Source: Stephen Singer, Hartford Courant
Connecticut taxpayers are taking another hit, this time from vehicle taxes due this summer.
New and used cars are in high demand and short supply, the perfect conditions for rising prices that boost taxes on which vehicle values are based.
“Our assessor’s office has gotten lots of calls,” said Matt Knickerbocker, Bethel’s first selectman.
The town’s motor vehicle tax revenue of $5.3 million is up about 4% from last year, in the range of previous increases, he said. But higher values have been a particularly hard blow to owners of SUV’s, pickup trucks and motor homes.
“The overall effect is minimal. For certain people, they’re fired up,” Knickerbocker said.
Several reasons explain higher vehicle prices, and taxes. Employees working from home who couldn’t spend money on vacations or entertainment instead bought cars, driving up demand and prices on high-end vehicles, said Tyson Jominy, a vice president with J.D. Power, a data analytics and consumer intelligence company.
In what he called a “wealth effect,” sales of vehicles that cost more than $80,000 have doubled and those that sell at less than $20,000 dropped 30%, he said.
Car makers were shut down for a time during the pandemic and are hobbled by a shortage of microchips used throughout the car. The brains of computer systems are made in Asia, where the pandemic started sooner and eased earlier than in the U.S., upsetting the balance between supply and demand, he said. Resins, tires and other car parts also have been in short supply, Jominy said.
“All across the board there’s been a struggle,” he said.
The result has been a jump in car values, leading to higher taxes or, at the least, tiny year-over-year decreases that compare to previous sharper declines in taxes as vehicles depreciate in value.
Used vehicles are selling on average at $26,000, up 30% from before the pandemic in 2019, Jominy said.
Jeff Aiosa at Mercedes-Benz of New London said customers must wait a minimum three months if the car they want is not in the inventory or available elsewhere. Previously, such a delay was for cars built to a customer’s specifications, he said.
Some municipalities are reaping higher revenue. For example, Bristol’s motor vehicle grand list added a net $27 million, up nearly 7% last year from pre-pandemic 2019, said city assessor Tom DeNoto.
Of the 39,449 vehicles subject to the property tax, about 7,000 were assessed at a higher level “to some degree,” he said.
“This scenario created a different storm,” DeNoto said. “It’s an economy where people were struggling and couldn’t buy a new car and didn’t have employment and they drove up used cars.”
In West Hartford, assessor Joseph Dakers said the motor vehicle grand list increased by 4%, which is unusual. That was despite a decline in the number of registered vehicles, he said.
It’s taken some explaining to taxpayers who call the assessor’s office after receiving their tax bill, he said.
“People are set to see a decline from one year to the next, a depreciation,” Dakers said. “This year it’s gone in the opposite direction.”
The impact of higher vehicle values varies among towns that set wildly different mill rates, the $1 in tax for each $1,000 of assessment. Some municipalities set separate mill rates for vehicles and homes and are not necessarily generating more revenue from costlier vehicles, said Joe DeLong, executive director of the Connecticut Conference of Municipalities.
“There’s nothing here that’s uniform,” he said. It’s part of a real challenge of having an undiversified revenue stream.”
Local governments in 16 states — including Connecticut — impose personal property taxes on vehicles, separate from license and registration taxes, according to Jared Walczak, vice president of state projects at the Tax Foundation.
Vehicle taxes vary widely, but in each state, localities are authorized to impose property taxes on cars, though they may not necessarily do so, he said.
The General Assembly has considered ways to ditch the unpopular vehicle tax, but has been stymied when challenged to come up with substitute revenue. In the legislative session that ended last month, Sen. John Fonfara, the co-chairman of the finance committee, and other Democrats came up with a plan to redistribute property tax burdens.
The Democrats’ goal was to provide more relief to low- and middle-income households and require more from each community’s wealthiest taxpayers. The proposal failed in the budget debate.