As Virginia politicians campaign for state and local offices this year, one subject remains untouchable: the state’s billion-dollar car tax.
Republican Jim Gilmore ran for governor on a promise to abolish the despised tax nearly 20 years ago. He won with that pledge, yet the levy lives on.
Jared Walczak, policy analyst at the Washington, D.C.-based Tax Foundation, said, “Although Virginia isn’t the only state to tax car ownership, its car tax gives the state the highest per-capita tangible personal property tax collections in the nation.”
“Virginia is a tax machine,” says Vince Haley, a state Senate candidate, and one of the few willing to discuss ending the car tax.
Unlike other states — which make do with license, title and registration fees, gas taxes and sales taxes on vehicle purchases — Virginia goes the extra mile. Households pay hundreds of dollars more for the privilege of owning or leasing a car.
Depending on the county, car tax rates run 6 percent or more. And this isn’t just a big-city stickup. In rural Orange County, for example, a family with a sport utility vehicle and a 10-year-old convertible is slapped with an annual car tax of $850.
Counties and cities say they cannot balance their budgets without the car tax. They receive $950 million in annual reimbursements from the state, plus millions more they collect directly from vehicle owners. All told, municipalities garner more than $1.2 billion via the tax, which also assesses trailers, boats, jet skis and even canoes.
Haley, a Henrico Republican campaigning to abolish the state’s income tax, says the car tax should be on the chopping block, too. “The (GOP-controlled) Senate needs to follow the Republican Creed” by containing spending and lowering taxes, he said.
Application of the car tax seems arbitrary, if not abusive. While local tax collectors grant token relief to owners of high-mileage cars reserved for private use, omnipresent SUVs get no discounts. Nor do any vehicles used for business, regardless of mileage.
Although localities are reimbursed nearly $1 billion a year by the state under the “replacement” deal reached by the Gilmore administration and the General Assembly, the promised phase-out of the car tax stalled — even as Virginia had more than a $1 billion surplus when Gilmore left office in 2001.
Since then, cities and counties have been free to raise their car tax rates — and they do. Stafford County leads the state at 6.89 percent. The tiny southwestern burg of Clifton Forge follows at 6.7 percent.
“It’s the second largest source of local income” after real-estate taxes, says Jim Regimbal, an analyst with the Virginia Association of Counties. Before the state reimbursement program was established, Regimbal said, Virginians paid even higher car taxes.
Regimbal acknowledges the tax remains “unpopular,” but the Republican-dominated Legislature has made no move to junk it.
Walczak called the car tax “a case study in how difficult it can be to unwind a bad tax.”
“You need look no farther than the fact that we’re talking about it 17 years after Governor Gilmore signed legislation intended to eliminate it,” he said.
Jonathan Williams, a policy analyst at the American Legislative Exchange Council, says the car tax blows up the myth that Virginia remains a low-tax state.
“Nationally speaking, Virginia’s corporate income tax rate is above average, while its real-estate and personal income taxes are near the national average,” he told Watchdog.
“Seventeen states significantly cut taxes in 2013 and 14 cut taxes in 2014. Meantime, Virginia has significantly increased taxes.”
And that billion-dollar car tax just keeps on truckin’.
