fbpx Skip to content

Century-Old Car Tax: 100 Years of Driving Taxpayers Crazy

The Connecticut motor vehicle property tax has existed since 1908, coinciding with the rollout of the first Ford Model-T. Fast forward more than a century, state car owners pay property taxes that are “99.1% higher than the national average and the third-highest rate in the country.” 

But hold on to your steering wheels! The state is contemplating doing something it rarely does: repealing the tax. Yet there is a catch. 

A task force dedicated to exploring issues surrounding the elimination of the motor vehicle property tax gathered for its second meeting on Tuesday (Nov. 13). During the hour-long session, the Council of Small Towns (COST) and the Connecticut Conference of Municipalities (CCM) joined forces to present concerns of the state’s towns regarding potential revenue loss in the event of the car tax repeal. The presentation also included inventive ideas on how to fill the financial gap created by the repeal. 

Randy Collins, Associate Director of CCM, kicked off the presentation by acknowledging the consensus that “the motor vehicle tax is very regressive” and that it is “administratively very difficult to collect.” Despite these concerns, Collins questioned the financial impact on towns losing potentially $1.047 billion — which is collected yearly via the tax. He highlighted that on average 60% of total revenue for all towns comes from property taxes of which eight percent comes from motor vehicles. 

Collins also noted that without a steady and reliable replacement for the lost revenue resulting from eliminating the car tax, the burden is likely to shift to residential and commercial properties. The shift wouldn’t be fair across the board. For vehicle-intensive industries like Amazon, eliminating the motor vehicle tax would be a significant win. Conversely, a restaurant that doesn’t rely on motor vehicles for its operations won’t experience any savings,but will instead face a tax increase. 

Echoing Collins points on lost revenue, Betsy Gara — Executive Director of COST — said the situation is particularly concerning for small towns, especially those with limited commercial bases, as they heavily depend on this revenue to support critical services such as education, public safety and local infrastructure. Moreover, these service costs increase every year. 

Gara warned that eliminating the car tax should not be perceived as a tax cut, rather, it represents a tax shift. Transferring a burden exceeding one billion dollars in taxes to homeowners, businesses and other property owners not only threatens lower property values but is also poised to “trigger increases in rents and increases in the cost of certain goods and services.” 

Highlighting the importance of a failsafe mechanism in replacing lost revenue, Gara pointed out past instances where other safeguards — like caps or reimbursement programs — have not resulted in recouping lost revenues from property tax exemptions. She said, “Unfortunately, that funding has always been vulnerable, particularly when the state is facing some very difficult budget years.” 

Gara suggested a failsafe mechanism that involves granting municipalities the authority to raise mill rates in the event that the state fails to fulfill financial commitments. When the state reduces funding to towns to compensate for budget shortfalls the towns are left in need of funds to replace their lost revenue.  

Both Gara and Collins cautioned that not only would increasing the mill rate be challenging, but the process of eliminating the tax and then reinstating it would be harder than maintaining the status quo. While nobody welcomes tax hikes, the transition from a tax-free status to its reinstatement is likely to bring on a strong backlash from taxpayers, potentially becoming a political liability for local leaders. 

CCM conducted a property tax reform study that looked at revenue diversification to reduce municipal reliance on property taxes, and mandate relief and intergovernmental savings. The study also questioned the necessity of maintaining 169 separate public works, police and fire departments. Collins emphasized that addressing these factors is crucial for achieving “meaningful car tax relief.” Additionally, he highlighted the evolving trend towards promoting transit-oriented development, particularly in urban areas, which is expected to result in fewer individuals owning cars. Consequently, this shift may transfer the burden on lost tax revenue onto residential and commercial properties. 

One proposal put forth by CCM involves raising the hotel tax. Currently, a portion of this tax is allocated back to towns, but the suggestion is to revise the formula to increase that portion. To ensure that the newfound revenue is directed towards tax reduction rather than increased spending, a property tax cap, similar to that of Massachusetts., is recommended to keep expenditures in check. 

When Massachusetts iImplemented a property tax cap, they established a legal requirement for a two-thirds majority vote in the legislature to approve any unfunded state mandate on municipalities. According to Collins, there are 1,300 unfunded or underfunded state mandates imposed on towns. 

The Connecticut Department of Revenue Services Commissioner Mark Boughton, reflected on his time as Danbury’s mayor, emphasizing that annually the base cost of running the government increases approximately three to five percent. This includes general wage increases for personnel. Other factors that add to yearly cost increases are rising insurance costs and other obligatory expenses such as post-employee benefits contributions (i.e., pensions and healthcare). 

Commissioner Boughton said if the legislature does repeal the car tax it needs to be “directly linked to providing relief to taxpayers.” He highlighted that merely shifting the burden from the motor vehicle tax to increased property taxes does not improve the overall tax incidence; it exacerbates the regressiveness of the tax system. 

Boughton also expressed favor toward the idea of a property tax cap, stating, “A hard cap that would require a two-thirds vote by the legislature would be great.” However, achieving this would require political will in the legislature, something he sees lacking right now.  

In 2021, the General Assembly made an attempt to establish a property tax cap. The proposed cap aimed to limit property tax increases to 2.5 percent and allowed municipalities to levy a sales or income tax to supplement their revenue. Although the bill successfully cleared the House, it was altered significantly in the Senate. The original language was stripped, transforming the bill into a tool for unions to create a coalition bargaining unit — similar to the State Employees Bargaining Agent Coalition (SEBAC) — to negotiate with multiple municipalities or boards of education to provide regional public services. 

The task force came into existence during the 2023 legislative session through a bill designed to eliminate the car tax. The initial proposal aimed to compensate for the lost revenue by introducing licensing fees on landlords and an eight percent surcharge on the revenue from homeowners’ insurance policies and person risk insurance for motor vehicles. However, facing pushback from towns seeking a more predictable revenue stream, the bill underwent multiple revisions. 

Ultimately, the legislation was modified to establish a task force charged with studying issues related to the repeal of the motor vehicle property tax. It was signed into law in June 2023, and the task force is mandated to present its findings to the General Assembly by February 2024. 

*To learn more about the property tax cap here. 

This Week on Yankee’s podcast Y CT Matters 

How can nonprofits and charitable organizations innovate their way toward new and exciting possibilities? Leah Kral — senior director of strategy and innovation at the Mercatus Center at George Mason University — studies just that in her latest book Innovation for Social Change: How Wildly Successful Nonprofits Inspire and Deliver Results. She explores hands-on design thinking strategies and techniques to use as a disciplined process for exploring what’s possible in your organization, as well as on ways to focus your efforts so that they can have the greatest impact. Learn more about the book here. 

Time is Running Out to Stop the Gas Car Ban. Let Your Voice Be Heard!  

Click HERE to let the Legislative Regulation Review Committee know this is not what Connecticut residents want from our politicians!  

Meghan Portfolio

Meghan worked in the private sector for two decades in various roles in management, sales, and project management. She was an intern on a presidential campaign and field organizer in a governor’s race. Meghan, a Connecticut native, joined Yankee Institute in 2019 as the Development Manager. After two years with Yankee, she has moved into the policy space as Yankee’s Manager of Research and Analysis. When she isn’t keeping up with local and current news, she enjoys running–having completed seven marathons–and reading her way through Modern Library’s 100 Best Novels.

Leave a Reply

Your email address will not be published. Required fields are marked *