As Car Taxes and Fairness Drive Legislative Debate; Municipalities and Residents Await Overdue Decisions
/By John Elsesser
Another proposal has emerged at the state Capitol to equalize car taxes to address the fact that the owner of a motor vehicle in a high mil rate-rate community can pay almost four times more than the owner of the identical vehicle (make and year) in the lowest mil-rate community.
All agree at face value this is not fair. The state tried to tackle this problem four years ago by capping the mil rates on cars and trucks at 32 and raising the sales tax to make towns whole for lost tax revenue. But due to the state’s ongoing budget crisis, policymakers retreated and reset the cap to 45 mils.
In retrospect, that effort to cap the mil rate and reimburse towns for lost revenue made a lot of sense. It’s unfortunate that former Gov. Dannel Malloy and state lawmakers raided the revenue from the sales tax increase. Moreover, it's doubtful that the raid will be stopped anytime soon.
In 2017, there was a whiff of a plan to eliminate the motor vehicle tax altogether. However, it was quickly scuttled after the Connecticut Conference of Municipalities and the Council of Small Towns said eliminating the tax would only shift the burden onto residential and commercial property owners.
However, this latest proposal takes a different approach. Proposed by Senate President Martin Looney of New Haven, it would raise the property tax on cars and trucks in the lowest mil-rate towns to subsidize the higher taxed towns.
Let’s look at car taxes. They are one category of property taxation. Property taxes go back to the founding of the nation and were a way of equitably taxing people based on what they owned. It was an attempt to tax assets as a means of charging more from the people of means. In essence it was the first wealth tax.
Property taxes on vehicles are an ad valorum (at value) tax. The assessed value of the vehicle is multiplied by the tax rate to create a tax obligation. The revenue produced is a workhorse for towns since, according to the Office of Policy and Management’s most recent “Municipal Fiscal Indicators,” the assessed value of the 1.4 million vehicles statewide is $24,865,752,547. If that amount is multiplied by a calculated equalized mil rate, it could generate almost $500 million annually for towns, an amount that otherwise would be assessed on residential and commercial property.
The car tax makes up 6.6 percent of property taxes statewide. Canterbury is at the high end with car taxes comprising 11.4 percent of its grand list compared to Greenwich’s low of 2.4 percent. The tax snares non-real estate owners such as renters who contribute toward paying for municipal and education services through vehicle taxes. If vehicle taxes were to be eliminated, the resulting increased mil rate would also be applied to businesses and apartments, thus raising rents and making Connecticut less competitive in attracting and retaining business. The state’s real estate taxes are already among the highest in the nation.
Thus, without state reimbursement of the revenue lost if local vehicle taxes are eliminated, the tax burden in a town is just shifted to other categories of property. That makes no sense.
Nonetheless, there’s probably no better time than now to look at ways to equalize vehicle taxes, given that the new federal cap on state and local taxes means that tens of thousands of Connecticut filers may no longer be able to deduct vehicle taxes on their returns.
Since Connecticut’s 169 communities have very few local revenue options compared to other states, Connecticut should also consider other ways to lower mil rates. These include having the state pay more for education or replace the taxes lost because so many facilities and properties -- such as colleges and hospitals; manufacturing and machine equipment; and farms and forests -- are tax-exempt.
Consideration should be given to other local revenue options, as well. It may be time to consider capping the tax on vehicles and instead levy another tax on wealth to replace the lost revenue.