PHOENIX β Are you good at bargaining for the price of a new car?
If a lawmaker gets her way, people who are better at playing the negotiating game will get not just a better out-the-door price from the dealer but also a permanent tax break from the state.
State Sen. Michelle Ugenti-Rita, R-Scottsdale, seeks to have the annual vehicle license tax, or VLT, be based on what someone actually pays for the vehicle.
That is a departure from the procedures used by the Motor Vehicle Division. It bases the VLT on the manufacturerβs suggested retail price.
Put simply, if Toyota decides to set the price for its 4-Runner at $38,520, the vehicle license fee for the first year would be $647.14. Thatβs computed on a formula based on 60% of the MSRP, with a tax rate of $2.80 for every $100 of value.
But letβs say the buyer got the price knocked down to $30,000. Under the proposed change in Ugenti-Ritaβs Senate Bill 1019, the first-year fee would be $504 using the same calculation.
Thereβs more.
The MVD computes future vehicle license taxes by reducing the starting price by 16.25% each year.
So, in year two, the current system would put the VLT for the Toyota 4-Runner example at $541.98, versus the $435.67 if the buyer had done a better job negotiating the price in the first place.
And it goes on and on from there each year the person owns the vehicle.
Ugenti-Rita said she sees nothing unfair about a system that favors those with superior bargaining skills. She said it should be based on what people pay, βlike everything else in the world.β
βItβs not fair taxation to have a system where you are paying a tax on a product, on a car, but you have not paid the full price,β she said. βI mean, when you go and buy something at a store, you pay the tax on the price that you purchase at, not at the suggested retail price.β
Anyway, Ugenti-Rita said, itβs not like anyone really pays the MSRP.
βWhy is something based off of a made-up amount?β she asked.
She does not dispute that the actual sales price also could be considered artificial, as the purpose of the VLT is to help pay for highway repair and construction. Thatβs different than the one-time state and local sales taxes that are charged when you buy a vehicle.
It might even be argued that the fairest way could be to base the fee on the amount of wear and tear on the road. There is a precedent for that: Large commercial vehicles pay based in part on the weight of the vehicle, including its maximum load.
βThe weight of the vehicle sounds at least more fair than some made-up number by the manufacturer,β Ugenti-Rita said.
A separate method could be to base the fee on miles traveled. In fact, that already exists in the form of the stateβs 18-cents-a-gallon gasoline tax: The more people drive, the more gas they purchase and the more they pay for road repairs.
But a suggestion several years ago to levy an annual fee based on the number of miles traveled went nowhere amid various concerns, including the privacy of vehicle owners who might fear their travels would be tracked.
Ugenti-Rita said that leaves her proposal as the best plan.
Bargaining ability aside, there are other factors that could create inequities, such as the rebates offered by manufacturers.
Then thereβs the fact some motorists will trade in their current vehicles, resulting in a lower out-the-door price for the new vehicle β and a lower figure on which to base the vehicle license tax.
Ugenti-Rita said that does not disturb her.
βWhy not?β she asked. βYou already paid the VLT on the car youβre trading in. Why would the system we have now be better?β
There are other complicating factors.
MVD, in determining the vehicle license tax, considers only the manufacturerβs suggested retail price. Vehicle upgrades or options are not factored in.
So that means the purchase price of a vehicle with fancy trim, driving lights or upgraded leather seats will be higher than the base model. And, using Ugenti-Ritaβs formula, the buyer of a car or truck with these upgrades would pay a higher VLT than someone who eschews all the fancy add-ons.
Thereβs also the administrative burden. The MVD has a subscription to a vehicle information service that provides the info on each vehicleβs MSRP, an agency spokesman said. Going to what Ugenti-Rita wants would require a vehicle-by-vehicle calculation of the VLT.
She is unsympathetic.
βHowever they need to handle it, Iβm sure they can handle it,β Ugenti-Rita said, even if it requires upgrading the agencyβs computer system. βThatβs not a good reason why we should be taxing people on a made-up number that the purchaser didnβt pay for.β
A spokesman said MVD does not comment on pending legislation.
