Slower auto sales may lead to pain in the pocketbook

Published 6:00 am Monday, February 2, 2009

Faltering automobile sales could produce a “double-whammy” inthe pocketbook for vehicle owners and government officials.

If state lawmakers fail to act, the first hit could come in theform of higher car tag costs directly to vehicle owners.

Some lawmakers have predicted the possibility of car tag costsdoubling if state officials are unable to find money to continue a1990s tag credit program that helps local governments keep pricesdown. To fund the credit after the program was implemented yearsago, the sales tax on automobiles was raised from 3 percent to 5percent.

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However, slower automobile sales have contributed to a $33million statewide shortfall in revenue generated by the higher tax.Exact local totals were not available, but that could meanthousands of dollars that would have be found elsewhere, i.e.increasing car tag costs, to help continue funding of county andcity services and functions.

The car tag credit program could be another facet in the ongoingdebate over hiking the state’s cigarette tax. The House and Senatehave passed differing versions of the legislation.

The House version proposes raising the state’s current 18 centsa pack tax, the third-lowest in the nation, to $1 a pack. TheSenate last week approved a measure to raise the tax to 49 cents apack.

The bills include different amounts to allow the State TaxCommission to continue the purchase of specialty tags, somethingthat has been put on hold due to the current shortfall. The Senatebill would also allocate $25 million to the tag credit fund.

While the car tag situation could affect vehicle ownersregardless of where they live, the second “whammy” from slower carsales targets people who live in cities. Unlike counties,municipalities receive a portion of the sales tax collected onpurchases made within their city limits.

In many cases, city sales tax collections lean in large part ona heavy dose of revenue generated by automobile sales. Without therevenue from those sales, city leaders must make up those funds inother areas or reduce services to save expenses.

One of the most likely other revenue sources is propertyowners.

Each year, leaders are charged with setting a tax levy togenerate operational funds in addition to those come in throughsales tax and from other sources. Sales tax often is a city’ssingle-largest source of revenue.

So slower sales tax collections, including the big chunk thatcomes from automobile purchases, could lead to property ownersbeing asked to help make up the difference.

That means the tax on land, utilities and even automobiles couldgo up. Therefore, without state legislative action, not only couldcar tag costs go up because of the loss of the credit funds, butthey could also increase because of the slower sales impact onoverall tax collections.

That is an unpleasant thought in these difficult economic times.While slower automobiles sales are largely beyond anyone’s control,state lawmakers could ease the pocketbook pain to some degree byfinding the funds to keep the car tag credit program running.