Missouri’s legislature has approved nearly $2 billion in tax incentives for Boeing after a House vote today, and the plan awaits Governor Nixon’s (D) signature. We’ve written on this issue extensively, following it from...
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- Only Connecticut and Virginia Have Car Taxes, and for Good Reason
Only Connecticut and Virginia Have Car Taxes, and for Good Reason
The car tax has been in the news recently in Connecticut and Virginia, the only two states that levy it. It’s important to distinguish this tax, which is a property tax on actual cars, from a sales tax that affects the purchase of vehicles. Car taxes fall into the category of tangible personal property taxes, which are levies on property that can be touched and moved. This differs from the more familiar tax on real property, which is a tax on land and structures.
Two weeks ago, the Connecticut House passed a bill that would set the car tax rate at 80 mills, which is $80 per $1,000 of value, and plan to eliminate it by 2021. But news broke the following day that the Connecticut senate has removed the car tax provision from the bill, as Donald Williams, the Democratic President of the Senate, told Brendan Starkey, the Democratic Speaker of the House, that he didn’t have enough votes for the proposal. Connecticut governor Dan Malloy previously had floated the idea of eliminating the car tax for vehicles worth less than $28,000. This would increase the progressivity of the car tax.
Virginia also has a car tax, and like Malloy and Starkey, some Virginia politicians have pushed to eliminate the car tax. Former Governor Jim Gilmore ran for office on the pledge to eliminate the car tax, and while he did have some initial success in lowering the car tax, the plan fell apart before too long. Although neither 2013 Republican candidate Ken Cuccinelli nor Democratic candidate Terry McAuliffe have talked about repealing the car tax, Libertarian gubernatorial candidate Robert Sarvis is proposing to end the car tax. The car tax differs from county to county in Virginia. For example, Bedford County charges $2.35 for every $100 of value, whereas Fairfax County charges $4.57 for every $100 of value.
As we note in our latest comprehensive review of tangible personal property taxes, most tangible personal property taxes are only on business property. Out of all the states that levy tangible personal property taxes, only ten states include motor vehicles as a part of the tax base. Connecticut and Virginia differ from these other states in that they have a specific car tax that is not part of a broader tangible personal property tax—and the tax applies to all cars, not just cars used by businesses.
As we make the case in that piece, states should move away from taxes on business tangible personal property because they discourage capital formation and distort the market by preferencing labor over capital. However, if you’re going to start taxing personal property of individuals, there is no reason why you should single out just cars for the tax. It’s totally arbitrary.
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