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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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