Motor Vehicle Tax Cap

Capping The Car Tax

Needed relief for property taxpayers, and perhaps a concern down the road

Among the biggest problems with the highly regressive property taxes in Connecticut is the motor vehicle tax. Until major investments are made to mass public transit, cars are necessities for work, childcare, and more. And even if you don’t own any residential property, it’s likely that you are paying the motor vehicle tax. CCM therefore supported a reduction in the motor vehicle tax cap provided that towns and cities are made whole.

By most estimates, this tax accounts for more than $1 billion in local revenue. The current cap is 45 mills, and municipalities are reimbursed for revenue lost due to the cap. That reimbursement totals about $32 million.

Governor Lamont proposed a cap of 29 mills. This would require a reimbursement of $192 million. The Appropriations committee did release a counter proposal capping the tax at 32.46 mills, which would require a reimbursement of $100 million, which ultimately prevailed.

The revenue lost to this cap would be reimbursed through the Municipal Revenue Sharing Account. This is where concerns about this proposal creep in. Provided that the cap was funded to make up the lost revenue, we agree that there will be enormous benefit to urban and distressed communities. But there will be an immediate and obvious impact to the financial well-being of towns and cities if that reimbursement is not provided like in so many other areas such as PILOT or ECS, which are not fully funded.

With towns and cities still required to provide essential and mandated services such as education, public safety, and infrastructure maintenance; then those funds will have to come from somewhere – likely through an increase in the property tax burden to residential and commercial taxpayers if the promise to reimburse is not kept.

The state cannot renege on its commitment to reimbursement and still proclaim it is doing something good for taxpayers. The flaws in this are obvious and contrarian to the kind of sustained growth Connecticut needs. Despite these concerns, we support these changes because of the nature of our regressive property tax: this car tax cap would provide necessary relief to local taxpayers at a critical time.

But as always, there continues to be important tax reforms that our state can look into. Diversifying local revenue, allowing municipalities greater ability to reduce costs, and regional collaboration. Until we see true property tax reforms like these, our state will continue its overreliance on the property tax.