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UPDATED: Mattiello Proposes Major Changes to Car Tax Structure

Wednesday, May 31, 2017


Speaker of the House Nick Mattiello

In the fall of 2016, during a blistering re-election campaign Speaker of the House Nick Mattiello promised voters that he would eliminating the much hated car tax. Today, he introduced legislation to eliminate the excise tax on motor vehicles throughout Rhode Island over six-years.

The tax is considered one of the most regressive taxes in the state. Governor Gina Raimondo opposes the Mattiello plan and has called his plan too expensive. She advocates for a 30 percent cut. The total amount cut by the plan is $221 million to be reduced between 2018 and 2014. The Mattiello plan takes plan is proposed as the state is already facing a $130 plus million deficit.

Neither Mattiello or Raimondo have offered specifics as to how they would pay for the tax cut.

“I am pleased to be able to move forward with the plan to phase out the highest car tax in the country,” said Speaker 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.”

The excise tax is administered by cities and towns using various methodologies, 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.

According to one study, Rhode Island has the highest auto taxes in America. As GoLocal reported in March:

Rhode Island has an effective vehicle tax rate of 4.77% and Rhode Islanders pay $1,100 annually on a 23K car.  

"The average American household spends $2,149 on property taxes for their homes each year, according to the U.S. Census Bureau, and residents of the 27 states with vehicle property taxes shell out another $402. Considering these figures and the debt-fueled environment to which we have grown so accustomed, it should come as no surprise that roughly $11.8 billion in property taxes go unpaid each year, the National Tax Lien Association has found," said WalletHub. 

Property Taxes in Rhode Island (1st=Lowest; 25th=Avg.):

Real-Estate Property Tax Rank: 42nd
Vehicle Property Tax Rank: 51st
Real-Estate Tax on Median State Home Value: $3,884
Real-Estate Tax on Median U.S. Home Value: $2,915
Vehicle Property Tax on Best-Selling Car: $1,099.53

Mattiello's legislation would have an immediate impact on with the passage of 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, claims the Speaker's office.

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.

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.

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. (These estimates will be updated with more recent data as it becomes available.)  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 costs will be absorbed within the state budget, and the Speaker expects that leaner government and economic growth will help offset them. The 2018 budget is currently being crafted by the House Finance Committee, and is expected to come before lawmakers in the coming weeks.

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,” said Speaker Mattiello.

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).


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