Vehicle fee hike could raise $175M per year
Lansing — Commercial truck owners and new car buyers in Michigan are being asked to chip in up to $175 million a year in registration fees toward Gov. Rick Snyder's $1.2 billion road repair package.
As part of Proposal 1, the May 5 ballot issue that would raise the state's sales tax from 6 percent to 7 percent, commercial truck registration fees would rise between $100 and $1,000 per vehicle, depending on gross weight. The plan also would end a gradual reduction in registration fees — averaging $40 a year — granted on new passenger vehicles during the first three years of ownership.
The higher fees for commercial trucks would immediately raise $50 million a year, while the fee change for new passenger vehicles eventually would raise an additional $125 million a year.
The extra fees on commercial carriers would be on top of a stiff diesel fuel tax hike also connected to the plan. Despite that, Michigan's leading trucking association supports the governor's roads proposal.
"We're comfortable with the package, but we're not out there waving the flag," said Walter Heniritzi, executive director of the Michigan Trucking Association, which has represented motor carriers in the state since 1934.
"We definitely need better roads and we recognize we have an obligation," Heinritzi said. "We've been supportive all along. We thought the governor had a very reasonable proposal ... that would have indexed the fuel tax. We wish it would have passed but it didn't, so here we are."
But Patrick Anderson, an East Lansing economist, says owners of passenger vehicles should cast their votes with eyes wide open. He argues some of them could end up paying more in federal taxes if Prop 1 is approved.
"As April 15 approaches, Michigan taxpayers who claim itemized deductions should be aware that if Proposal 1 passes, this will be the last year they will be able to deduct vehicle registrations on their taxes," said Anderson, principal and CEO of Anderson Economic Group. "People are going to decide on Proposal 1 but they shouldn't rely on being able to continue using the deduction."
The Snyder administration disputes Anderson's conclusion.
"The basic premise is that current law is based on the list price of a vehicle," said Snyder spokeswoman Sara Wurfel. "The pending proposal will still be based on list price of a vehicle. Therefore the working assumption is that nothing would change. If there would be an Internal Revenue Service issue, we could have it now."
The governor's original proposal to raise road repair funds was to simply revise how fuel is taxed and then increase the levy to support more road construction. It passed in the Senate but not the House last year, leading to the current plan.
Under it, passenger vehicle registration fee changes would add just $10.5 million to the kitty in 2016 but that amount would gradually grow to $125 million a year over the next 10 to 15 years as drivers replaced their older vehicles with new ones, according to the Senate Fiscal Agency.
The registration fee changes would have no effect on vehicles from the 2012 model year or older. The fees, charged annually when owners renew registration of those vehicles, already are down to 73 percent of the amount charged when the vehicles were brand-new — as low as they can go under current law.
Under the Prop 1 package, fees on vehicles bought in the last three years would be frozen at current levels. And for vehicles purchased in 2016 and beyond, there would be no reduction in registration fees.
An analysis by the nonpartisan Citizens Research Council of Michigan provides this example of a car costing $30,500 — an average price in today's world: Under current law, registration would cost $153 in 2016, $138 in 2017, $124 in 2018 and $112 in 2019 and beyond; under the proposed change, it would remain at $153 forever.
The registration fee changes are connected with the ballot proposal that would amend the state constitution to raise Michigan's sales tax by a percentage point.
That would generate $300 million more each year for schools and $95 million more for local governments. Another provision increases the state earned income tax credit, for nearly 800,000 low- and modest-income taxpayers, by $261 million annually.
The Snyder administration and other Prop 1 backers are trying to sway voters by focusing on driver safety. They argue the package before voters is the only way to make Michigan's roads safe again.
Bill Moore, who lives in Livonia, is unswayed. The former state corrections worker is cynical about entrusting more of his money to state and local agencies.
The state's "Pure Michigan" slogan is belied by potholes and trash along major Metro Detroit traffic arteries such as the Southfield Freeway, Moore said. But he blames road agencies, rather than the need for $1.2 billion more to fix the roads.
"Who needs more taxes?" he said. "Probably all of the bigshots in Lansing would get their share."
Pollsters who conducted two recent surveys said more than half of registered voters are equally skeptical, if not opposed to Prop 1. But Roger Martin, spokesman for the donation-supported Safe Roads Yes campaign, says opinion polls haven't traditionally proven to be very accurate regarding ballot proposals.
While the proposal has mixed support among lawmakers, House Democratic Leader Tim Greimel of Auburn Hills is backing it.
"If it passes, a lot of things will happen," he said. "We will fix roads, invest more in education and provide a tax break to low-income residents.
Greimel also took action this month to defuse the tax deduction issue, introducing a bill designed to counteract any adverse IRS ruling on the registration fee. In a nutshell, the measure would reinstate current registration fee policies if the IRS or courts rule the registration fees in the roads package don't qualify for tax deductions.
"The idea is that it certainly wasn't the intent of anybody in the Legislature to have this May ballot proposal impact federal tax deductions," Greimel said. "There's no question in my mind that we need to continue this deduction."
"It wouldn't make sense to raise a relatively modest amount of money over the next 10-15 years but freeze residents' federal taxes," he added. "It's not at all clear to me that it would (but) there's an individual who says it would."
Anderson says his position is supported by rulings from the U.S. Supreme Court, tax courts, the Internal Revenue Service, and a 1995 Michigan Attorney General opinion.
It's impossible to get a final verdict on the income tax disagreement in advance. An IRS spokesman earlier this year told The Detroit News the agency doesn't comment on pending state-level tax legislation.