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Sales Tax Credit

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Dealer Advisory  

October 24, 2013

 

  

Sales Tax on the Difference Finally a Reality

  

 

 

Placing "sales tax on the difference" back into Michigan statute has been a top priority of the DADA and MADA through the Auto Dealers of Michigan for nearly three years.  After numerous close calls including falling one procedural vote short at the end of last year, the proper tax treatment of trade-ins is just one signature away from being placed in Michigan Law.  The plan gained final legislative approval Wednesday before moving to Governor Snyder's desk.  With positive feedback from the governor, it is expected he will sign within the next two weeks.

 

Oct. 23 Governor Snyder press release: 

'Sales tax on the difference' brings tax relief in vehicle sales, boosts economy. 

 

"This solution replaces an outdated system of having consumers being unfairly taxed twice for the same vehicle.  This change - passed with strong bipartisan support - brings Michigan in line with the vast majority of states. It's another example of how we can make Michigan's tax structure fairer while fueling our continued comeback.  Money saved by Michiganders will make getting a new car more affordable for many people, including those who need a vehicle of their own to get or keep a job.

 

"This plan strikes a smart, fiscally responsible balance. The amount saved would be phased in gradually, offering families some immediate tax relief while spreading out the impact on the state budget."

 

 

What the legislation does:

  • Reinstates sales tax on the difference into Michigan law, effective December 15, 2013.  This date allows time to ensure all computer programs, RD-108 forms and other SOS processing issues are up and ready before implementation.
  • Applies only to dealer sales, and includes the purchase of new and used vehicles.
  • A person can receive up to a $2,000 reduction in the taxable price of a vehicle, reducing the amount of sales tax due. 
    • If the person has a trade-in worth $2,000 dollars they reduce the taxable price of the vehicle being purchased by $2,000.  ($120 in sales tax savings.)
    • If they have a $10,000 dollar trade-in they still only reduce the taxable price of the vehicle being purchased by $2,000.  (Also $120 in sales tax savings.)
    • A trade-in valued at less than $2,000 will only reduce the taxable price of the vehicle being purchased by the amount of the trade-in.  (A $1,200 trade-in results in $72 in sales tax savings.)
  • This $2,000 amount is capped until December 31, 2014.
  • Starting January 1, 2015 the $2,000 cap on trade-in value is increased by $500. It increases $500 each January 1st, until it reaches $14,000, at which point the cap is removed and full sales tax on the difference is implemented.
  • Places Michigan on equal footing with bordering states where customers already receive sales tax savings on the full trade-in value of a vehicle.

 

Senator Robertson stated in a press release on the legislation:

"My 'sales tax on the difference' legislation is the result of years of hard work to agree on a responsible solution that will help boost our economy and reduce the tax burden on Michigan consumers, and I look forward to seeing the governor sign this tax relief into law.  This unfair tax policy has cost Michigan consumers more in extra taxes. It is a clear example of how bad tax laws can negatively impact both job providers and consumers."

 

 

 

History of sales tax on the difference:

  • The tax treatment of trade-in vehicles has been a longstanding issue within Michigan's General Sales Tax Act, dating back to 1936 when then Attorney General David H. Crowley commented that ignoring the trade-in value was never in contemplation of the Legislature at the time of passage and the situation should be remedied at the next session.
  • Sales tax on the difference was briefly law in Michigan from January 1, 1984 until February 1, 1985.  It was repealed after just over a year due to "lost revenue concerns."
  • A bill related to this issue has been introduced in Michigan each year for the past 15+ years.
  • It was a top issue with former Governor Granholm who included it within one of her State of the State addresses.
  • Support of the legislation marks a change of position for Governor Snyder.  For most of the past three years he has opposed targeted tax relief in favor of more broad tax relief policy. The ADM, working in conjunction with the bill sponsors and leadership in the House and Senate was able to satisfy Governor Snyder's fiscal and revenue concerns regarding the legislation.
  • Michigan is now one of 45 states allowing customers to receive credit for the value of their trade-in when paying state sales tax.

 

 

Rep. Andrea LaFontaine:

"Changing this double taxation is an issue that has been talked about for years because of Michigan's prominence as both the auto manufacturing state and the Great Lakes State, and I am proud to have helped deliver a final solution that saves money for taxpayers across the board."

 

 

 

Sponsored by Senator Dave Robertson (SB 89) and State Representative Andrea LaFontaine (HB 4237), this new legislation opens the door to fully phase in sales tax on the difference with no caps or restrictions.  Now that the legislation is "on the books" ADM can work to improve and strengthen this important tax policy for vehicle purchasers.

 

The House Fiscal Agency has prepared this detailed analysis, including summary and fiscal impact.

 

 

Senate Majority Leader Richardville comment following a legislative session: 

"I'm excited because we're giving something back to the average consumer and ... giving something back that relates to the auto industry, which is kind of big in Michigan. And we're telling people that financially we're in good shape and we're going to share that wealth ... with the people that put the tax money here in Lansing to begin with."

 

 

 

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