AUGUSTA — Every car and truck owner in Maine would be affected by proposed legislation that would cut the state’s excise tax on vehicles.
Supporters say Maine’s excise taxes are too high and vehicle owners need a break. Opponents say cuts in excise taxes would hurt municipalities and shift the tax burden onto property owners.
The primary aim is for car buyers to pay an excise tax based on the true cost of a vehicle, not the list price, which often is higher than the actual price, said Rep. Gary Knight, R-Livermore Falls, co-chairman of the Legislature’s taxation committee.
Excise tax legislation has been debated and rejected for years. In 2009, residents voted down a referendum that would have slashed excise tax rates by an average of more than 50 percent after opponents argued it would shift the tax burden to property tax payers. Knight thinks some form of legislation could pass this time around because Republicans now hold control in the Legislature.
“I think we’ll find something among these bills that will be acceptable to a majority,” he said. “But it’s not about party. It’s about integrity and honesty.”
People pay excise taxes each year when they register their vehicles, with the taxes going to their towns and cities and typically used for road maintenance, repair and construction. The taxes are highest for new vehicles and diminish as vehicles get older.
Under current law, which has been around since the 1920s, the tax is calculated on the manufacturer’s suggested retail price of a vehicle. For instance, a car owner would pay $480 in excise taxes for a new vehicle that lists at $20,000, even if they paid less.
Very few people pay list price for a car, Knight said, and it’s unfair to tax them on a price they don’t pay.
“It should be based on what people pay, not on an arbitrary higher number,” he said.
Three bills are under consideration that would reduce or eliminate the use of the manufacturer’s suggested retail price as the base against which the excise tax rate is applied. The taxation committee will hold a workshop session Thursday to discuss the bills.
Municipal officials don’t have the same sense that some legislators do that the existing excise tax formula is in need of a fix, said Geoff Herman, director of state and federal relations at the Maine Municipal Association. Besides shifting the tax burden to property tax payers, changing the existing formula could be costly and cumbersome for town offices and confusing for consumers, he said.
“The municipal people feel like an overhaul of the excise tax system isn’t the highest priority in the world,” he said.
Voters already have spoken on the issue, in the 2009 statewide referendum when they turned down the chance to cut excise taxes, said Christopher St. John, executive director of the Maine Center for Economic Policy. Although the cuts called for in the set of proposed bills are just a fraction of what was called for in the 2009 referendum, the same principles apply, he said.
“It’s another opportunity for people to weigh their dislike of paying any tax, period, against how do they want their poison,” St. John said. “Can they appreciate that any revenue is required by municipalities for municipal services?”
Car dealers would welcome a change in the excise tax formula, said Tom Brown, president of the Maine Automobile Dealers Association.
The tax formula could be changed and kept close to revenue-neutral by basing the tax on the purchase price — not the list price — of a vehicle, but extending the number of years a car depreciates for tax purposes, Brown said. Perhaps the depreciation period should span eight or 10 years, rather than six years under the current formula, he suggested.
Car dealers think a new excise tax formula might lead to change in people’s car-buying behavior because customers now know they’re going to end up with a hefty excise tax bill, he said.
“Dealers tell us that the customers in the showroom know what they’re facing and it sometimes impacts people’s decisions on what type of vehicle they buy and perhaps even the age of the vehicle,” he said.