There’s a plan to get rid of property tax on cars. But how would towns make up the difference?
Adjusting the 70% assessment ratio on homes is one option
For more than a decade, state officials have flirted with removing the property tax on motor vehicles.
Sen. John Fonfara of Hartford and other Democrats have a plan to make the levy go away — it just doesn’t necessarily involve a tax cut for everyone.
Rather, it’s part of a larger plan to redistribute property tax burdens, generally providing more relief to low- and middle-income households and asking more from each community’s wealthiest taxpayers.
The goal, Fonfara said, is to chip away at “this gross inequity, this incredibly regressive burden [placed] on the least able in our communities.”
Fonfara, who co-chairs the Finance, Revenue and Bonding Committee, wants to eliminate the car tax entirely, except on rental vehicles, calling it the worst example of unfair taxation in Connecticut.
As an example, the Hartford lawmaker suggested two hypothetical vehicles, identical in make, model, age and condition — one owned and garaged in New Britain, a low-income urban community in central Connecticut, and one in Greenwich, an affluent, shoreline town in Fairfield County.
The New Britain vehicle would be taxed at 45 mills, or $45 for every $1,000 of assessed property, according to the state Office of Policy and Management listing of municipal tax rates. More importantly, Fonfara said, it would be almost four times that of the Greenwich car, taxed at 11.59 mills.
Sen. Will Haskell, D-Westport, another leading proponent of the bill, said the levy is a nuisance for municipal officials to collect and a deterrent to state efforts to attract young professionals to live and work in Connecticut.
Bristol Assessor Thomas DeNoto, president of the Connecticut Association of Assessing Officers, said his organization has taken no position on the bill.
“The policymakers need to do what’s right for their constituents,” he said.
DeNoto said managing vehicle-related taxes generally consumes about 25% of local property tax assessment work, and about 10% of the taxable list of vehicles must be adjusted every year as residents move, sell vehicles or change cars, due to age or collision damage.
Haskell, who at 24 is the youngest member of the General Assembly, said he’s confident repealing the vehicle tax would make Connecticut more attractive.
According to a recent analysis by WalletHub, a personal finance website, only 27 states tax motor vehicles. Connecticut’s average burden ranks fourth-highest.
“It is the tax that I hate paying the most, because it comes out of nowhere,” Haskell said, adding that many college graduates are looking to settle in urban centers — where property tax rates in Connecticut are highest. “I think [removing the tax on vehicles is] a huge step toward keeping folks in this state.”
Still, property taxes on vehicles generate more than $900 million per year, according to the Connecticut Conference of Municipalities. And unlike Gov. M. Jodi Rell’s 2007 repeal proposal, Fonfara’s would not offer matching state grants to replace the revenue cities and towns stand to lose.
Both he and Haskell were careful not to describe car tax repeal as a tax cut, but rather a step toward efficiency and greater fairness.
Communities would likely replenish the funds by collecting more property taxes on land, buildings and equipment.
This could be done by increasing mill rates. But the bill also gives municipalities another redistribution option: to change how taxes are calculated.
Currently, cities and towns must assess most property at 70% of its market value — a longstanding formula that critics charge favors the wealthy.
For example, a house with a value of $1 million is assessed at $700,000, shaving $300,000 off its market price. A second home in the same community with a value of $200,000 is assessed at $140,000 — a differential of just $60,000.
The closer that a community moves toward taxing property at 100% of market value, the more the burden would shift to owners of the most valuable property.
“That’s sort of a hidden and unexamined [tax] break,” said Senate President Pro Tem Martin M. Looney, D-New Haven, one of the legislature’s most vocal critics of Connecticut’s regressive property tax system, which applies the same rates to households regardless of their ability to pay.
Communities that choose to change their assessment ratio also could phase in the switch over as many as five years if they go that route.
Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance committee, said her caucus is still analyzing the proposal and wants to assess the potential impact on all households.
“I am always aware of the huge burden the towns bear with their property taxes,” she said.
Joe DeLong, executive director of the Connecticut Conference of Municipalities, praised Fonfara for making assessment changes optional, adding that car tax is an unfair and a time-consuming problem for many municipalities.
“It’s the right conversation,” he said. “But it’s also a deeper issue than just those things.”
Connecticut governors and legislatures have struggled to maintain municipal aid levels for much of the past 20 years as payments on huge pension and bonded debt — amassed over decades — consume an increasingly large share of annual state spending.
Until state officials begin looking at painful fiscal choices, including limiting retirement benefits and increasing state taxes to mitigate the debt, proposals like Fonfara’s to make local tax systems more fair will have limited success, DeLong said.
For example, legislators pledged in 2015 that by 2018 the state would be dedicating more than $300 million per year in sales tax receipts to cities and towns.
Instead, the program was suspended in 2018, and communities instead share replacement grants equal to about $100 million.
“It’s not that it’s a terrible idea or a terrible concept,” DeLong added about the new bill. “But if you’re going to have these discussions of changing our tax system, the discussions have to go deeper than a very pretty reshuffling of deck chairs on the Titanic.”
Sign up for CT Mirror's free daily news summary.
Free to Read. Not Free to Produce.
The Connecticut Mirror is a nonprofit newsroom. 90% of our revenue comes from people like you. If you value our reporting please consider making a donation. You'll enjoy reading CT Mirror even more knowing you helped make it happen.YES, I'LL DONATE TODAY