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Car-tax revolt has simmered for 10 years
Car-tax revolt has simmered for 10 years
by Jim Lynch
Seattle Times Olympia bureau
The state's car tax has been around since the Great Depression. But the citizen
anger toward it can be traced to a decision made in Olympia nearly 10 years
ago.
In an effort to squeeze more cash out of the motor-vehicle excise tax, legislators
quietly transformed the car tax into a more lucrative revenue stream in 1990.
The side effect was that the tax itself increasingly became viewed as too high,
unfair and worse - a rip-off.
The new formula for calculating annual license-tab-renewal payments was a
tax-collector's dream, but it also was detached from reality. Today, it's one
of the reasons polls continue to show strong support for Initiative 695, the
Nov. 2 ballot measure that would replace the car tax with a flat $30 fee.
If I-695 passes, history will likely view it as a revolt that the Legislature
should have seen coming but didn't.
After legislators tweaked the car tax in 1990, it no longer was based on a
percentage of the true market value of a car, truck, motorcycle or van. Now,
state officials use a formula that often exaggerates how much vehicles are worth.
State officials estimate the value of a new car on manufacturers' suggested
retail prices - the dealer-lot sticker prices that usually get haggled down.
That problem is compounded by a depreciation schedule that overvalues cars,
causing many citizens to pay taxes based on inflated values.
Harold Shea, of Lake Forest Park, did the math soon after the revised car
tax emerged. He's been agitated about it ever since.
"People think they are being taxed on what their car is worth, but they're
not," Shea said. "On a personal level, I've been bothered by it for 10 years."
The disconnect between the state tax and Washington's car market has become
increasingly obvious, especially with newer models. Many vehicles routinely
sell at 5 to 10 percent below sticker prices. And many depreciate as much as
20 percent a year, rather than the 7 percent rate the state uses in its calculations.
For example, a 1995 Lincoln Town Car has a market value of about $17,000,
according to the current Kelley Blue Book guide to used cars. Yet the state
taxes the owners of those luxury cars as if they were worth $28,000.
Or consider the car-tax bills for aging Buick Skylarks, Ford Tauruses or Ford
Escorts. By the time they're 4 or 5 years old, they often sell for less than
half their original prices, but their owners still receive tax bills that suggest
their cars are worth 74 percent of their sticker prices.
Eddie Edgecombe, of Renton, knows precisely how much the state "overcharged"
him this year on his 1995 Ford Thunderbird: $81.
Edgecombe says the $308.35 check he had to write to remain street-legal infuriates
him. The state formula estimates his car is worth more than $13,000, but his
Blue Book tells him it might be worth less than $10,000.
Edgecombe, 77, sums up the car tax this way: "Politicians have encouraged
bureaucrats to cheat the car owners."
Earlier this year, he hauled I-695 petitions down to the Renton Senior Center
where he plays pinochle Wednesday nights.
"I was amazed at how happily and how eagerly people signed it," Edgecombe
said. "Boy, they all jumped on it."
While lawmakers tinkered around and ultimately softened the car-tax slightly
in 1998, there wasn't a single bill introduced this past legislative session
that proposed car-tax relief, or any noticeable concern about a young Mukilteo
businessman trying to get his anti-car-tax initiative on the ballot for the
second year in a row.
Yet 45 days after lawmakers adjourned in mid-May, Tim Eyman and I-695 supporters
dumped 514,000 signatures at the Capitol, demanding the car tax be axed.
The only initiative to ever collect more signatures was I-282, which nearly
700,000 people signed in the spring of 1973. In that instance, the people were
sending a loud message to the Capitol: to overturn a pay raise lawmakers had
given themselves that would have doubled their salaries. The ballot measure
passed with 80 percent of the vote.
`Stealth bomber'
The car tax has grown and mutated dramatically since the Legislature created
it in 1937 as part of a crusade to improve public schools. The tax rate initially
was set at 1.5 percent of a vehicle's estimated market value. The minimum a
car owner could pay was $1 for the "privilege" of using the streets. All of
the tax revenue was pumped into schools.
The Legislature raised the rate to 2 percent in 1959, and then again, to 2.2
percent in 1977, with much of the additional money earmarked for helping finance
the state ferries.
By 1990, lawmakers were brainstorming on ways to make state budgets more recession
proof. They also were struggling with urban sprawl in the Seattle area that
was creating unprecedented traffic jams and the need for expensive highway improvements.
The Legislature wouldn't grant Gov. Booth Gardner's wish to create a personal
income tax, but lawmakers were open to raising the gas tax, increasing trucking
fees and taxes on real-estate transactions, as well as other options.
Transportation-minded legislators were searching for new money to spend on
road projects that the gas tax couldn't cover. Other lawmakers wanted to generate
more cash for city and county police departments and prosecutors' offices. They
turned to the car tax for help.
At the time, the car tax was generating $352 million a year. There was a sense
it could bring in more.
Plus, the car-tax formula at the time, it was argued, was too complicated
and required too much manpower to calculate. The formula needed to be simplified.
The change that emerged in that spring of 1990 didn't trigger much public
attention, in part because the actual tax rate fell from 2.45 percent to 2.2
percent.
But the little-publicized fine print told the real story: Car-tax revenues
would immediately grow by 10 percent because of the new formula that would be
used to calculate the value of vehicles.
The result was a state tax fund that more than doubled, generating $775 million
a year by 1998. It's now used to fill all sorts of government programs and services,
to help run the state Transportation Department, the State Patrol, Washington
State Ferries and the air-pollution division of the Ecology Department. It also
has become a primary source of money for county and city police, health and
transit agencies.
In hindsight, the Legislature may have overreached on how it revised the tax
rate in 1990, said Rep. Ruth Fisher, D-Tacoma, a veteran legislator who now
chairs the Legislative Transportation Committee.
But nine years ago, Fisher says, she and other lawmakers were simply trying
to raise enough money to help pay for needed road work and to boost support
for railroad service and mass-transit programs, such as King County Metro. The
state's gas tax limited how much the state could finance those programs, she
said. She also says the inequities of the new taxing formula weren't immediately
apparent.
"It's not fair," Fisher says now. "There are real flaws in it."
Even the "No on 695" campaign says as much.
"We believe that once we get this defeated, that responsible legislators are
going to come up with a reasonable way to reform that tax," said Mark Fund,
spokesman.
Legislative efforts to cut the tax have been fairly mild.
Senate Democratic leaders Sid Snyder, of Long Beach, and Valoria Loveland,
of Pasco, proposed cutting about $55 out of the average car-tax bill in 1998
by making the first $2,500 of a car's value exempt from taxation.
Republican lawmakers in power at the time countered with their own proposal:
a $30 rebate on car-tax bills and a slight tweaking of the depreciation schedule
to ease the burden on taxpayers. Those changes were slipped into Referendum
49, the state transportation-spending package voters approved last November.
Legislators apparently thought they'd resolved the car-tax issue. Fisher,
in fact, insists there were no warning signs that a revolt of I-695 proportions
was in the works this year.
"It was a stealth bomber," she said.
In some ways, perhaps, she's right.
Three years ago, voters in portions of King, Pierce and Snohomish counties
actually approved an increase in the car taxes they pay - from 2.2 percent to
2.5 percent of their assessed value - to help fund the Regional Transit Authority.
And most lawmakers still say they've never been inundated with complaints from
constituents about their car-tax bills.
Yet there were warning signs.
More and more angry residents have evaded the tax by registering their vehicles
in other states, usually Oregon, where cars can be licensed for just $30 every
two years. The Department of Revenue estimated last year that car-tax evasion
is costing the state $21 million a year.
And even after the slight cut in the car tax last year, the state's tax still
ranked among the three highest in the nation. Plus, many car dealers had been
contending for years that the state's car tax, coupled with the state's hefty
sales tax, was hurting business.
They pointed to studies such as a 1997 national analysis that ranked Washington
as the second-most expensive state in the country to buy a new car - a direct
result of the state taxes and fees that get tacked onto any purchase price.
Citizen discontent
Chris Olson, president of Seaview Chevrolet in Lynnwood, says the reality
of selling cars in Washington is this: "The state makes more on the transaction
than the dealer does." Olson and a half-dozen other car dealers in Western Washington
say some popular new vehicles - such as the Volkswagen New Beetle - sell at
or above their suggested manufactured retail price, but the vast majority don't.
The gap between the state's estimated values and the true market values is
perhaps most stark with motor homes, which often sell for 20 percent below their
sticker prices.
For example, Western Motor Coach in Lynnwood has a sale now offering $10,000
off the manufacturers' suggested price for any motor home over $80,000. Yet
buyers will be taxed as if they bought their vehicles at the sticker price.
Dorothy Jaquez, office manager for Rainier Dodge in Olympia, says her company
sometimes ends up paying a portion of the car tax on cars it sells - especially
if it seems way too high - as a final effort to close a deal.
"We have to eat a lot of money doing that," she said.
Eyman, the I-695 sponsor, says his campaign is merely tapping widespread anger
that's been simmering for years.
"There's a piling-on feeling to it," he said of the car tax. "There's the
sense that the state is saying, `Let's stick it to you one more time.' "
For Carol Battishell, the state's high car tax is more than a financial ulcer.
She said the steep tax potentially endangers the health of her husband, Bruce,
and may ultimately force her to break the law and drive an unlicensed vehicle.
Battishell said she quit her job to care for her husband after he suffered
kidney failure two years ago. She said they can't afford to pay the annual $500
fee to keep their trusty Dodge 1997 4X4 Ram truck on the road. So three times
a week, they drive their unreliable 1990 Buick Lesabre from their remote home
in hills near Orting, Pierce County, to the dialysis clinic 40 miles away.
Battishell hopes to get a job soon to complement her husband's Social Security
checks, but she doesn't expect to earn enough to pay the truck's tabs. Meanwhile,
she's watching I-695 closely.
"The truck is just going to sit, unless it passes," she said. "Or else I'll
just drive it in emergencies and take my chances."
Jim Lynch's phone message number is 360-943-9882. His e-mail address is
jlynch@seattletimes.com
