A task force commissioned to study issues associated with the repeal of the motor vehicle property tax held its first meeting on Monday (Oct. 24).
Currently, Connecticut car owners pay property taxes that are “99.1% higher than the national average and the third-highest rate in the country,” making the state the most expensive place to own a car, according to 2023 report by Automoblog, an automotive industry news outlet. The Constitution State is also one of 30 states that level a personal property tax on vehicles.
One of the force’s members, Mark Boughton — Department of Revenue Services Commissioner and former Danbury Mayor — called the property tax the “number on inequitable tax that we have in the state of Connecticut, far above any state tax that we assess.”
However, according to Jennifer Gauthier from the Office of Policy and Management, there are over 3 million vehicles in the state that generate $1.047 billion in tax revenue statewide. Gauthier hinted that towns won’t necessarily lose that revenue it will just be shifted to “property owners and business owners.”
Notably absent from the meeting was any discussion about reducing costs. In fairness to the committee, it was their initial gathering, and cost-cutting measures might be part of their eventual findings. However, it’s essential to face the facts: the task force might find a way to eliminate the motor vehicle property tax, but the expected revenue shortfall of $1.047 billion will likely have to be compensated for through alternative methods.
The task force has been mandated to deliver its findings to the General Assembly by Feb. 1, 2024. Whether or not those findings will have an impact remains to be seen (for obvious reasons), but the state has been down similar roads before.
In a series of attempts spanning nearly two decades, Connecticut lawmakers sought to reform the state’s motor vehicle tax system. In 1995, two bills were introduced aiming to replace local property taxes with a statewide motor vehicle tax and establish a revenue distribution formula. However, no action was taken on these proposals. Subsequent efforts in 1997 and 1999 to establish a statewide mill rate met a similar fate, failing to progress beyond committee discussions.
As the new millennium dawned, the idea of completely eliminating the tax emerged, though this proposal never received a public hearing. In 2001, several bills were introduced, creating a task force to study alternatives for the tax. Despite these efforts, no substantial progress was made, with bills consistently stalling in committees.
In 2009, a different approach was taken by attempting to equalize the mill rate across the state. This involved lowering the property tax credit on state income tax, generating additional revenue intended to standardize car taxes. Unfortunately, this proposal also failed to advance.
Several years later, in 2015, Connecticut implemented a cap of 29 mills to alleviate the motor vehicle tax burden on its residents. However, it didn’t last long. For municipalities whose mill rates were higher than the cap, the state was due to reimburse them for the remainder; but just one year later, the state raised the mill rate to 37 to deal with a $1 billion budget deficit.
The cap was raised to 39 mills in 2017 for the 2016 assessment year and further increased to 45 mills for the following years. However, in 2022 the cap was readjusted down to 32.46 mills which is where it currently stands.
The implementation of the new, lower cap was welcomed by 72 out of Connecticut’s 169 towns, leading to a reduction in their vehicle mill rates. However, the savings were not universal. While the mill rate saw adjustments, the increased values of cars, driven by vehicle and parts shortages, coupled with rising inflation, meant that not everyone experienced the expected savings.
After the policy’s near failure, the General Assembly revisited their strategy and attempted once more to eliminate the tax during the 2023 session. The proposed bill aimed to compensate for lost revenue by granting municipalities the authority to levy licensing fees on landlords. These fees would enable landlords to rent dwelling units or homes, with an additional annual fee for each unit or home rented. Additionally, the bill sought to impose an eight percent surcharge on the revenue generated from homeowners’ insurance policies and personal risk insurance for motor vehicles.
The bill underwent revisions after receiving pushback from towns that said they needed a more predictable revenue stream, while others expressed concerns about escalating housing costs and hindering new construction due to increased landlord fees. It was altered to establish a task force charged with studying issues associated with the repeal of the motor vehicle property tax.
It must also analyze ways to replace municipal revenue lost because of the appeal. The bill states the possibilities shall include — but not limited to — an annual eight percent tax applied to the “direct net premiums” received by insurance companies operating within the state. Specifically, to private passenger nonfleet automobile and homeowners’ insurance that cover properties located in the state. Put another way, insurance companies would be required to pay this tax on revenue they receive from these types of policies which will then be passed along to the consumer.
Following this change, the bill was signed into law June, 2023, thus the aforementioned task force’s existence.
Yankee Institute will be closely monitoring this issue. Stay tuned for updates as developments unfold by following our coverage.
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