Gov. Dannel P. Malloy today will propose a property tax-exemption on most motor vehicles and a phased-in restoration of the popular sales-tax exemption on clothing that he eliminated in 2011, his first year in office.
Administration officials briefed mayors this morning on the car-tax plan, but it was not immediately clear if the state was proposing to make up the lost revenue, which municipalities say raises $500 million annually.
According to a source familiar with the plan, the first $20,000 of a vehicle’s assessed value would be exempt from the municipal property tax, meaning owners of cars or trucks with market values of less than $28,571 would pay no tax.
Cities and towns would have the option of providing the exemption or a portion beginning July 1. It would be implemented statewide a year later.
Malloy’s plan would apply to all private and commercial vehicles, with the exception of rentals.
The governor’s plan to restore the popular sales tax exemption on clothing valued at $50 or less, which was a casualty of his first-year budget, would return in steps, beginning with a $25 exemption next year.
Last week, the Democratic governor did not rule out a change to the car tax.
“I have looked at opportunities to bring some level of relief, but they are few and far between,” Malloy said.
When pressed about whether he would propose a plan to reduce or end the unpopular car tax, the governor only repeated that opportunities for change “are few and far between under the circumstances that we’re dealing with.”
Those “circumstances” are a projected $1.2 billion shortfall built into the coming fiscal year based on current spending and revenue trends, a gap equal to about 6 percent of annual operating costs.
His Republican predecessor, M. Jodi Rell, proposed a car-tax exemption in 2007 that would have applied to private vehicles and be phased in over five years.
Rell, whose biennial budget plan that year also sought to raise $1.3 billion in income taxes, would have sent $300 million of that back to communities to offset the lost property tax revenue, and another $545 million to bolster schools.
In the face of GOP opposition, Rell never pushed for passage by the General Assembly, and her income-tax and car-tax proposals never advanced.
Malloy, who was mayor of Stamford six years ago, had blasted Rell’s plan at the time
“To be clear, I’d love to eliminate the car tax, but not if it’s just a shell game that raises taxes on homeowners — which is what this appears to be,” Malloy said in 2007.
But Republican legislative leaders argued Tuesday that Malloy’s new budget also is a shell game, shifting more than $800 million in operating costs onto the state’s credit card over the next two fiscal years to enable the Democratic governor to avoid more tax hikes and finance municipal tax relief.