‘Double jeopardy’ tax policy: Fix it or end it

Editor’s Note: The Bluegrass Beacon is a weekly syndicated newspaper column posted on the Bluegrass Institute’s website after being published by newspapers statewide.

With an enormous surplus of funds rolling into state coffers – including a wad of COVID-relief dollars on the way – protecting Kentuckians from a huge tax increase when they show up at the county clerk’s office to renew their vehicle registrations this year should be low-hanging fruit on the General Assembly’s tree.

It wouldn’t be the first time attempts have been made in Frankfort to deal with the hated vehicle tax, which Kentuckians are forced to pay during their birthday months – of all times – to register their vehicles.

Nearly 80% of voters approved an amendment to the Kentucky Constitution in 1998 allowing legislators to “exempt motor vehicles and any other class of personal property from the levy of all or any portion of the property tax.”

Many of those same voters ostensibly supported lawmakers expecting they would follow through with getting rid of the tax altogether.

Now would be an opportune time for policymakers to follow through with that exemption since, along with rising costs at gas pumps and grocery stores caused by hyperinflation, Kentuckians don’t need a huge tax increase when registering their vehicles, especially this year.

Blame the situation on global supply chain problems currently limiting the availability of new cars, spiking the value – and thus tax – of used vehicles.

The vehicle tax is determined by current fair cash value – what it’s worth when being sold.

The normal expectation is that vehicles’ values depreciate the older they get and the more miles they’re driven, thus reducing the tax rate. But the current situation turns what’s normal upside down.

With a much-tighter supply, vehicles’ fair cash value and the linked tax at renewing registrations have both soared by as much as a whopping 40%.

In some instances, car values are appreciating beyond what owners paid for them when they were brand new.

Wayne County resident Randy Bauer told Louisville Courier-Journal reporter Matthew Glowicki that he’ll pay nearly $500 in taxes on his 2019 Toyota 4Runner which he bought in late 2018 for $38,000 but was assessed this year as being worth $42,000.

Sen. Jimmy Higdon, R-Lebanon, has filed legislation directing the Kentucky Department of Revenue to use 2021 property values to determine car tax rates in 2022 and 2023.

Rep. Patrick Flannery’s House Bill 6 would lower vehicle-tax rates by requiring the state to use the “average” trade-in value and would allow those who have already paid this year’s property tax with its higher rates to seek a refund.

Flannery, an attorney serving his first term in the legislature, complained to Kentucky Today that the revenue department hasn’t been “following existing law” while “making their own rules” since 2009.

He pointed to a memorandum that year in which the agency began defining vehicles’ “average trade-in” worth as the “clean trade-in” value instead, resulting in most owners paying more in taxes than the true condition of their vehicle merits. And this was before the value of cars took off.

At a minimum, lawmakers should act on Higdon’s proposal and keep rates where they were before the Covid-caused spike.

But while Flannery’s proposal is a bit bolder, it’s not out of the realm of political possibility.

Better yet, why not end this policy of “double jeopardy” taxation altogether? Why should Kentuckians be forced to pay such levies annually after already shelling out a sizable chunk of sales tax when purchasing vehicles?

This mess offers yet another reminder that Kentucky needs a comprehensive pro-growth tax reform policy based on principles of economic freedom rather than satisfying government’s lust for more spending.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free market think tank. Reach him at jwaters@freedomkentucky.com and @bipps on Twitter.