Toyota Prius. Want greener cars? Try reforming the car tax.
by Bill Tracy
I was encouraged last week when Sen. Chap Petersen, D-Fairfax, joined the “car tax blues” chorus.* According to the Washington Post, Petersen filed bills proposing to eliminate the car tax through a constitutional amendment and then giving localities the option of levying a local gasoline tax to make up for the lost revenue.
Many localities given the freedom to tax cars to balance their budgets went over-board with a car “super-tax.” That’s what’s happened in Northern Virginia, where the cumulative tax levy can approach 30% of a vehicle’s original cost over the 12-year average life of a vehicle. Of course, thanks to former Governor Jim Gilmore, the state of Virginia pays much of the local car tax for most residents. Unfortunately, the effect of the state subsidy has diminished as the cost of new cars escalates faster than the capped state payments.
Can you imagine up to $12,000 cumulative car taxes** on a $40,000 Ford F-150, America’s most popular vehicle? Even after Gilmore’s tax relief, the total tax bill still could be as high as $10,000 in NoVa. This compares unfavorably to our neighbors in Maryland and D.C. with a flat 6% excise tax ($2,400).
Parenthetically, Virginia’s car tax relief program does NOT reduce or solve the local car tax issue. It simply means that the state of Virginia, as a stop-gap corrective measure, sends a check to the locality on your behalf to help you cover your car tax bill.
Due to high local car taxes, many Virginians have learned to be modest in their new car selections, or they purchase used cars instead. As a consequence, we are throttling new car sales. In addition, the tax functions as a de facto green car penalty. For example, a hybrid typically costs about $4,000 more than an equivalent non-hybrid. That price premium gets fully taxed.
Auto manufacturers believe that the Obama administration’s 54 miles-per-gallon standards for 2025 will force them to sell more electric plug-in cars to meet their regulatory quotas. California, the largest and most important U.S. car market, already mandates a substantial portion of electric car sales. Former GM executive Bob Lutz speculated that automaker were trying to recoup the cost of unprofitable plug-in sales by jacking up prices on other cars, especially trucks, SUVs and crossovers. Whatever the cause, we are seeing a trend towards more expensive conventional vehicles and more expensive green cars. As the average cost of a new car trends to $34,000 and higher, our current car tax system will prove increasingly painful to Virginia residents.
A year or so back, the McAuliffe administration invited me to submit my proposal for reforming the car tax to Transportation Secretary Aubrey Layne. The secretary nixed it on the logic that the localities, not the state, have ownership of the car tax issue.
To summarize my proposal, I said there is nothing wrong with a modest local car tax. At last count, about 18 states have some form of a local car tax. I have studied the car tax formulas of many other states, and I strongly feel that we could devise an improved formula for Virginia.
As a fiscal “conservative” fearing another temporary, stop-gap solution, I am reluctant to totally kill off our car tax. As a possible alternative, perhaps we could move to a life-time 6% upper limit on the (tax deductible) local car tax in addition to the normal 4% Virginia state tax, for a total 10% total car tax. Perhaps give the buyer the option to pay a lump sum on the local tax. I believe the lump sum approach is how Georgia weaned its localities from a prior “super-tax” approach.
I also agree with Petersen, and a related proposal by Sen. Frank Wagner, R-Virginia Beach, that allowing localities to charge more for local gasoline taxes at the pump might be a good idea. But, holy cow, let’s not give localities carte blanche on that.
Am I too bold to suggest that reducing the car tax would stimulate enough new car sales that localities might come out ahead? Only if we play our cards right, with good planning.
Bill Tracy is a retired engineer living in Burke, Virginia. He owns a 2006 Prius and a 2009 Minivan (both white).
* The Virginia Car Tax Blues
(Parody song by Bill Tracy, 2013, to the tune White Christmas.)
I’m dreamin’ of a white Prius, with every car tax check I write,
Where the hybrids pay more, and big cars pay less,
To use, Virginia’s bumpy roads.
I’m dreamin’ of a new Prius, but I don’t think it makes sense here.
Low de-pre-ci-a-tion, high val-u-a-tion,
You pay, more car tax every year.
Now thinkin’ of a used Chevy, just like the ones Gramp used to drive.
If you think that’s crazy, you’re right!
But may all your Priuses…be White.
** Calculations for 5% annual car tax, with and without 30% tax relief below $20,000 value, for a $40,000 vehicle at a low 15% depreciation rate. Cumulative total tax for 12-year ownership. Includes 4.15% state sales tax on cars. Assumes no further local car tax rate increases.