TAX NEWS - JUNE 2010

Virginia Tax: Property tax on new cars in question

03 June 2010 -- If you think you are paying too much property tax for your car, read on.

An investigation is shedding light on a taxation problem on new cars that do not have blue book values. The car has no value in the guide until after the first year. In that year, the commissioner of revenue offices use the sales price to figure the tax.

Norbert Kindler noticed that his property tax bill is higher than it should be. He is so upset about it, he not only called WAVY-TV 10, but he also called a member of the Virginia General Assembly who cared enough to show up at his house.

He said he was "Unfairly taxed for... the purchase of a vehicle that I did not pay that price for."

Here are the car facts:

Norbert Kindler bought a 2010 Lincoln at Freedom Lincoln Automotive.

Kindler's car cost         Rebate          Balance due for car
      $42,045                $4,750                  $38,777

But Kindler now has a personal property tax bill based on the higher price, not the lower price--the price actually paid.

"If it's wrong, it's wrong. Fix it. Don't sweep it under the rug and hope it will go away," he said.

The Chesapeake Commissioner of Revenue's office, who sent the bill, blamed the DMV. It is true that the DMV says it determines the sale price of a car:

"...shall include any reduction in price shown on the invoice for a manufacturer's discount or dealer's price discount since they directly reduce the sale price from the dealer to the consumer. Sales and Use Tax (SUT) should not be collected on these price reductions or discounts."

Kindler says that it's confusing and conflicting because the next paragraph reads:

"The sale price shall not include any credit given by the dealer for a trade-in, rebate, unpaid lien or other unpaid claim against the vehicle. BUT should be collected on these credits."

It is noted on the Buyer's Order from Freedom Lincoln Mercury that Kindler definitely received a rebate.

Kindler was wondering what the difference between a manufacturer's discount and a rebate is. He says a manufacturer's discount is a rebate.

Chesapeake Delegate John Cosgrove, R-78th District, agrees.

"He didn't get a check for the rebate and spend it. He used the rebate to reduce the sales price of the car. He never saw that extra money. He never put it in his pocket or put it in the bank," said Cosgrove.

The DMV that determines the tax cited the Virginia Code. DMV's Melanie Stokes wrote to WAVY.com and said, "DMV is required to record the price and collect sales and use tax of a vehicle before any type of rebate or discount. This is a Statutory requirement under Virginia Code Section 58.1-2402."

Delegate Cosgrove calls it a bad law and says he is going to try and change it.

"It's the way the law is. Just because we have been doing it that way doesn't make it right," he said. "There needs to be fairness in taxation as much as it possibly can. This is not fair the way it is now. I will have the bill drafted and it will go before the finance committee. I will use Mr. Kindler as an example."

Delegate Cosgrove says he will submit a tax change bill in January when the General Assembly meets. Cosgrove says you should pay tax on what you paid, not on what you could have paid.