Leaders say elimination of car tax doable
Without outlining the specifics of how it could be accomplished in the face of projections of lower state revenues, House Majority Leader and Warwick Representative K. Joseph Shekarchi said Wednesday he believes legislators would take the first step of a 6-year program to eliminate the despised car tax.
On Tuesday delivering upon a promise he made to Rhode Island during his campaign for reelection, House Speaker Nicholas A. Mattiello introduced legislation to eliminate the tax and refund municipalities the revenues they will lose through increased state aid. In the case of Warwick, the tax at $34.60 per $1,000 of valuation after a $2,000 per vehicle exemption generates more than $23 million.
According to a release from Mattiello, his bill offers immediate relief to all Rhode Islanders who pay the car tax, will help mitigate its regressive nature during the six-year phase-out and will boost Rhode Island’s ranking when compared to other states in terms of residents’ tax burdens.
“I am pleased to be able to move forward with the plan to phase out the highest car tax in the country,” said Mattiello (D-Dist. 15, Cranston). “This is the people’s initiative. I have been hearing complaints about the car tax for the 11 years that I have been a representative, and our citizens know this is an unfair, regressive and oppressive tax. I am committed to serving the people and their agenda and ensuring that our taxpayers are treated fairly, as they deserve,” he said in a statement.
But how might he pull it off given the state is already looking at a $134 million shortfall in revenues?
“The same place we’re going to find all the money…we’re going to have to make some cuts,” said Shekarchi. He said elimination of the tax “has broad based support from Rhode Islanders.” As for specific cuts in order to reimburse municipalities for lost car tax revenues, Shekarchi responded, “We have a talented fiscal staff working on it.”
Would the state also be able to afford Gov. Gina Raimondo’s free college tuition plan projected to cost $10 million in the first year?
“That’s independent of the car tax,” he said, “it’s not an either or situation. It may be possible to do a modified tuition plan.” He pointed out that out of a $9 billion state budget, the projected revenue shortfall, as well as added costs for a car tax or tuition program, are comparatively small.
Mattiello’s legislation comes at the tail end of the legislative session and after most municipalities have approved budgets for the 2018 Fiscal Year. Nonetheless, according to the release if the measure gains approval taxpayers would see relief immediately.
As defined in the release, the legislation approaches the tax on several different fronts to provide relief to all taxpayers from the start of the phase-out. It works toward leveling the field between municipalities, so that the taxes paid by individuals during the remaining years of the tax will vary less based on the community in which they live.
The legislation’s impacts on taxpayers would begin immediately with the 2018 state budget — which will take effect July 1 — as a transition year, during which the state will begin reducing the percent of retail value that can be taxed. In 2018, that percentage will drop from 100 to 95 percent, and the percentage will drop another 5 percent each year through 2023, the final year the excise tax would levied and collected.
Municipalities that have already calculated and sent out bills to taxpayers for the 2018 year would need to either offer abatements in later quarters of the year, credits for future years or refunds according to Mattiello. That could be problematic for Warwick that traditionally mails tax bills by the middle of this month.
In 2018, the plan would increase the minimum exemption that must be applied to all cars from $500 to $1,000, and would continue raising the minimum exemption by $1,000 each year until it reaches $6,000 in 2023, the final year of the tax. Currently, municipalities’ exemptions to the taxable value of the car range from $500 to $6,000. Relief would be immediate for taxpayers in the 16 municipalities that currently offer exemptions of less than $1,000, and no community would be allowed to reduce its exemption from the current level in the remaining years of the tax.
The bill also imposes and gradually lowers a cap on the rate communities can charge. In 2018, that cap will be $60 per $1,000 of assessed value— currently the highest rate in the state, charged by Providence — and will be lowered until it reaches $20 in 2023, the final year of the tax. As has been the case since 1998, no municipality would be allowed to raise its rate during the phase-out.
Finally, to help drivers with older cars, the bill immediately lowers the age at which cars age out of the tax. Currently, a car has to be over 25 years old before it is assessed at a value of $500, the current state-imposed exemption. The bill would lower that threshold to cars more than 15 years old, dropping about 150,000 cars out of a total of 747,000 off the tax rolls in the first year, according to the release.
Since the car tax supports municipalities, the state would reimburse cities and towns for the revenues lost from these changes throughout the phase-out. The changes are currently estimated to cost $26 million the first year, and up to $221 million in 2024, the first year the tax is fully eliminated.
After the phase-out is complete, municipalities will share in a fixed percentage of the existing 7-percent sales tax so that growth in those revenues translate into growth in the local aid provided.
The Speaker said he will be open to suggestions during the bill’s legislative process. He credited the Department of Revenue for providing significant technical assistance and information to House Fiscal Advisory Staff in crafting the bill, and also the League of Cities and Towns, which he said was responsive in providing information as well.
“I want to thank the countless individuals who have helped by providing input or bringing suggestions to me about eliminating the car tax. I have been able to incorporate many of the concerns that have been expressed to me over the last several months into this proposal,” Mattiello said in a statement.
The legislation is cosponsored by Majority Leader K. Joseph Shekarchi (D-Dist. 23, Warwick), Majority Whip John G. Edwards (D-Dist. 70, Tiverton, Portsmouth), Finance Committee Chairman Marvin L. Abney (D-Dist. 73, Newport, Middletown) and Deputy Speaker Charlene M. Lima (D-Dist. 14, Cranston, Providence).