It’s the end of the no-car-tax as we know it: And not everybody feels fine

The Top Story by Chris Graham

As House and Senate conferees struggle to work out the details of the state’s 2004-2006 budget, legislators outside of the spending maelstrom are focusing at least some of their attention on the revenue compromise that seemed to signal the end of the four-month-long budget impasse last week.

One item in particular that has state leaders talking: the cap on car-tax relief.

The $950 million cap on monies to be returned by the state to localities under the terms of the personal-property-tax relief plan of former governor Jim Gilmore could very well be the end of the car-tax relief program as we know it, one local lawmaker told The Augusta Free Press.“This is going to lead to the gradual erosion of tax relief that Virginians currently receive. Basically, this is the beginning of the end of the car-tax-relief program as we know it,” said Del. Ben Cline, R-Rockbridge.

The reason, Cline said, is that “as more new cars are purchased and replace older cars on the tax rolls, the value of the aggregate is going to go up. But with the reimbursements to localities capped, taxpayers are not going to get 70 percent of their money back.”

The state had been working toward the 100 percent phaseout of the car tax through reimbursements to localities from the state’s general fund. The phaseout has been stuck on 70 percent for two budget cycles now.

“Eventually, you’re going to see it going down to 65 percent and 60 percent and on further,” Cline said.

That might not be such a bad thing, to hear Del. Steve Landes, R-Weyers Cave and the chairman of the House Republican Caucus, tell it.

“The car-tax plan has not been what I voted for,” Landes told the AFP. “It’s costing us a lot more than had been projected at the outset, and it’s viewed more and more by localities as being an unfunded mandate that is proving costly for the state and for localities to administer.

“It’s also more of a benefit to people who live in the major urban centers, where the tax rates on cars and trucks are a lot higher certainly than we see here in the Valley,” Landes said.

Landes voted for the cap on the car-tax relief money for that very reason. He was joined in that vote by Del. Chris Saxman, R-Staunton.

“I didn’t like parts of the cap. I wanted to leave it at 70 percent and let the chips fall where they may. That would seem to be the most equitable way for dealing with localities across the state,” Saxman told the AFP.

“But when it came down to a matter of supporting our localities here in the Valley or supporting something that would benefit Northern Virginia, it was a no-brainer to meet that I would support our localities here,” Saxman said.

“The way this program is set up right now is not good for this area,” Saxman said. “The money comes out of the general fund. What that means is local sales and income taxes are basically being sent up to Northern Virginia.”

As inequitable as the system might be, offered House Minority Leader Frank Hall, D-Richmond, “(t)his issue is important to a lot of people in the Commonwealth.”

“That tax is extremely unpopular because of how it’s administered. With other taxes, like the sales tax, it’s something that you don’t notice that much because you pay it a little bit at a time. It’s easier to forget about. But the car tax is administered in one or two large lump sums. There’s no way not to notice that,” Hall told the AFP.

“The question that we have to ask is, how high a priority is this compared to the important services that we are forced to neglect as a result of having to pay for it?” Hall said.


The future

Cline said he is concerned that the way the legislation was written “might actually allow localities to establish floors for how much they’re going to give back to their residents and then spend what comes in above that floor on something else.”

“There doesn’t seem to be anything in the legislation that would prevent that from happening,” Cline said.

Landes said he has asked similar questions about the language establishing the cap in the revenue-compromise bill that passed both houses of the Virginia General Assembly.

In the end, he voted for the cap, he said, “because there was a concern that if this didn’t pass as is, then the Senate was going to delay the process even further.”

“That was a concern that I had. And I felt it was important that the process not be delayed any more,” Landes said.

“This isn’t perfect, but we can go back in and make changes next year, if need be. I’m sure there will be attempts to amend the legislation in the next session,” Landes said.

Sen. Emmett Hanger agreed with Landes that the cap passed last week is “a temporary solution.”

“We knew we couldn’t simply leave things as is because of the growth that we have experienced since implementing the program several years ago,” Hanger told the AFP.

The senator introduced a constitutional amendment in the General Assembly earlier this year that would basically eliminate the tax on personal vehicles in the future.

Senate Joint Resolution 84 was continued to 2005.

“We’d have to come up with a way for replacing that source of funds for localities, of course,” Hanger said.

“To a certain extent, nothing of this nature is perfect. But you look at the system that we have in place now. The state and local commissioners of revenue spend a good deal of time and expense assessing vehicles that could be better used in other areas,” Hanger said.

“There has to be a more equitable way to return money to the taxpayers than this,” Saxman said of the relief plan. “It’s our job to try to find a more equitable tax cut.

“Unfortunately, that wasn’t on the table,” Saxman said.

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