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Value of used cars impacting personal property taxes

Cars are parked along a street in Church Hill during 2020.
Crixell Matthews
Cars are parked along a street in Church Hill during 2020. People's personal property taxes are being impacted as a result of supply chain issues amid the COVID-19 pandemic. (File photo: Crixell Matthews / VPM News)

Central Virginians who recently opened up their personal property tax bill might have been surprised at the increase in what they owe on their used car. In some cases, that increase jumped to 35%

Jenefer Hughes, Chesterfield County commissioner of the revenue, said the state’s constitution makes all personal property in Virginia taxable. And, she said, that used to be put into practice.

“In the old days, the commissioner or used to be the sheriff's department could come into your home and make a list of all your tangible personal property, and you'd be taxed on it,” Hughes said. “That doesn't happen anymore. So, in general, what people experience is the property tax bill on their home and the property tax bill on their vehicle.”

This year, those taxes increased because of extraordinary economic factors, Hughes said. In the case of vehicles, the COVID-19 pandemic slowed the supply chain for new cars, increasing the demand for and driving up the market value of used cars.

She said it’s the value of used cars that is ballooning people’s tax bills this year. Because property taxes are charged as a percentage of value, they can increase even when tax rates remain the same.

Hughes said at the end of January, her office did a mass valuation of more than 400,000 vehicles registered in Chesterfield. They then sent a letter to each vehicle owner letting them know that their car’s assessments were likely to increase this year. 

“I'm in the same boat,” Hughes said. “I bought my vehicle two years ago; it was valued at more than I paid for it.”

Hughes said people don’t buy a car as an investment, like a home.

“You expect [a car] to depreciate as you use it,” Hughes said. “It seems counterintuitive, during these times that your vehicle value has actually gone up.”

A flawed tax system

Virginia’s constitution requires tax assessments to be based on “fair market value.” By state law, Hughes said localities must use a recognized pricing guide to evaluate cars — but not Kelley Blue Book like many people have asked her about. 

“The recognized pricing guide in Virginia that the Commissioner of Revenue's Association uses, so all commissioners use this, is the 'J.D. Power Official Used Car Guide, Eastern Edition,'” she said.

Hughes said even though you pay a sales tax on a new car, property taxes — paid by car owners each year — help pay for local services like roads and schools. 

Carl Davis, of the nonprofit Institute on Taxation and Economic Policy, said that even though these taxes are important sources of revenue, it's a flawed system. He said owning a vehicle doesn't tell you much about people’s overall economic well-being or how much they can afford to pay.

“For a low-income family at the poverty line, that might be a huge fraction of their total household wealth,” Davis said. “It's tied up in their car. They may not own their home, they may not have retirement savings. There's not much else of wealth that they have.”

Davis said while people with luxury cars are also feeling the pinch of higher property taxes, they’re likely better able to pay.

He said allowing localities to tax income, something that’s done in a number of states, would be a more equitable way to fund services.

“If you have a high income, if you're doing extraordinarily well, you pay more tax,” he said. “If you have a low income, or you're laid off at work and you see your earnings decline, then you pay less tax. There's a connection there between how much resources you have and what you're paying.

“[In] Virginia localities, they're not allowed to levy an income tax. So, they're relying on real estate taxes and vehicle taxes and these kinds of things instead.”

Davis said the only way to allow localities to collect income tax is to change the state constitution. 

What localities are doing to help

For now, residents feeling the pinch of higher property taxes will have to rely on localities for relief. People also have the right to appeal their personal property assessment.  

In Henrico County, the board of supervisors overwhelmingly passed an emergency ordinance last week to extend the payment deadline to Aug. 5. Penalties and interest on late fees were also waived.

In Chesterfield County, after Hughes and her staff evaluated more than  400,000 vehicles for their value, the resulting tax revenue from vehicles was $22 million more than in 2021. 

“[The board of supervisors] chose to send back the entire amount of the tax increase to citizens,” Hughes said. One way they did that was by cutting the vehicle license tax from $40 to $20. 

And just announced Monday, the county is waiving penalties and interest for tax bills paid in full by July 29. This applies only to taxes on personal property, such as cars, passenger trucks, motorcycles, boats and trailers. The due date for taxes on land, homes and commercial buildings remains June 6.

In the city of Richmond, officials — who use the National Automobile Dealers Association values to determine personal property taxes for most vehicles — said in a recent press release that the city “uses the ‘Clean Trade-in value’ established by NADA as fair market value.” And as noted by the other localities, the fair market value now shows an increase in the value of used cars. 

Officials also said that to provide some relief for taxpayers, they’ll freeze what’s known as the PPTRA rate — the Personal Property Tax Relief Act. No action from tax payers is required, as the payment amount has already been adjusted.

The PPTRA was passed by the General Assembly in 1998 as a way to allow localities to “provide tangible personal property tax relief on qualifying vehicles by reducing its local tax rate on qualifying vehicles.” 

Currently, the personal property tax rate in the city is "$3.70 per $100 of assessed value for passenger vehicles, boats, farming equipment and trucks with a gross vehicle weight of less than 10,000 lbs" and "$2.30 per $100 of assessed value for trucks."

Ian M. Stewart is the transportation reporter and fill-in anchor for VPM News.