7 things to know about Providence car taxes & how they could change

PROVIDENCE, R.I. (WPRI) – Mayor-elect Jorge Elorza calls it “one of the most regressive taxes that we can have here in the city,” but making changes to Providence’s car tax could come with a steep price tag, according to a report released Monday by the Providence City Council.

The 10-page report suggests raising the current $1,000 tax exemption on the city’s motor vehicles could cost the city between $5.5 million and $20.5 million annually, depending on how much extra the city wants to exempt.

With Elorza set to take office in a few weeks, here are seven key facts to know about Providence’s current car tax policy.

1. It’s not the rate. It’s the exemption.
Providence has had the highest car tax rate in Rhode Island for a long time (it’s currently $60 per $1,000 of assessed value), but a 2011 decision to reduce the tax exemption on cars from $6,000 to $1,000 is what has outraged residents across the city in recent years. So why did the city make that change? The plan added more than 50,000 low-value registered vehicles to the tax roll at a time when the city was facing a massive financial crunch after state lawmakers made major cuts in state aid. While the city changes were led by the council, Mayor Angel Taveras acknowledges he went “against my gut” and ultimately approved a budget that reduced the exemption. He now calls that decision one of his biggest regrets during his four-year term.

2. Raising the exemption is easier said than done.
Mayor-elect Elorza would be the first to admit that while he wants to make increasing the $1,000 exemption a priority, he hasn’t quite figured out how to accomplish that goal. The council report shows that raising the exemption to $2,000 would cost the city about $5.52 million annually. Raising it to the pre-2011 levels of $6,000 would cost $20.52 million. (Remember, some City Council members already believe the city is facing a 24-million gap in the fiscal year 2015-16 budget.) While every candidate for mayor this year said they wanted to address car taxes, only City Council President offered an actual plan. But Solomon’s idea would have asked for state legislation that would reimburse municipalities a percentage of new income taxes collected at tax-exempt institutions, like hospitals or colleges.

3. Rhode Island tried to eliminate car taxes 15 years ago.
In 1999, state lawmakers created a program designed to allow municipalities to phase out car taxes altogether. The plan was to gradually raise exemption levels and then reimburse cities and towns to cover the lost revenue (the goal was to create a formula that would have allowed communities to share revenues from part of the state sales tax). But the General Assembly quickly realized that a plan to end the car tax completely by 2006 was unrealistic and the exemption never made it above $6,000. In 2010, the legislature killed it altogether, andCar taxes doc then passed legislation that allowed cities and town to reduce the exemption as low as $500. Fifteen communities did that just that. Providence lowered it to $1,000.

4. Car taxes amount to 4% of the city budget.
The $1,000 exemption helped Providence grow its annual revenue from car taxes 81% to $31.6 million, which represents about 4% of the city’s total budget for the 2014-15 fiscal year. As it stands now, there are 114,233 registered vehicles in Providence; all but the 6,191 vehicles valued below $1,000 generate at least some income for the city. Just 25% of all cars in the city are worth more than $10,000. On the high end, 596 cars are worth at least $50,000. One reason leaders like Councilwoman Sabina Matos say “people don’t feel like [the car tax] is fair” is that the 2011 changes resulted in a slight tax reduction for those who owned cars valued over $25,000, while simultaneously imposing a new tax on low-value cars.

5. Rhode Island’s car tax policy is unique.
The council report found that Rhode Island is the only New England state with a low-value car tax exemption. Rhode Island and Connecticut are the only states that allow municipalities to set their own rates (Hartford’s rate is $74.29 per $1,000 without an exemption). In Massachusetts, car owners pay $25 per $1,000, but they only pay taxes on 10% of the original car value once their car five years old. Maine and New Hampshire have set state rates that get lower as the car gets older. Vermont does not have a car excise tax.

6. A minimum car tax could boost city revenues.
The council estimates that Providence pays about $149 per registered vehicle in car-related services, although that figure is based on a subjective formula that factors in what the city spends on highway work, snow removal, traffic engineering, road bond debt service, street lights and police services (they assume that police officers spend between 5% and 10% of their time on traffic safety matters). That means that if you own a car worth under $3,000 and pay $120 a year in taxes, you’re costing the city $29. One possible solution, according to the report, would be to ask the General Assembly to allow municipalities to impose a minimum car tax on residents. If Providence had a $150 minimum tax and kept the same rate, it would generate an additional $4.4 million annually. This could not happen without legislative approval.

7. Car taxes could be a statewide issue this year.
Monday’s Ways and Means Committee discussion on car taxes came exactly two months after then candidates Gina Raimondo and Jorge Elorza held a joint press conference to pledge to address what Elorza called a tax that “falls squarely on those who are least able to afford it.” Now that they’re set to be sworn into office in two weeks, it will be worth watching whether the car tax becomes a first-year priority or if the matter gets pushed down the road. One area where state lawmakers could play a role is with vehicle valuation, a controversial issue that has popped up in many communities in recent years.

Dan McGowan ( dmcgowan@wpri.com ) covers politics, education and the city of Providence for WPRI.com. Follow him on Twitter: @danmcgowan

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