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January 22, 2012

Car Tax Reform

Patrick Laverty

Warwick's Rob Cote has been leading the charge for a car tax revolt in the state. He has brought up the inequities in the law with things like being taxed at the full clean value of a car, in spite of its mileage and condition. If you have a 2005 Honda Accord, you will be assessed the same value if that car is Grandma's Sunday church car with 15,000 miles on it or if it's been in a couple accidents with 150,000 miles on it. Plus Cote has said that when you purchase a new car, the cities are using the brand new value of a car for the first five years. Everyone knows that even a brand new car loses value the minute it is driven off the lot, but yet you pay the full value.

Add on top of this, every town has their own tax rates for cars. That same Honda Accord is taxed at $76.68 if its owner lives in Providence and it is taxed at $9.75 if its owner lives on Block Island. Same exact car, vastly different taxes paid.

Add on top of that, in 1998, the General Assembly forced all towns to freeze their tax rate on cars. They cannot change. The towns who saw this freeze coming simply raised their rates at that time. Still today, no town can change its auto tax rate.

Now, based on Cote's initiative, State Representative Joseph McNamara is sponsoring legislation to make the car tax more fair. The bill will change the system so we pay a rate that more closely matches the value of the car, which in almost every case will be less than it is today.

So what will this mean? Higher property taxes is what it will mean. Originally, one of the purposes of the car tax was to lessen the burden on property owners, but now this change could increase that tax.

Let's walk through it this way. When you look at either the auto tax or the property tax, neither the rate nor the assessment matter by themselves. What matters is when the two of them are brought together. Basically what towns do is figure this out in reverse. They first figure out how much money they need, then they already have a decent idea of what their aggregate assessed value is and then use that to set the rate. But remember, in the case of the auto tax, the tax rate is frozen. Towns cannot change it. So what this change to the law could do is largely lower the aggregated assessed value, and without a rate change, the town will lose a lot of revenue.

Most mayors are not going to simply say "Oh well, we have less money, we'll just spend less." No, they will need to replace that money from somewhere. Unless the General Assembly is going to reimburse the revenue loss from the auto tax, then the mayors have to find that money themselves. Towns really only have one major source of revenue after the auto tax, and that is property tax. How much could be lost?

three quarters to a million dollars," said North Providence Mayor Charles Lombardi, "That revenue has to come from somewhere."
That kind of cut will not happen in town budgets, so the difference will be recouped in property taxes. Unless the state adds another way to make that up, this could result in another example of the Assembly raising our taxes yet being able to claim that they didn't.

What might be the simplest solution? Unfreeze the rates. Let the towns set whatever rate they want. Then they can assess the autos at the correct amount and set the tax rate accordingly. Taxes paid won't go down at all, but you'll feel a whole better about your car being assessed appropriately.

Comments

Moved in August. Sold a house in a top town at a loss, bought for less up north. Sold my 2007 Hyundai Santa Fe shortly thereafter ( car tax $742) and bought a nice 2009 BMW. Car tax still a little less and the experience at the DMV here made me giddy it was so quick and pleasant.

I still lurk on RI sites- all I can say , guys, this is the culture of RI. It will never change. You can write and criticize and try to invoke change until you are blue in the face but the GA has been captured, the states culture is wrong.

We moved a small biz w us and have never been happier now that we are free. Time to go everyone - take the loss and get out. The car tax is endemic of the problem. They will get you in every way they can and you will spend your life stressing about it. It will define you and destroy your peace of mind. Leave and be done with it. RI will be an economic deadzone as the war between the states escalates, its over...

Posted by: gladileft at January 22, 2012 4:22 PM

Congratulations on leaving, GladILeft. I left the state a year and a half ago. Voting with your feet and moving your tax dollars is the only way your vote will ever matter in Rhode Island.

Posted by: Dan at January 22, 2012 7:08 PM

"That revenue has to come from somewhere."

Don't you love political avoidance. "Revenue" was a seldom heard word in politics until the budget debate of the last year. Now all politicians refer to "revenue", rather than "taxes". It is a little more honest than the term they previously loved "investment", for "spending".

Hands together for Dan and Gladileft. As they note, the only answer is to starve the GA out.

What I really fear is that they do not learn a lesson in this miserable economy. Things will surely improve. If no lessons are learned, it will be back to "let the good times roll".

Posted by: Warrington Faust at January 22, 2012 10:10 PM

"That revenue has to come from somewhere."

Don't you love political avoidance. "Revenue" was a seldom heard word in politics until the budget debate of the last year. Now all politicians refer to "revenue", rather than "taxes". It is a little more honest than the term they previously loved "investment", for "spending".

Hands together for Dan and Gladileft. As they note, the only answer is to starve the GA out.

What I really fear is that they do not learn a lesson in this miserable economy. Things will surely improve. If no lessons are learned, it will be back to "let the good times roll".

Posted by: Warrington Faust at January 22, 2012 10:12 PM

End the damn car tax. Replace half the revenue with a small across the board (not just "The Rich") income tax hike and the other half with mandate relief and abolishing All municipal minimum manning BS-teachers class sizes most definitely included.
Then, on to muni pension reform.

Posted by: Tommy Cranston at January 23, 2012 12:52 PM

"If you have a 2005 Honda Accord, you will be assessed the same value... if it's been in a couple accidents with 150,000 miles on it."

It doesn't matter, and while I respect Mr. Cote's involvement, the point of the tax is to get X dollars from people to the towns. If you change the valuation method, you just modify HOW X is taken, not what X is.

There are problems with a valuation-based tax. Cote points out the first: Book value doesn't always reflect real value. The second is that it promotes the keeping of old, dirty, potentially unsafe cars.

I say we change the car tax from valuation-based to weight-based. Curb weights of car models are specific numbers that don't change like values do. Weight is related to wear-and-tear on roads (as is mileage, but I assume we collect that part via the gas tax). This would also encourage people to buy smaller cars, which are safer for society in general (no, that SUV isn't safer for you, and it's much MORE dangerous for the guy you hit) and more efficient (every dollar spent on energy in RI is a dollar lost forever).

And I really don't want to hear the argument for giant monster-trucks I see people in for no reason. I grew up in a family of five, we were Just Fine in a Mazda 323 with a 1.5L engine. I think the government DOES have a legitimate interest in making people who want to drive tanks around pay a few more bucks to cover their impact on roads and public safety.

Posted by: mangeek at January 23, 2012 1:38 PM

Slicing the same ie into different shapes doesn't change the size of the pie.

Posted by: John at January 23, 2012 2:07 PM

Oops! Slicing the same pie into different shapes doesn't change the size of the pie.

Posted by: John at January 23, 2012 2:10 PM

And, interestingly, the car tax WAS the straw that broke the camels back. I was SO mad, my 07 hyundai was the base model, no electric nuthin and I paid $42 per 1000 on it while 2 towns over was half that. I appealed and was denied. And, of course, the billing is for the previous year so Im still paying the damn thing here.

I waited to buy the bimmer until I left. Poor RI car dealers - who will buy from them? Meanwhile , my town, despite the supposed 4% property tax cap ( 4.25? ) reassessed us so our property taxes went up 30% in a year. You have to be kidding me!

We are getting older and we just don't have the money to pay for state workers pensions that we'll never have ourselves. Y'know its as simple as that. We'll take SS at 70, until then its stuff what we can in and SAVE in our dinky self-managed 401-Ks.

Why , then, pay that cash to RI in tax tax tax - we chose to leave, downsize and pay ourselves. Literally.

Its the future. RI is unlivable and powers play to uneducated electorate. They cannot make it work bc the culture is broken but also bc power structure lives off things as they presently are. Meanwhile, no one in the muni unions understand the basics of investment, VAR and compounding so they want want want, never good enough. Whine, whine, whine. It all gave me a headache.

I bet they pass binding arbitration as payback anyway.

We giggle now thinking we made it out. Its that bad, we are so relieved to be free and so cynical about how it'll play out...

Posted by: gladileft at January 23, 2012 2:37 PM

GladIleft - Last year I received a letter from the great state of Rhode Island and Providence Plantations. The letter claimed that I owed the state a moderate sum of money for their "car tax," despite the fact that I no longer own the car and no longer live in the state. I called the number during business hours and of course had to leave a message. A week later, a public employee called me back and informed me that the letter was correct and I must pay the amount, plus a "convenience fee" for doing so electronically. So they managed to get one last extortion out of me as an "f you" on my way out the door. Consider it a parting gift. I do hope whichever 40-year-old "disabled" firefighter gets that money enjoys spending it in a Florida casino before the entire municipal pension system comes crashing down under the weight of its own excess.

One of a few reasons why I have redoubled my already extensive campaign to convince everyone I know back in Rhode Island to leave the state as soon as feasible. My parents are the last of my family members to leave, and they will be moving within the next year or two. I have personally helped two close friends relocate nearby in Virginia. They remark to me on an approximately weekly basis that they do not regret their decision.

Posted by: Dan at January 23, 2012 2:59 PM

"plus a "convenience fee" for doing so electronically"

Many people do not realize the "cost" of credit card payment. Typically 3-3.5%, I don' think the state can legally give the discount(it amounts to a tax deduction). Some agencies that handle a lot of cash, will accept plastic (there is probably a high theft rate with the cash).

Many utility companies (regulated) will not accept credit card payments, but insist on an "electronic check" which is still "free".

Posted by: Warrington Faust at January 23, 2012 4:43 PM

"I bet they pass binding arbitration as payback anyway"

I'm thinking that too and boy would that be some payback!

Posted by: bob at January 23, 2012 5:10 PM

Mangeek,

So Grandpa's barely used 30-year-old pickup will be taxed at a higher rate than some highly-paid young computer worker's brand new luxury vehicle because you've got an aesthetic problem with large vehicles? Or will we shuffle some more resources through the government fee machine in order to give Grandpa credit by some other entitlement means?

Posted by: Justin Katz at January 23, 2012 6:59 PM

I have to agree with mangeek - these taxes are all fungible and the details don't matter. Whether you are extorted through your house, your car, your food, or your income, your money is equally gone at the end of the day. The entire purpose of such diverse revenue streams is to make it impossible for anyone to aggregate and actually realize the extent to which they are getting ripped off each year for essentially no value in services received. When the car tax is finally revised, after thousands of hours of study and tireless advocacy, they'll just raise the gas tax or hand out more speeding or parking tickets or something else. There's an endless bag of tricks and the only way to stop it is to refuse to pay anymore (leave).

Posted by: Dan at January 23, 2012 7:19 PM

Justin, assuming that ALL registered vehicles are getting taxed this way, yes.. Grandma's Suburban Assault Vehicle will get taxed at a higher rate than a small sports car... BUT (and it's a big but), the trick is a balance between what you get from the gas tax (essentially a penalty on inefficiency and miles driven) and a 'weight tax'. That should even things out a bit.

Basically, this would make Grandma (and everyone else) consider switching to a smaller, lighter car once they're empty-nesters. This actually has some pretty positive big-picture ramifications once the bullet has been bitten. It's better macroeconomically, environmentally, and in terms of public safety for people to drive smaller cars.

Plus, by spreading the cost to ALL vehicles on the road, you won't have a bunch of just-under-the-exemption vehicles going tax-free, which means generally lower overall payments for everyone except the people not paying anything now. Lower and Broader is simpler and better.

Posted by: mangeek at January 23, 2012 8:34 PM

My Ford F250 Super Duty (mangeek) rose $6k in value for property tax purposes. If they lower it, they'll just change the rate. In addition, I think I pay plenty more in gas tax than someone driving a Mazda 323. If not then the Mazda is being driven too much.

Posted by: Max D at January 23, 2012 8:36 PM

"If they lower it, they'll just change the rate."

Max, currently the rate is frozen and has been since 1998. Of course, they could unfreeze it and you're coming to the same conclusion as me. Rate doesn't matter by itself. Assessed value doesn't matter by itself. It's when these two numbers are brought together that they matter.

Posted by: Patrick at January 23, 2012 9:18 PM

There might be another advantage to continuing to tax vehicles that fall below the old exemption levels: We have a MAJOR problem in RI with people not keeping their insurance. Since taxes and registration are linked, we might get better compliance on insurance.

Better compliance on insurance means lower rates for all of us, and I pay a LOT more for insurance than I do for taxes.

Posted by: mangeek at January 23, 2012 10:06 PM

Dan,

I agree with you. There are too many taxes on too many things with no real justification for any of them, except as an excuse for government entities to confiscate money. This is particularly apparent when progressives begin to treat property taxes as if they ought to be, well, progressive according to income: What are we taxing, the property or the income of the owner by some other means?

I'm more than a little confused about your sympathy for mangeek's proposal. What it comes down to, in the final analysis, is that he wants to use the car tax to punish purchase decisions that he doesn't like. Oh, he puts all sorts of faith in the government to balance weight taxes with gas taxes with mileage taxes with welfare payments to those who are struggling to make sure everybody's cut is ultimately fair, but at the end of the day, he wants to try to push an old man to switch out a vehicle that he's had for many years and that suits him... whatever his reasons for feeling suited may be. He wants to make sure that those whose lives have led them toward occupations and family situations that require large vehicles are punished... in part to help him make his own smart financial decisions and invest wisely to retire at an age when those "Suburban Assault Vehicle" drivers are still having to work. All of this while increasing our society's reliance on government and government's ability to dictate our behavior.

I used to have the big car hatred, so I sympathize with the impulse. But there are two ways to go about expressing one's preference:

1. Try to persuade people --- grandma, grandpa, the blue-collar worker, the family with multiple children --- that they shouldn't drive what they drive and that they're fooling themselves about the damage that they're doing to the universe.
2. Leverage government's inherent desire to take people's money to hit all of those people right in the bank account, all while keeping one's own hands clean.

If you're taxing a property, tax the value of the property. End of story. If you want to tax fuel more heavily, that's different. If you can persuade people to let the government check their odometers and tax them accordingly, then that's different, too. But there is no basis for taxing property according to its weight.

Posted by: Justin Katz at January 23, 2012 10:34 PM

Multi-family housing units do not represent a proportionally balanced value for taxation relative to the number of families living in them. Therefore, in the minds of the single family homeowners, the renters are paying less than their "fair share" of property taxes. How does the government level that playing field? Tax motor vehicles. That will lower the ratio of total taxes paid by the single family home owner relative to the total tax burden and the renter will pay more taxes.

That's why cars are taxed. It doesn't mean it's an excuse to use screwy values or to justify the state leaving the rates frozen.

Posted by: John at January 23, 2012 11:31 PM

"Basically, this would make Grandma (and everyone else) consider switching to a smaller, lighter car once they're empty-nesters. This actually has some pretty positive big-picture ramifications once the bullet has been bitten. It's better macroeconomically, environmentally, and in terms of public safety for people to drive smaller cars."

Mangeek...says who? Smaller cars are NOT safer. Will Obama and his EPA be the judge and jury on what we should drive or should we the citizen choose? I vote John and Johnna Q. Public. More taxes lead to.....more taxation. The Govt.never has enough. Look at your gasoline price tax chart the next time you fill up. The govt. is not entitled to our cash!

Posted by: ANTHONY at January 23, 2012 11:50 PM

"He wants to use the car tax to punish the things he doesn't like... Faith in the government to balance... Punishing people with big vehicles... etc."

So instead, as we stand now, we have a variable rate on an arbitrary value decided by very fluid market forces and possibly unaccountable commissions (via the Blue Book Value).

I don't like the car tax. I think that if we're going to have it, we may as well use it to add a little value to other aspects of our society and make it pay for externalities that would otherwise go unaccounted for.

The 'what about grandma's car' complaint is a temporary and unfortunate part of change. Things change. If they change in a way that's more fair, predictable, and rational, but a few people end up in a position where they pay more than they expected, that's OK by me. Grandma can sell her Durango to a kid from Massachusetts and buy a used Focus.

There are two ways that cars unarguably impact society: Infrastructure costs and public health. Lighter vehicles reduce both impacts whereas less-valued cars do not. I've had the pleasure of being hit by a Saturn coupe, a city bus, a Range Rover, and an Explorer; I'd take the Saurn any day of the week.

There are two other areas that are of some debate: Environmental damage and macroeconomic losses. More efficient cars help in both situations. Lighter vehicles will always tend to be more efficient in terms of fuel usage, which means more dollars here in Rhode Island to potentially spend on stuff that creates jobs here, which energy does not.

You have to frame my answer inside the idea that 'we are definitely going to have a car tax'. I just want to find a way to make it more predictable, more fair, and working towards a demonstrable universal good.

As far as value in large vehicles, there is some utility to them, but it's rarely tapped. I just did my taxes and there are ways to recoup the expense of having a larger vehicle and the requisite higher taxes on it. Meanwhile, there are FAR more people blasting around in easily-tipped 4,500 pound behemoths than we should have, and they're costing you more than you think via increased health care costs and macroeconomic losses from gasoline.

And Anthony, as far as size vs. safety, it's Game Theory again... Everything I've read shows that there would be a significant reduction in injuries and fatalities if the average size of vehicles on the road went down. Yes, YOU might be slightly better-off in a bigger car, but the guy you hit is in much worse shape than if you both had smaller cars. And good luck tipping over a Focus.

Again, I'm not debating the merits of taxing cars, only the methods. The car tax is already here, I'm just proposing a way to make it more fair. I actually like the idea of taxing property the same way I do cars: on impact instead of value. Why not tax based on the revenue target divided by square footage instead of 'value', why should I pay more taxes because I take care of my house? In terms of homes, we already 'tax' water and sewage (gas), if we did square footage we could tax on a similar philosophical plane as weight.

Posted by: mangeek at January 24, 2012 12:19 AM

"Yes, YOU might be slightly better-off in a bigger car, but the guy you hit is in much worse shape than if you both had smaller cars. And good luck tipping over a Focus."

Mangeek...who will ultimately determine whats best for us? Is it not us? Freedom of choice and freedom from an oppressive govt. are the foundation of this country.

Posted by: ANTHONY at January 24, 2012 2:43 PM

Anthony,

Clearly, you're not paying attention. Mangeek's generation has it all figured out. So, on things they like (same-sex marriage, porn, out-of-wedlock birth) non-judgmentalism is the key concept. On things they don't like (your vehicle), it's the totalitarian's whip.

But you see, it's all right and just because they can't think of any reason it ought to be some other way.

Posted by: Justin Katz at January 24, 2012 4:23 PM

Moving away is an individual act that shows your power of one, but it counts. Good Luck!

Posted by: GreenLeaf at January 29, 2012 11:15 AM