Michigan trade-in deal will cut taxes for car, boat buyers: ‘We’re giving something back’

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LANSING, MI — Michigan vehicle buyers could see some tax relief under a long-discussed deal working its way toward Gov. Rick Snyder’s desk.

The Senate and House on Tuesday approved legislation to reduce the amount of sales tax that customers pay on a car, boat or recreational vehicle if they trade in another as part of the purchase. One additional Senate vote is required for final passage.

“I’m excited because we’re giving something back to the average consumer,” said Sen. Majority Leader Randy Richardville, R-Monroe. “…We’re telling people that, financially, we’re in good shape. We’re going to share that wealth, so to speak, with the people that put the tax money here in Lansing to begin with.”

Michigan is one of just six states that charges sales tax on the full price of a vehicle even if the buyer trades in their current model, according to House Republicans. Senate Bill 89 and House Bill 4234 will gradually change the law to apply the state’s 6 percent sales tax only to the difference between a new purchase and trade-in.

Supporters say the bills will align Michigan with several of its neighboring states, helping local manufacturers and dealers by reducing financial incentives for potential customers to cross state lines.

“It’s a common-sense tax reform that I think will strengthen Michigan’s economy and hopefully put more people back to work,” said state Rep. Wayne Schmidt, R-Traverse City, who co-sponsored the House measure. “We’ve seen a resurgence in the boating industry. We’ve seen a resurgence in the auto industry. Let’s continue that momentum.”

Boat buyers would see full savings immediately, but tax reductions for auto and RV trade-ins would be phased over the next two decades. Beginning in December, a car buyer could exempt a maximum trade-in value of $2,000 from the sales tax. The maximum exemption would increase by $500 a year until it reaches $14,000.

Under the proposal, a customer who buys a $20,000 car and trades in a used model valued at $5,000 would save $120 in sales tax that currently would be owed. By 2020, that same customer would save $300 on the transaction.

Gradual implementation is meant to limit the immediate impact on the state budget. The majority of sales tax revenue is automatically directed to the School Aid Fund, which is used to support K-12 education.

The deal would utilize $20 million set aside for tax relief in the current-year budget, but annual revenue losses could eventually top $200 million, according to the Senate Fiscal Agency. Supporters say the deal will boost vehicle sales and other economic activity that could help offset projected revenue losses.

“This year, there’s no impact whatsoever on the School Aid Fund, but in the future, we’ll have to take that into consideration when we budget,” said Richardville. “It’s nice, too, because we’re not just stopping here. Every year, we’re going to try to give something back. I think it’s responsible, and it’s a start toward thanking the taxpayers for their investment in the state.”

The House and Senate had approved similar measures last year, but Michigan Gov. Rick Snyder, who successfully pushed to eliminate a series of tax exemptions and credits back in 2011, had expressed concerns about the budget implications.

Lawmakers expect the governor to sign on this year, in part, because of the savings they already set aside. The Senate bill, as amended Tuesday, also includes a provision that would halt the phase-in in the case that lawmakers repeal the “Healthy Michigan” Medicaid plan, one of Snyder’s signature legislative accomplishments.

Jonathan Oosting is a Capitol reporter for MLive Media Group. Email him, find him on Google+ or follow him on Twitter.

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I'm a writer who focuses on the outdoors and travel. I share my time between Alaska and Colorado, where, when I'm not writing, I enjoy camping, kayaking, hiking, fishing, and skiing (often with dogs in tow). My byline may also be seen in publications such as The New York Times, National Geographic, The Washington Post, The Guardian, Condé Nast Traveler, Travel + Leisure, and others.


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