In raising Maryland's vehicle titling tax, take trade-ins into account

October 31, 2007|By Peter Kitzmiller

A proposal to raise the vehicle titling tax by 20 percent is scheduled for a hearing in the Maryland General Assembly today. Legislators have an opportunity to align Maryland's vehicle taxation process with the 44 states that deduct the value of a trade-in when calculating sales tax on a vehicle purchase.

Maryland automobile dealers recognize the need for increased transportation funding. But when a customer trades in a used vehicle with value and is still taxed as if the old vehicle is worthless, that represents double taxation. Therefore, state automobile dealers have made a proposal to Gov. Martin O'Malley and the General Assembly: Increase the titling tax from 5 percent to 6 percent, but tax consumers only on the difference between the new vehicle price and the value of a used car trade-in.

Last week, a poll conducted by the Gonzales research organization showed that Marylanders are, by more than 2-to-1, against the plan to raise the state's vehicle title tax by 20 percent. More important, it also revealed that Marylanders are willing, by nearly the same 2-to-1 ratio, to embrace a 6 percent titling tax rate when the trade difference is calculated into the taxable price.

Our proposal has many significant advantages:

It would encourage consumers to trade in an older vehicle for a cleaner, more fuel-efficient newer model. This was the spirit behind the California "Clean Cars" legislation during this year's regular legislative session.

It would eliminate an unfair double taxation that potentially burdens all Maryland residents, regardless of income. Every resident with a valuable used car trade-in would receive a tax credit. A 20 percent increase without any trade-difference credit would burden the consumers who can least afford it.

It would raise an additional $80 million in transportation revenue for Maryland. Because the titling tax is the only funding source indexed for inflation - and because many consumers took advantage of post-9/11, zero-percent financing - receipts from car buyers increased an extraordinary 45 percent from 1998 to 2006 ($496 million in 1998 to $720 million in 2006). In addition, vehicle registration fees were substantially increased in 2004.

Maryland consumers cannot shoulder any additional up-front fees. Title and registration fees are similar to the closing costs when you buy a home. Sometimes, help is needed to seal the deal. A trade-difference tax credit is the help some consumers desperately need.

Maryland is home to more than 350 new-car and truck dealerships, employing more than 30,000 people. These dealerships serve rural and urban areas by generating economic revenue, creating jobs, donating to charity and sponsoring civic events.

These are not happy days for Maryland dealers. The climate for automobile sales is the worst we've seen in a decade, and economists predict the worst is yet to come. If Maryland consumers are not purchasing vehicles now, why will they purchase when the titling tax is increased 20 percent? Maryland is not making any money unless a car dealer sells a vehicle.

Increasing the titling tax by 20 percent and assessing tax on the used car trade difference is a reasonable solution that would benefit the state and Maryland consumers alike.

Peter Kitzmiller is president of the Maryland Automobile Dealers Association. His e-mail is pkitzmiller@mdauto.org.

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