Shrinking car tax relief

As recently as eight years ago, Montgomery County vehicle owners received a 70 percent reduction on the personal property tax the county levied on the first $20,000 of a vehicle’s assessed value. The tax cut was paid for by the state under a plan originally designed to phase out most of the hated car tax.

On Monday, Montgomery’s board of supervisors adopted a resolution that sets the new tax relief rate at 48.45 percent, down from last year’s 51.41 percent.

“That relief percentage just continues to decline,” observed County Administrator Craig Meadows before the board voted 5-0 to set the new rate.

The amount of money Montgomery County receives from the state for car tax relief has remained flat since 2006. The value of the county’s taxable personal property has not, Meadows explained.

Board members already had voted earlier this year to increase the personal property tax rate for the first time in nearly two decades, bumping it from $2.45 per $100 of assessed value to $2.55. Meadows noted in his formal budget message in March that the owner of a $20,000 vehicle will pay $20 more in personal property tax as a result of the increase.

Monday’s vote was a formality made necessary by a state law that some consider as outdated as the AMC Gremlin.

Virginia’s car tax relief program got a governor elected 16 years ago but turned into a budget-buster when the economy hit the skids. What remains is a static $950 million state spending program that provides diminishing benefits for taxpayers, particularly those in Southwest Virginia.

Republican Jim Gilmore tapped into the public’s hatred of the personal property tax when he ran for governor in 1997 and vowed to abolish the levy. A year later, the General Assembly passed legislation to gradually phase out the tax on the first $20,000 of a vehicle’s value.

The state would pay for the tax relief out of the general fund, using income and sales tax proceeds to reimburse counties, cities and towns for the loss of local car tax revenue.

By the time Gilmore left office, the economy had slowed and the escalating cost of his signature initiative was straining state finances. By law, the tax relief rate was frozen at 70 percent in 2002 because of weak revenue growth. Two years later, the General Assembly voted to cap spending for the program under a bipartisan tax package that was signed into law by Gilmore’s successor, Democrat Mark Warner.

The $950 million cap took effect in 2006. Since then, car tax relief payments have been distributed to localities in proportion to the subsidies they received in 2004.

That formula has never been modified to account for changes in each locality’s taxable personal property. Large sums of money flow to densely populated counties and cities that had high vehicle assessments and high personal property rates nearly a decade ago.

Fairfax County alone receives $211.3 million annually, or 22 percent of the state’s annual car tax relief payments. The county has a personal property rate of $4.57 per $100 of assessed value.

Prince William County gets $54.3 million, Virginia Beach receives $53.4 million, and Loudoun County gets $48 million, to name just a few others.

Montgomery County receives $4.75 million annually, about 0.5 percent of the car tax relief pie. Other New River Valley localities get much smaller subsidies.

State lawmakers have not touched the car tax subsidies, not even when they were slashing state services to balance the budget during the depths of the Great Recession. Meanwhile, state funding for Montgomery County schools has decreased by $9.6 million since the 2008-09 year.

In December 2009, then-Gov. Tim Kaine called for an end to the car tax relief program and the complete abolition of the local personal property tax on vehicles. Under Kaine’s proposal, localities that eliminated their car taxes would receive the proceeds from a 1 percent income tax “surcharge.”

Kaine floated the surprise proposal in the final weeks of his term to help close a $4.2 billion budget shortfall. The plan went nowhere in the General Assembly. And no one has seriously threatened the car tax reimbursements since.

As this year’s gubernatorial campaign kicks into high gear, Gilmore’s “ax the tax” slogan seems like a distant memory. The blade is getting rusty and dull, even as it cuts nearly $1 billion a year out of Virginia’s budget.

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