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HomeMy WebLinkAboutMontana Taxpayer September 2000 LR115 - Revising the Taxation of Certain Vehicles (HB540) This November, voters will decide whether to change the way light vehicles (passenger cars, vans, sport utility and light trucks) are taxed. The proposed initiative would replace the current system that values vehicles using a depreciated MSRP (Manufacturer's Suggested Retail Price) with a fee schedule based on the age of the vehicle. What the initiative does not change is the imposition of various other charges and the county option tax available to local governments. Let's look at some examples of what you could expect to pay under current law and the proposed initiative. Current law All vehicles, regardless of age, are subject to the following charges upon registration or re-registration: (These charges and fees are for vehicles with a weight less than 2,850 lbs.). Other Fees Registration (REGFEE) $ 5.00 Junk Vehicle (JUNK) $ .50 Weed (WEED) $ 1.50 System Fee (SYSFEE) $ 1.00 Highway Patrol Retirement (HPFUND) $ .25 License(LICFEE) $ 5.00 $13.25 Newly purchased or transferred vehicles are also subject to title, junk vehicle, and new plate fees: County Title (TTLCO) $ 1.50 State Title (TTLST) $ 3.50 Junk Vehicle (JNKTTL) $ 1.50 New Issue (NEWISS) $ 2.00 $ 8.50 (New cars are currently subject to a 1.50 percent new car sales tax in addition to the titling fees. They are not subject to the other fees for the first year of registration. There is an additional charge of $4 for vehicles with a lien). Under current law, the value of a light vehicle is based on its MSRP less an allowance for depreciation. This value is multiplied times a tax rate of 1.4 percent to determine taxes due. The 1999 Legislature reduced the tax rate on light vehicles from 2 to 1.4 percent (SB260). Taxpayers first saw this reduction for vehicles licensed after January 1, 2000. The legislation also provided for the tax rate to be further reduced as the statewide value of light vehicles increases. In addition, a county local option tax at 0.5% is added in most counties. Six counties do not impose a local option tax and Lake County's option tax is at 0.3%. This percent is also multiplied times the depreciated MSRP. The following examples assume the car is being re- registered and not subject to the title fees. Vehicle 1 Vehicle 2 Vehicle 3 Vehicle 4 Taxable value or depreciated MSRP $500 $5,000 $10,000 $20,000 Personal property tax rate ].4% 1.4% 1.4% 1.4% Personal property tax $ 7.00 $70.00 $140.00 $280.00 County option tax rate 0.5% 0.5% 0.5% 0.5% County option tax (Coopt) S 2.50 $ 25.00 $ 50.00 $100.00 Other Fees $13.25 $ 13.25 $ 13.25 $ 13.25 Total Tax 22.7 ]08.25 203.25 393.25 LR 115 - referendum to voters The proposed change imposes a fee based on the age of the light vehicles. New vehicles would no longer be subject to the new car sales tax and would be subject to the same fee schedule below. 1-4 years* $195 5 -10 years $ 65 over 10 year $ 6 * Age is determined by subtracting manufacturer's year from the current tax year. So a car with a manufactured year greater than the current year would be considered minus one or two years depending how early the models are released. Some cars could be included in the 1-4 years category for up to six years due to manufacturers releasing new models up to two years early. To this fee, you need to add the local option tax based on the depreciated MSRP and any other fees and charges. (Continued on Page 2) - I - Montana Taxpayer Address all communications to: MONTANA TAXPAYERS ASSOCIATION P.O. BOX 4909, HELENA, MT 59604 Telephone (406) 442-2130 . FAX (406) 442-1230 E-mail - mwhitt®montax.or2 phyatt@montax.org Business Office: 506 North Lamborn - rvvrvddrdvvvvvvvdddvrdd OFFICERS AND STAFF CHASE T. HIBBARD, Helena.... Chairman, Board of Directors BILL SPILKER, Helena, Vice Chairman, Board of Directors MARY WHITTINGHILL, Helena.... President PAM HYATT, Helena.... Office Manager vdvvvrvvddrrvdrvdvvvdorv DIRECTORS Contractors-John Herp, Kalspell Mining- Russ Riser, Helena Cooperannes- Jeanne Barnard, Malta Motor Carvers - Ken Crippen, Missoula Director at Large-Tom Rob, Helena Railroads - Alec Vincent, Texas Farts Machinery -Gordon Nelsen, Conrad Real Estate - Bill Splker, Helena Financial- Craig Anderson, Borings Retail- Marilyn Hudson, Helena Gas & Electric- Emie Kindt Butte Sheep 8 Wool-Chase Hibbard, Helena Grain Growing- Daryl Ayers, Denton Telecummunicadons- Barbara Raul, Helena Hardware Stores- Terry Taylor, Cotahip Timber Products- Doug Mood, Seeley Lake mrrmmmmrr'v'rrr Membership Drive - You're probably wondering why you received two copies of this month's newsletter.... I am asking your help in spreading the word about the Montana Taxpayers Association. Share your extra copy with someone you know who cares about what happens with taxation and spending in Montana (let me know if you need extra copies!). Maintaining a strong membership base is important for our association. Most people I have met or talked to believe the Montana Taxpayers Association continues to be an important association for all Montanans. They know they can count on us to watch out for upcoming tax issues and provide information on what is happening with state agencies, local government and the legislature. They also are counting on the association to provide a resource for new legislators on taxation and budget issues. Some background on the association and a list of our goals are included on a membership application - hopefully this will help you with your "recruiting efforts." LR115 - (Continued from Page 1) We can use the example from above under current law, add assumptions for the year of the vehicles, and show estimated taxes under the proposed initiative. Vehicle 1 Vehicle 2 Vehicle 3 Vehicle 4 (over 10) (5-10) (1-4) (1-4) Taxable value or depreciated MSRP $500 $5,000 $10,000 $20,000 County option tax rate 0.5% 0.5% 0.5% 0.5% Count option tax (Coopt) $ 2.50 $ 25.00 $ 50.00 $100.00 . Light vehicle fee - $ 6.00 $ 65.00 $195.00 $195.00 Other Fees $13.25 $ 13.25 $ 13.25 $ 13.25 Total Tax 21.75 163. 258.25 308.25 If Vehicle 3 were between 5 - 10 years of age, the taxes would drop to $128.25 ($50 + $65 + $13.25). You can determine your own vehicle taxes by using the taxable value listed on your vehicle registration (this is usually located in your glove compartment). If you have not reregistered your vehicle for this year be sure to refigure current year taxes by multiplying the taxable value by the new tax rate for 2000 to determine taxes under current law. Other Considerations Taxpayers also need to keep in mind deductibility of fees versus personal property taxes on federal income taxes. While Montana law would allow full deductibility of the fees, federal law provides a deduction only on personal property taxes that are based on value. (IRS instructions for line 7, Schedule A - Personal property taxes. Example: You paid a fee for the registration of your car's value and part was based on its weight. You may deduct only the part of the fee that is based on the car's value). Thenew fee based on age, would not be deductible. The referendum allows for multi-year registration. Owners of vehicles older than 10 years of age can register their vehicles permanently for $50 plus five times the amount of the annual other fees including the local option tax. Newer vehicles can be registered for up to two years at a time. An additional impact of the referendum would be the possibility that certain owners not currently subject to vehicle taxes would be subject to the new fees. These groups include enrolled members of tribes, military, and non-profit associations. This article only discusses the implications on taxation. For a good discussion on the distribution of the taxes between the state and local government, see Jim Standaert's (Legislative Services Division) article at httD://lee.state.mt.us/Fiscal/rei)orts.htm#lune%208 - "HB 540, Impact on Local Government." If the link doesn't work go to www.state.mt.us choose legislative, then legislative finance committee, June meeting reports. The Revenue and Taxation Interim Committee met September 15 to finalize committee action on bill draft requests and hear reports from subcommittees. The committee heard a report from Senator DePratu on -2- various alternatives for income tax simplification and reform. There continues to be the belief that Montana's current income tax system is complex for most taxpayers and that the complexity leads to less compliance whether intentional or not by taxpayers. The other concern is the perceived high marginal rate in Montana. The current marginal rate of 11% is the highest in the country. This is somewhat misleading since Montana allows for federal income tax deductibility. When the federal deductibility is taken into account, the effective rate is around 6.75 percent. The committee requested the Department of Revenue prepare additional estimates on the impact of different alternatives similar to those contained in SB5 (see June 2000 Montana Taxpayer). The alternatives will take into account some of the concerns that arose during the Special Session on S135, such as tip income, retiree impacts and continuing the allowance for medical insurance deductibility. The subcommittee will meet again on October 19. The members of the subcommittee are Senators Bob DePratu (chairman), Vicki Cocchiarella, and Alvin Ellis and Representatives Bob Story and Ron Erickson. Senator John Bohlinger presented a proposal to provide assistance for low-income housing. The proposal would use prison labor to construct affordable housing and is formulated after a similar program in Michigan. A revolving credit line of $2 million is being sought from sources such as the tobacco settlement money. Along this same line, a discussion on funding sources and the desire for housing trust funds was presented at the August meeting. There was a discussion on the forces driving up the increase in housing prices in Montana. Growth policies have limited the supply of land in some areas and increased demand, regulatory costs have added to the increase as well. People are able to pay the higher prices by paying a larger portion of their income on housing, buying houses jointly (ie. two single people), or working more than one job. It was pointed out that affordable housing is important for economic development. A subcommittee will meet with Senator John Bohlinger to work out the details on funding possibilities as well as whether to pay the prisoners working on the project. The members are Senator Fred Thomas (chair), Senator Mignon Waterman, and Representative Dan Harrington. Representative Bob Story reported the recommendations of his subcommittee on debt limits. Current statute ties local governments' and schools' ability to issue bonds based on the taxable value of the district or county. Recent reforms in property taxation reduced the tax rates of various classes of property. The proposed legislation utilizes new thresholds based on market value percentages rather than taxable value for local government. For schools, the bonding limitations were more complicated but the committee was able to recommend an average percentage that would continue to be based on taxable value without the adjustments that were allowed previously. Also, the Office of Public Instruction will be asking the 57's Legislature to review school funding with emphasis on capital improvements. The overall effect of the proposed legislation remains relatively the same for issuing debt. In either case, the ultimate decision on bond approval rests with the voters. The committee voted to pursue draft legislation that would allow a tax credit for taxes paid by Sub S corporations in another state. The Department of Revenue is also proposing draft legislation to change the taxation of Sub S corporations as well as other companies they have defined as "pass through entities. " Entities would be required to file composite returns on behalf of taxpayers. The department's draft legislation was not available at the time of the meeting. Our association plans to obtain input from affected taxpayers once a copy of the draft is available. At the August meeting, the Department of Commerce presented rules implementing legislation allowing tax credits for telecommunication investments. SB172 provided tax credits up to $2 million for qualifying projects in unserved or underserved areas of the state. Due to a technical problem that surfaced after the regular session had ended, the effective date of the bill was delayed one year making the effective date this July (see editorial by Senator Mignon Waterman on this topic in the April 2000 issue of the Montana Taxpayer). Applications for this year are due by September 15. Applicants will be notified by October 15 if they will be awarded the credit. In subsequent years, applications are due by October 1" of the preceding calendar year. Senator Waterman pointed out that it is doubtful the telecommunication companies will even be able to take advantage of the credits this year since projects are planned well in advance. Next Meetings: October 20d' - Presentations on economic trends and conditions in Montana and from a national perspective. Presenters: WEFA (Wharton Econometrics, Paul Polzin from the University of Montana, Myles Watts from Montana State University, and Phil Brooks from the Montana Department of Labor and Industry. Reports from subcommittees on income tax reform, motor vehicle redistribution, Local Government Funding and Structure Committee, fiscal impact of SB 111 exempt intangibles. -3- November 16'b and 17`h - Revenue estimates for the next biennium. The Revenue and Taxation Committee is responsible for determining the revenue estimates that will be used for the 2001 Regular Session. The Department of Revenue in conjunction with the Governor's Office of Budget and Planning prepare one set of estimates. The Legislative Fiscal Analysts Office prepares a second set of estimates. The committee hammers out any differences (if any) and decides on final numbers. (The Fiscal Analysts estimates will also be presented to the Legislative Finance Committee on October 2). The Local Government Funding & Structure Committee concluded its findings after two full days of meetings on September 5 and 6. The committee has made the following decisions to date: Simplify billing, collection, accounting, distribution and reporting of all revenue. -Propose legislation to clarify and simplify local government budgeting and accounting laws. -Expand and strengthen the Department of Commerce's reporting and auditing responsibilities for local government. -Give county and city commissioner's clear financial oversight and authority for mills levied and fees set (this covers all taxing jurisdictions which have ad valorem taxes levied to support their programs). -Eliminate as many transfers between state and local governments and schools as possible - if the revenue is collected at one government level, it should remain at that government level if possible. The exception is that the registration fee and light vehicle taxes will be transferred to the state general fund. De-earmark revenue and eliminate expenditure mandates for local government. -Establish guidelines for earmarking funds to local government and a review process to periodically review the state earmarking of funds to local -De-earmark revenue by eliminating all mill levy caps, consolidating the vehicle registration fees into one registration fee, making other vehicle fees uniform and having all district court fees, fines and forfeitures and the light vehicle and truck fees and taxes deposited to the state general fund. -Provide general fund statutory appropriations to replace the de-earmarked money for state agencies. Provide and Entitlement Share payment to local governments to replace de-earmarked revenue. -Clarify the process of establishing and funding state mandates for local governments. -Eliminate the mandate for local government funding of welfare and district courts (excluding the clerk of district court and their staff). Create a rational, dependable and stable funding structure for cities and counties. -Create an Interim Committee in the Legislative Services Division to promote communication on state and local government issues. -Establish an Entitlement Share program for local governments. -Establish property tax limits to replace the SB184 property tax caps. The committee intends to work on a modification to the property tax limit that would not force local government to levy the maximum mills allowed under law each year but would allow them to retain the ability to levy the maximum number of mills in future years if needed. •Aathaiw,unal_.gaYemments ,o have two new local option taxes-a local option sales tax & realty transfer tax. The committee will meet again on October 6 in Helena to review proposed legislation and recommendations. There will be a public hearing on November 15. The committee is attempting to set up a MetNEt link to allow statewide participation. 07:00-trbO69 1W 1 a-in e-l OT X09 Od 16-rnel 40 0.113 .ro.ceW I"IIOtis III III III llllntill III till oil 11'1I'It III pill III IIII T0b6S 8ZI ON .LIbiagd 'LIN `S I IF 3 1Vd2ID `^- aivd RDVJ SOd'SY1 D-do ,LI302Id-NON