The motor vehicle property tax in Connecticut

Lawrence Walters

Connecticut State Tax Panel PresentationHartford, 17 Nov 2015

Presentation Outline

• Overview of the motor vehicle property tax

• Comparison with other states• Administrative challenges• Policy options

Overview of the personal property tax

Net Motor Vehicle Assessed Value as a Percent of Total Net Grand List

7.3%6.7%

6.4%5.8%

5.3% 5.2%5.6%

5.9% 6.2% 6.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Perc

ent o

f Tot

al N

et G

rand

List

Gross Assessed Motor Vehicle Value

19,500

20,000

20,500

21,000

21,500

22,000

22,500

23,000

23,500

24,000

2008 2009 2010 2011 2012 2013

Gros

s Ass

esed

Val

ue (m

illio

ns)

Total Registered Motor Vehicles

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

2008 2009 2010 2011 2012 2013

Tota

l Reg

ister

ed M

otor

Veh

icle

s (1,

000s

)

Net Motor Vehicle Assessments as a Percent of Total Net Grand List: 2013

0

5

10

15

20

25

30

35

40

Num

ber o

f Tow

ns

Percent of Net Grand List

Motor Vehicle Tax on $20,000 Vehicle: Illustration

0%

10%

20%

30%

40%

50%

60%

149-199 200-249 250-299 300-349 350-399 400-449 450-499 500-549 550-599 600-699 700-799 800 ormore

Perc

ent o

f Jur

isdic

tions

Tax amount (dollars)

2014 Mill Rate 2014 rate + cap

Cities with the largest revenue loss under the cap

CityEstimated

revenue loss($millions)

Hartford 12.38 Waterbury 10.31 Bridgeport 4.39 New Britain 4.37 East Hartford 3.59 New Haven 3.58 Torrington 2.91 Hamden 2.76 West Hartford 2.60 Manchester 2.46 Total 49.35

Practices in Other States

Most common practices

• Ad valorem tax similar to Connecticut (13 states)• Excise tax based on Manufacturer’s Suggested Retail Price and age (12

states)• Registration fee only (17 states)• Local government option (Alaska)• Tax only the equipment mounted on the vehicle (DC)• Excise tax based on vehicle weight

The excise tax approach: Indiana

• Passenger vehicles grouped into 17 price range categories based on Manufacturer’s Suggested Retail Price

• Value within class determined by model year• All vehicles in the same class and model year pay the same tax• Local governments have the option to levy local surtax ($20 or $25)

Administrative challenges

Number of registered motor vehicles in towns

0

5

10

15

20

25

30

35

40

45

1,000 to 4,999 5,000 to 9,999 10,000 to14,999

15,000 to19,999

20,000 to29,999

30,000 to49,999

50,000 to90,000

Num

ber o

f citi

es

Number of registered vehicles

Challenges in administering the motor vehicle tax

• Valuing specialized equipment and vehicles• Discovery and documentation of antique cars• Processing vehicles sold or disposed of during the year

• About 17% of vehicle fleet sold each year• 487,000 used vehicle sales each year in Connecticut• About 360,000 eligible for prorating of motor vehicle tax

• Processing vehicles relocated out of states• 2.7% of Connecticut households relocate out of state each year

Challenges in administering the motor vehicle tax

• Registering vehicles out of state

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

2008 2009 2010 2011 2012 2013To

tal R

egist

ered

Mot

or V

ehic

les (

1,00

0s)

Number of registered vehicles

Connecticut Registered Motor Vehicles and Usage

0.80

0.85

0.90

0.95

1.00

1.05

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Inde

x (L

evel

in 2

005

= 1.

00)

Registered Autos & Trucks Fuel for highway use Vehicle miles traveled

Vehicle registrations per capita

0.65

0.70

0.75

0.80

0.85

0.90

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Num

ber o

f reg

ister

ed v

ehic

les p

er c

apita

Assessed values and Mill rates

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

0 10 20 30 40 50 60 70 80

Mot

or V

ehic

le A

sses

sed

Valu

e pe

r Cap

ita

2014 Mill Rate

Assessed value and mill rates

• 10 cities with 2014 mill rates of 40 or higher• Number of vehicles per 100 population: 59.4

• Rest of the state• Number of vehicles per 100 population: 85.2

• Even if vehicle owners are not registering their vehicles in other states, they may be registering them in other Connecticut towns with lower mill rates

Policy Options

Options 0 and 1a

• 0: Status quo

• 1a: Retain current ad valorem tax, but impose revenue neutral single statewide rate

• Required rate: 28.1 mills

• Impact• 73 towns would pay higher taxes (about 29% higher)• 96 towns would pay lower taxes (about 15% lower)• In 20% to 25% of towns, the change will be less than 5%

Options 1b

• Retain the current ad valorem tax, but impose a single statewide rate with an optional local rate

• Example• Statewide rate: 3 mills• Statewide cap on local mill rate: 26.5 mills• Overall cap on motor vehicle tax: 29.5 mills• State funds used to compensate towns forced to lower their mill rates

• Impact:• About half the towns would pay higher taxes (about 11% higher on average)• About half would pay lower taxes (about 6% lower on average)

Options 2a

• Replace the current ad valorem tax with an excise tax• Original base: A percentage of MSRP• Reduced by fixed percentage each year• Administered through vehicle registration system

• Impact:• Rate uniform across the state• Reduced administrative costs for towns• Because the rate is uniform, actual tax obligations of some owners will

increase

Options 2b

• Replace the current ad valorem tax with an excise tax and allow local governments to set the tax rate

• Original base: A percentage of MSRP• Reduced by fixed percentage each year

• Impact:• Maintains local autonomy• Reduced administrative costs for towns• Preserves extreme differences in tax obligations currently seen

Options 3

• Replace the current system with an excise tax based on vehicle weight

• Impact:• Substantial revenue loss

Option 4: Replace the 30% assessment exemption with a fixed dollar exemption

Current system (with 25 mills)• Vehicle A

• Market value $60,000• Taxable value $42,000• Tax due $1,050• Value of exemption $450

• Vehicle B• Market value $6,000• Taxable value $4,200• Tax due $105• Value of exemption $45

Fixed dollar exemption ($3,600)• Vehicle A

• Taxable value $56,400• Tax due $1,410• Value of exemption $90

• Vehicle B• Taxable value $2,400• Tax due $60• Value of the exemption $90

Option 5: Repeal the motor vehicle tax

• Consistent with practices in 16 other states

• Impact:• $650 million revenue loss• 7% of local government revenue

Uniformity vs. revenue neutrality

• Essentially any approach that attempts to both promote increased equity and remain revenue neutral will create large numbers of taxpayers with higher tax obligations enroute to reducing the tax bills for other vehicle owners

Available actions

• Increase the taxes paid by some in order to achieve uniformity and equity statewide

• Continue the current course of capping the maximum tax rate (and therefore the amount of acceptable inequity) and either

• Replace the lost revenue from state resources or• Provide local governments with an alternative revenue source under local control

• Abandon the tax on motor vehicles as a significant source of revenue and either• Replace the lost revenue from state resources or• Provide local governments with an alternative revenue source under local control

• Mandate equity in motor vehicle taxation, phased in over a sufficient time period to allow local governments to adjust to lower revenues, higher taxes on the remaining property tax base or a combination of both

• Address the administrative challenges and costs

Thank you!