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No Easy Solution for RI’s Car Excise Tax Problem

Thursday, February 14, 2013

 

A number of proposals to level the car excise tax level for RI drivers are making their way through the General Assembly.

From the moment the state of Rhode Island stopped reimbursing local municipalities for the money they were losing due to a mandated $6,000 auto excise tax exemption, residents have been up in arms as the property tax bills for their vehicles skyrocketed, often at much different rates from one community to the next.

Nowhere was this clearer than in Warwick was one of a number of communities that lowered its exemption to a mere $500 in the first year, leading to protests at City Hall and an election campaign to oust those in the local government who supported the move.

But as the change heads toward its fourth fiscal year and many communities, including Warwick, have made adjustments based on their resident outcry, some lawmakers still believe the current system leaves too many variables in play.

And now, five months before the next fiscal year begins, plans are taking shape that may level the playing field and impose an auto tax structure that’s consistent on a statewide basis.

A Flat Tax

Earlier this week, State Representative K. Joseph Shekarchi became the third General Assembly member to propose a restructured car tax system in this still-early legislative year.

Shekarchi, a freshman Democrat from Warwick, is calling for a flat-tax system to evaluate how much residents in Rhode Island should pay their communities annually and, if approved, would impose a $600 tax on vehicles that are less than three years old and a $360 tax on vehicles than are older.

Shekarchi says his theory is that the purpose behind the car tax is to maintain the state’s road and, as such, it doesn’t really make a difference what type of car you drive because your impact on the roads as a driver is going to be the same.

“It really doesn’t matter whether you’re driving like an expensive car or a non-expensive car,” Shekarchi said. “You’re still using the same amount of roads and, in theory, it’s the same wear and tear so that’s the purpose behind my bill.”

Shekarchi believes a change must come to the current system because it’s “not fair and it’s not uniform.”

“You can have the exact same car registered in one part of the state where your tax bill is $300 and in another part of the state, it’s $1,500 and that’s not right,” he said. “It’s the same car, you’re using the same roads in Rhode Island.”

A Revenue Issue

The problem with Shekarchi’s bill, and all bills aimed at changing the current system in place, is that the reason municipalities began lowering the exemption rates for their resident’s vehicle in the first place was a lack of revenue they could once count on from the state.

Shekarchi admits his bill would reduce the amount of tax revenue municipalities can collect from their residents but says that’s the reason he’s delayed its enactment, if passed, until 2014.

By then, the amount of state aid to cities and towns should be increased, he said, provided the proposals outlined by Governor Lincoln Chafee make it through the budget process.

Shekarchi concedes, though, that his bill is going to have a tough time getting through the General Assembly as is and without a clear answer for where the lost revenue will be made up.

A Fair-Market Solution?

One possible solution to the revenue issue has been pitched by State Senator William Walaska.

Under his bill to change the car tax structure, Rhode Island residents would be taxed according to the average trade-in price of their vehicles, rather than the retail price.

That would lead to taxes generally being lowered for cars with higher mileages or cars in worse condition than the average vehicle of their make and model year.

Walaska says the measure would address the primary concern of the current system—that the condition of a car has nothing to do with how its taxed—and would finally provide a “fair and balanced” system across Rhode Island.

“We value cars at their highest retail value which is unrealistic,” Walaska said. “That’s like saying when you drive the car out of the parking lot, it doesn’t depreciate at all when, in fact, we all know it does. If you use the ashtray, it now is no longer in pristine condition so the way that we value vehicles is unrealistic and it’s unfair to the taxpayers.”

And how would Walaska make up for the lost revenue? He’d allow cities and towns to adjust the actual tax rate percentage higher or lower based on their individual needs

"There are numerous ways,” he said. “None of them are appetizing to me but I would allow the cities and towns to adjust the car tax rate so that it’s transparent.”

Something has to be Done

Walaska’s system, which is mirrored in a nearly-identical House bill proposed by Representative Joseph McNamara and cosigned by Shekarchi, would also extend the appeal process to 45 days, allowing drivers more time to evaluate whether or not it’s worth their time to fight the tax they’re being charged.

“From a market standpoint, what the trade-in value is, what the dealer is willing to give you for the car is probably what it’s worth,” he said.

Regardless, Walaska said, the reaction of residents across the state to the changes made in car valuations makes it clear that something has to be done at the General Assembly level.

“I think it’s pretty important,” he said. “It’s a sensitive issue but I think it is important. It’s fairness, it’s what is right. If you’re going to tax somebody, make it so it’s transparent. Let people know what the tax is and why you’re taxing them. Make it such so that you’re up front and honest with your constituents.”

Shekarchi agrees.

“The current system is unfair in the valuation and it’s unfair in the application and the uniformity of it,” he said. “It’s a double unfairness to taxpayers. They’re not paying the true value of the property and even if they are paying the true value, it’s different in different communities. I just hope this will start a debate and hopefully some of the ideas about my bill can be incorporated with other bills to come out with a product that’s a better piece of legislation for the consumers.”

 

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Comments:

What REALLY has to happen is for democrats to CUT SPENDING in proportion to the amount lost in state reimbursment. Without tough spending cuts exemptions will soon be $400 then $300 then zero. After that the rates per thousand dollars will just continue to rise.

Comment #1 by David Beagle on 2013 02 14

I dont like the flat tax, that amount is more than I am paying now. I think we should get rid of the tax altogether! Cut spending and you will have the money,regionalization of cities and towns is a start!

Comment #2 by anthony sionni on 2013 02 14

This article brings up an interesting point: what actually was the rationale for the auto excise tax? Was it really a vehicle (pardon the pun) to maintain our horrendous roads or merely a generator of tax revenue that would inevitably find its way into the general fund? My bet is on the latter explanation.

Comment #3 by L Lardaro on 2013 02 14

sounds like a great way to bail out providence.

and the cities and towns that have their act together, pay the price.

a blantantly stupid idea.

Comment #4 by jon paycheck on 2013 02 14

Shekarchi's flat-tax bill would would make a stupid and unfair system more stupid and unfair. Owners of older cars would subsidize owners of newer cars. Somehow I suspect Shekarchi drives a late model car.

Massachusetts has a flat rate of $25 per thousand of value, for all cities and towns. If you have to have a tax, that might work better.

As others have noted, the real solution would be to gain some serious reduction in spending. The horribly-performing public schools are a black hole for spending (to the unions' delight). Elected and appointed officials are grossly overpaid. Private business is not welcome in the state; only the tax exempts can prosper. And so on.

Perhaps we should give up our cars and trucks and use bicycles and rickshaws.

Comment #5 by Bill Johnston on 2013 02 14

L Lardaro

You sir, are correctemundo. Tax generator and cash cow for the general fund.

Comment #6 by Robert Anthony on 2013 02 15

Excise tax…..I’d like to know why the owner of a $20,000 car has to pay more in car taxes than the owner of a $5,000 car.

The same two cars will travel the same roads. They will both take up the same amount of space on the road.

When someone gets a parking ticket, the amount isn’t based on the cost of the vehicle.
When someone pays to park in a parking garage, it’s the same price for everyone.
When you pay a toll to go over the Newport Bridge, same price for everyone, not based on the cost of the vehicle.

Then why oh why, do our “lack o leadership” group, insist on assessing ownership of a vehicle a varying tax rate?

Just another reason for taxing the people who spend more for nicer things. And you wonder why people are leaving RI?

Comment #7 by pearl fanch on 2013 02 15




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