Car Tax Reform
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.