HD9 - Review of the Impact of the Re-Enactment of HB 680 (2018) upon the Commonwealth’s Transportation Funds

Executive Summary:

*This report was replaced in its entirety by the Department of Motor Vehicles on November 29, 2018.

The Motor Vehicle Sales and Use Tax (SUT) is charged upon the titling of a vehicle, including a trailer, in Virginia. The tax is levied either at 4.15% of the gross sales price or a minimum of $75, whichever is greater. Virginia law has levied a minimum SUT since 1986, when it was set at $35; it was raised to $75 by House Bill (HB) 2313 in the 2013 General Assembly Session, a move that aligned the minimum SUT to match inflation.

In the 2018 session, Delegate Pogge introduced HB 680, which would have lowered the minimum SUT for trailers weighing less than 2,000 lbs. to $35. The Department of Motor Vehicles (DMV) was directed to review the impact on the Commonwealth’s transportation funds of lowering the minimum SUT to $35 for those trailers. DMV consulted with the Virginia Department of Transportation (VDOT) and Virginia Department of Taxation (TAX) in completing the review. DMV’s review identified three benefits of lowering the minimum SUT: individuals buying lightweight trailers would benefit by saving up to $40 when titling a lightweight trailer, DMV would benefit by saving up to $10,000 per year in credit card fees and decreasing the amount of compensation paid to DMV Select offices.

Nonetheless, DMV estimates that lowering the minimum SUT would negatively affect the Commonwealth’s transportation funds by decreasing the collection of SUT revenue. Lowering the minimum SUT would result in an annual reduction of approximately $800,000 per year for the Highway Maintenance and Operating Fund (HMOF). A bill such as HB 680, if reenacted, could establish a precedent for further such legislation in the future. This could lead to the loss of transportation revenue from both the SUT and other taxes, potentially putting funding for Virginia’s transportation needs at risk. Finally, many of Virginia’s current transportation funding sources were created or augmented by HB 2313 (2013), and are subject to an enactment clause providing for the expiration or reduction of those funding sources if money is appropriated for a non-transportation use. If the precedent set by re-enacting HB 680 leads to the passage of bills in conflict with that enactment clause, it may be necessary for the General Assembly to re-examine its transportation funding policies in HB 2313.

Although lowering the minimum SUT has some benefits, its costs – and the potential for further costs in the future – far outweigh those benefits. DMV recommends that HB 680 should not be re-enacted.