Hoffman introduces bill to cut car-leasing taxes

January 28, 1995|By Ted Shelsby | Ted Shelsby,Sun Staff Writer

Maryland's multiple taxes on leasing a new car, which can cost motorists more than 10 percent of the value of the vehicle, would be significantly cut under a bill proposed by a Baltimore legislator.

Sen. Barbara A. Hoffman, a Democrat who heads the Senate Budget and Taxation Committee, said Maryland motorists who lease "are getting hit with a double whammy or even a triple whammy" by the levies, which are more than three times those imposed in neighboring Virginia and are the highest in the mid-Atlantic region.

In a leasing arrangement, the manufacturer or dealer pays the state a 5 percent title tax, which Ms. Hoffman says is passed on to the consumer. Lessees pay another 5 percent sales tax on their monthly lease payments, or $20 on a $400 payment.

And if the vehicle is purchased at the end of the lease, the Maryland customer pays another 5 percent titling tax on the residual value of the car.

"This doesn't seem quite right," Ms. Hoffman said, noting that Delaware is the only other neighboring state with such a system, but its tax rates are considerably lower than Maryland's.

Senate Bill 152, which Ms. Hoffman introduced this week, proposes the elimination of the sales tax on monthly lease payments and the tax on the purchase of the car at the end of the lease.

The bill, which applies only to vehicles leased for one year or longer, is co-sponsored by Sen. William H. Amoss, a Harford County Democrat.

A recent study by the Department of Fiscal Services found that the taxes paid on leasing a $15,000 car, and then buying the car at the end of the lease, were $1,521 in Maryland. In Delaware, the taxes added up to $501; in New Jersey, $900; in Pennsylvania, $1,185; and in Virginia, $450.

The study concluded that the high tax in Maryland was one of the reasons that auto leasing in Maryland is well below the national average. Nationwide, 14.4 percent of the cars on the road are leased; in Maryland, only 4.9 percent.

A change in the tax structure could be a boon to auto manufacturers and dealers, but Ms. Hoffman said the bill is intended to help consumers.

"This is not a fat cat bill," the senator said. "It's aimed at the 27-year-old office worker who wants a new car and can't afford the monthly payments."

Joseph P. Carroll, executive director of the Maryland New Car and Truck Dealers Association, said more consumers are turning to leasing because of the high price of new cars.

Mr. Carroll said the proposed change in the tax laws would mostly benefit middle- and lower-income motorists.

According to the state study, the proposed changes could cost the state $6 million in lost general fund revenues next year.

But Ms. Hoffman noted that a tax reduction could stimulate leasing, and any loss of sales tax could be made up in increased titling taxes, which now go to the state's Transportation Trust Fund and are used for such things as bridge repairs and new roads.

"We have to figure out some way of transferring funds from the Transportation Trust Fund to the general fund," Ms. Hoffman explained.

She said she has not yet talked with the new administration of Parris Glendening about the lease-tax measure.

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