SENATE BILL REPORT

SB 5873

BYSenators Craswell, Smitherman, McDonald, Patterson, McCaslin, Nelson, McMullen, von Reichbauer, Madsen, Murray, Metcalf, Thorsness and Gaspard

Changing provisions relating to excise taxation of motor vehicles, travel trailers, campers, and other vehicles.

Senate Committee on Transportation

Senate Hearing Date(s):February 28, 1989

Senate Staff:Gene Baxstrom (786-7303)

AS OF FEBRUARY 28, 1989

BACKGROUND:

For the privilege of using any motor vehicle in the state, an excise tax of 2.454 percent of the "fair market value" of a motor vehicle is collected.  This 2.454 percent rate includes a base of 2 percent, two-tenths percent for ferry capital construction, a surtax of 7 percent which is applied to both the 2 percent base and the two-tenths percent ferry capital rate, and a one-tenth percent for ferry operations, which expires at the end of 1990.  The tax is paid annually at the time the annual vehicle registration fee is due.

The Department of Licensing collects the motor vehicle excise tax along with motor vehicle registrations.  As typically the value of a vehicle decreases each year, the amount of the excise tax also decreases.  The Department of Revenue prepares depreciation schedules, which are to reflect the "fair market value" of vehicles. 

Proceeds of the motor vehicle excise tax are distributed for many purposes.  Currently the general fund receives about 44 percent of total collections, transit systems receive 27 percent, the rail development account 1 percent, the state ferry system 11 percent, cities 13 percent, counties 2 percent, and the Department of Licensing 2 percent for the cost of collection.  The motor vehicle excise tax is projected to generate in excess of $650 million during the 1987-89 biennium.

Questions have been raised as to the complexity of the tax and the appropriateness of tax distributions.  The Joint Motor Vehicle Excise Tax Committee was created by the Legislature in 1988 to review the history of the excise tax, administration of the tax and tax distributions.  That committee conducted a review and adopted several recommendations regarding changes in tax basis, tax administration, and tax fraud/evasion.

SUMMARY:

The current fair market value method for assessing the motor vehicle excise tax on passenger cars is changed to a "manufacturer's suggested retail price" plus statutory depreciation schedule method.  The depreciation schedule holds vehicle value at 100 percent for two years and then depreciates the vehicle over 12 years down to 5 percent.

For trucks the current system of valuation, based on latest selling price, is maintained; however, the rate of depreciation for trucks is changed to maintain revenue neutrality in relation to the existing system.  The minimum value of a truck is reduced from 10 percent to 5 percent of latest sales price.  Current rates of depreciation for travel trailers and campers and the current minimum value for campers is codified in statute.  This depreciation rate takes travel trailers and campers from 100 percent of value to 20 percent of value over a 16 year period.

The current 2.454 percent excise tax rate is reduced to 2.0 percent.  Revenue neutrality in the current fleet is projected for the 2.0 rate when combined with the changes in vehicle valuation.  The 2 percent excise tax rate includes making permanent the current one-tenth percent MVET distribution for ferry operations.

Distribution of excise tax revenues are converted from a combination of tax rate and percentage of tax collection basis to a percentage of tax collection.  Percentage distributions are intended to reflect current distributions under existing law.  The 2 percent of the basic 2 percent motor vehicle excise tax which is allocated to the Department of Licensing to offset administrative costs is eliminated.

The percentage allocation to be attributed to the excise portion of vehicle registration fees from other states and provinces under the International Registration Plan, for those jurisdictions which do not submit sufficient detail to identify the source of funds between license fees and excise taxes, is reduced from 36 percent to 30 percent.  Those fees are then distributed as MVET revenues.  The remainder of those fees are attributed to vehicle license fees and are distributed accordingly.

This act takes effect with vehicle registrations that become effective January 1, 1991.

Appropriation:    none

Revenue:    yes

Fiscal Note:      requested February 23, 1989