Memo for fiscal year 2017, updated 2016-03-24

[Archived] What would be the required change in the Vehicular Personal Property Tax Rate in order to eliminate the Vehicle Decal Fee and remain revenue neutral?

Based on FY 2015 statistics, eliminating the vehicle decal fee would cost approximately $3.5 million in decal fee revenue and an estimated $1.5 million in lost parking ticket revenue and personal property taxes collected as a result of decal enforcement activities. In order to remain revenue neutral, the vehicle personal property tax rate would need to increase from $5.00 per $100 of assessed value to $5.48 per $100 of assessed value. This increased personal property tax rate would increase the average tax bill by $47 per vehicle, from $273 to $320. The $47 increase is greater than the current vehicle decal fee of $33 due to the loss of decal fee revenue, the loss of ticket fines for failure to display the decal, and the loss of personal property tax due to the loss of the decal as an enforcement and collection tool.  $8 of the fee is required to be used for transportation.  In May 2007, City Council passed an ordinance to increase the decal fee by $8 to use for transportation related activities. This $8 is more than offset by General Fund expenditures for transportation.

Vehicle decal fee revenue has been collected in the City for many years and the display of the vehicle decal serves as an annual reminder to residents when their personal property taxes are due. Most importantly from a tax collection perspective, a visible decal serves as a visible “receipt” thereby assists the City’s Police Department Tag Enforcement Officers in identifying and determining if vehicles are properly registered in the City. In the City with a high proportion of renters who tend to move in and out of the City with a greater frequency than homeowners, the decal is a mission critical tax compliance tool. At this time, the decal is still the most cost-effective tool the City can use toward the goal of ensuring that all Alexandrians pay their personal property taxes. Most jurisdictions that eliminated their vehicle decal fee maintained their revenues by: (a) continuing to assess an annual motor vehicle license fee or registration fee that generally matches the decal fee schedule prior to elimination; (b) increasing their personal property tax rates; or (c) altering the basis for vehicle assessments (e.g. from loan value to trade-in value) in a manner that increased personal property tax assessments. Also, in order to maintain delinquent collection rates, jurisdictions have aggressively pursued delinquent accounts by the seizure or impoundment of vehicles, issuance of court judgments to preserve collectability by extending the statute of limitation by 10 years, issuance of a distress warrant to distrain property and/or assets, and the reporting of delinquent tax debts to credit reporting agencies.  The City has not employed many of these aggressive techniques related to seizure of vehicles, court judgments and reporting to the credit bureaus, but does work very closely with the Department of Motor Vehicles to share information related to current vehicle registrations.  In addition, the City pursues wage liens and garnishment of state tax refunds to obtain money owed for personal property.

Please note the option of eliminating the vehicle personal property tax decal fee is not practicable to implement for the 2016 tax year billing due to decal production timelines. The City works with other Virginia jurisdictions to coordinate cost effective productive timelines. To minimize risk, while staff believes that the decal is key to better tax compliance and revenue collections, staff strongly recommends that if City Council is considering eliminating the vehicle decal fee, that they direct staff to implement these changes for tax year 2017 (calendar year) and provide a year to implement the significant program changes required to reprogram old systems and billing process.

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