of all state, county, and local property taxes in the second calendar year before the first full year the owner’s registration begins. Certain school district property taxes are excluded from the average rate calculation. The minimum tax is $ 24 (Kan. Stats. , § 79-5105).

Maine

Maine has an annual motor vehicle excise tax based on the maker’s list price. The tax rate decreases for older vehicles. The minimum tax is $ 5. Tax rates are shown below:

(36 Maine Rev. Stats. , §1485).

Massachusetts

Massachusetts requires local governments to collect an excise tax in lieu of any local property tax. The tax is $ 25 per $ 1,000 of valuation (2. 5%). The minimum tax is $ 5. The state motor vehicle commissioner determines the valuation based on the manufacturer’s list price for the vehicle’s model, make, and year. Maximum valuations decrease as the car ages as shown below:

(Mass. Gen. Laws, Chap. 60A, § 2).

Michigan

Michigan’s motor vehicle registration tax is based on a motor vehicle’s list price and varies according to a statutory schedule. For a new or newly registered car, the tax starts at $ 30 if the price is less than $ 6,000. It increases to $ 148 for a car priced between $ 29,000 and $ 30,000. For each additional $ 1,000 or fraction of the price over $ 30,000, the tax increases by $ 5.

Fees drop to 90% of the first year’s fee in the second year, 90% of the second year’s fee in the third, and 90% of the third year’s fee in the fourth and each subsequent year. (Mich. Compiled Laws, § 257. 801)

Minnesota

Minnesota imposes a 1. 25% tax on a car’s base value. The base value is the manufacturer’s suggested retail price, including destination charges. For new cars in their first or second years of life, the tax is on 100% of the base value. The tax base depreciates as follows: 90% for the third and fourth years, 75% for the fifth and sixth years, 60% for the seventh year, 40% for the eighth year, 30% for the ninth, and 10% for the 10^th and subsequent years.

The minimum annual tax is $ 25. For new and one-year-old cars, the maximum annual tax is $ 189 for the first year and $ 99 for subsequent renewals. The maximum tax for cars that are three or more years old and being registered in Minnesota for the first time is $ 99 (Minnesota Stats. , § 168. 013).

Mississippi

Mississippi motor vehicle owners pay an ad valorem property tax on their vehicle when they pay their registration fees. County tax commissioners collect the tax and the revenues go to counties and municipalities.

Counties set the tax mill rates and the State Tax Commission sets a uniform statewide assessed value of 30% of the manufacturer's suggested retail price, reduced by certain percentages for depreciation over 10 years. The minimum assessed value for passenger vehicles is $ 100. The State Tax Commission also sets an annual credit against the tax according to the projected balance in the state fund used to reimburse localities for the lost revenue. The credit is currently 5% (Miss. Code, 27-51-7 to 19).

Nebraska

Nebraska imposes a state motor vehicle tax based on the manufacturer’s list price and a statutory schedule. The tax increases with the price of the car and depreciates as the car ages over a 14-year schedule. For example, the tax for a new car worth $ 22,000 is $ 340. The tax on that car drops to $ 272 when it is three years old, $ 173. 40 when it is six years old, and $ 51 when it is 10 years old. The minimum tax for a new car is $ 60 (Neb. Code, §§ 60-3004-5).

Nevada

Nevada imposes a 4% state motor vehicle tax. The tax base is 35% of the manufacturer’s suggested retail price in Nevada, excluding options and extras, at the time the particular make and model is first offered for sale in Nevada. Cars are depreciated over nine years to a minimum value of 5% of their original base.

Nevada also allows counties, after holding a referendum, to add 1% to the state car tax to finance limited access highway projects (Nev. Rev. Stats. , §§ 371. 030 – 371. 060).

Utah

Utah charges a flat annual fee ranging from $ 10 to $ 150 per year, depending on how old a car is. Larger vehicles, such as campers and medium- and heavy-duty trucks, pay a fee of 1. 5% of the vehicle’s depreciated value. The value is based on the manufacturer’s suggested retail price for the vehicle when new. The Utah State Tax Commission sets depreciation schedules (Utah Code, § 59-2-405 et seq. ).

CONNECTICUT TAX REFORM COMMISSION PROPOSALS

Since 1988, four property tax reform studies have addressed the issue of a statewide motor vehicle tax for Connecticut.

1988 – Price Waterhouse Report

A 1988 Price Waterhouse report recommended the state study how the motor vehicle property tax is administered. The report concluded that local taxation of vehicles was “a major source of tax shifting” and “a significant drain on the resources of local assessors” (Property Assessment and Property Tax Relief in Connecticut, Price Waterhouse, February 8, 1988).

1988 - Legislative Task Force

In 1988, a legislative task force studied various aspects of the property tax system, including the centralization of the motor vehicle property tax. A subcommittee of the task force studied three options:

1. State tax collection based on a statewide uniform mill rate with towns receiving the actual tax revenue from the vehicles registered in each town.

2. State tax collection based on a statewide weighted average mill rate with revenue distributed to towns so they receive the same amount of revenue as under the current system.

3. Repeal of the local motor vehicle tax with no state tax to replace it.

The subcommittee recommended the second option, which was adopted by the full task force (Property Tax Task Force Final Report, January 1989).

1995 – Property Tax Reform Commission

In 1995, another legislative property tax commission recommended replacing the local property tax on motor vehicles with a state tax that rebated the entire proceeds to municipalities. The commission proposed that the state tax be set at a statewide mill rate high enough to collect the same amount of total revenue as the local property tax. The Office of Policy and Management and the Department of Motor Vehicles would administer the tax (Report of the State of Connecticut Property Tax Reform Commission, January 1995).

2003 – Blue Ribbon Commission on Property Tax Burdens and Smart Growth Incentives

In 2003, the commission considered various ways to make the motor vehicle property tax more equitable but was unable to reach a consensus on the issue. The commission discussed five options:

• Eliminate the tax

• Eliminate the tax and require the state to reimburse municipalities for their lost revenue

• Implement a statewide mill rate without maintaining town revenues at previous levels

• Implement a statewide mill rate without reducing any town’s revenues

• Retain the status quo under which each town levies and collects its own motor vehicle taxes

The commission decided not to recommend any of these options and instead merely summarized the pros and cons of each in its final report (Report on the State of Connecticut Blue Ribbon Commission on Property Tax Burdens and Smart Growth Incentives, October 2003, p. 30 (copy attached)).

LEGISLATION PROPOSED SINCE 1995

Since 1995, 13 bills have been proposed to either establish or study a statewide motor vehicle property tax or to eliminate the local tax on motor vehicles. None received a favorable report, thereby dying in committee. The bills are listed in Table 1.

Table 1: Statewide Motor Vehicle Tax Legislation Introduced Since 1995

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