Translate[Archived] Question #14: 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?
Question:
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? (Mayor Wilson)
Response:
This response was revised on March 26, 2019.
On March 11, staff forwarded Budget Memo question #14 which indicated that a tax rate of $5.56 would be necessary to generate the revenue currently provided from the $33 motor vehicle license fee (decal fee). This calculation failed to accurately take into account the impact of the state subsidy from the Personal Property Tax Relief Act. After a comprehensive review of the entire tax roll of vehicles, owned by both residents and businesses, the correct tax rate needed to offset the elimination of the decal fee is $5.33. On Tuesday, March 12, City Council voted to advertise a maximum personal property tax rate of $5.56. No action is needed by City Council at this time, since the required rate to offset the motor vehicle license fee of $5.33 is lower than the advertised rate.
The Vehicle Decal Fee of $33 per vehicle is estimated to generate $3.85 million in FY 2020 General Fund revenue. The value of 1 cent on the Vehicle Personal Property Tax Rate is approximately $116,000. If Council were to eliminate the Vehicle Decal Fee (soon to be referred to as the Local Registration Fee), the Vehicle Personal Property Tax Rate would need to be increased by approximately 33 cents. This would increase the rate from $5.00 to $5.33.
Only seven out of 237 cities, counties and towns in the Commonwealth (including Alexandria) apply a progressive sliding scale to the state Car Tax subsidy (PPTRA), whereby the amount of the subsidy declines as the value of the car increases. Because of this, while the absolute tax rate would be $5.33, the effective tax rate would be less for personal use vehicles. Based on the FY 2019 subsidy rates, cars valued below $1,000 would pay no tax; cars valued between $1,001 and $20,000 would have an effective tax rate of $2.37; and cars over $20,000 would have progressively higher effective tax rates starting at or around $2.90. As the value of the car increases, the effective tax rate also increases. Based on the most expensive car in the City’s tax base, the highest that the effective tax rate would ever reach on personal use vehicles is $5.20. Business vehicles do not receive the state Car Tax subsidy.
Staff reviews the PPTRA subsidy rates each year and presents the annual subsidy proposal to Council in June. As the tax base increases, the relative percentage of subsidy declines somewhat, but the above representation provides context to the tax rate relationship, and the effective tax rate on personal use vehicles will always be less than the rate actually adopted.
If Council decides to eliminate the $33 decal fee, the City might become the only, of 237 jurisdictions in Virginia, to eliminate the fee. At a minimum it would be one of the two jurisdictions without a decal fee. All Northern Virginia jurisdictions have a decal fee, with fee rates set between $24 and $33 per year. Swapping the decal fee for an increased tax rate enhances the progressivity of the City’s Car Tax.
Attachment 1 – Correction to Tax Rate Needed to Offset Decal Fee Revenue