UPDATE: Vehicle tax relief bill close to becoming law

Rising used car values have driven up tax bills

Update from March 2, 2022:

FRANKFORT, Ky. (WTVQ) – Legislation that would freeze property taxes on vehicles for the next two years is close to becoming law after it passed off the Senate floor Wednesday with unanimous approval.

House Bill 6 calls for officials to use valuations from January 2021 for assessing taxes on vehicles in 2022 and 2023. It also requires taxes to be assessed based on a vehicle’s median value rather than lower or high values going forward.

Republican Sen. Christian McDaniel, of Taylor Mill, spoke on behalf of the bill Wednesday, saying the changes will ensure that vehicles are valued appropriately in the current environment.

In part, the legislation mirrors language from a resolution that the Senate passed last month to freeze assessments.  Republican Sen. Donald Douglas, of Nicholasville, had sponsored that measure.

“As most of us will recall, after the administration’s finance cabinet sent a letter to property valuation administrators instructing them as to how to proceed with used car valuations this year, we began to receive a deluge of calls from angered used car owners who saw their property taxes increase dramatically due to the current fluke in availability of used vehicles,” McDaniel said.

McDaniel said Douglas’s resolution provided an appropriate response to the issue, and the governor has since acted to freeze assessments. But HB 6 will codify the intent of the legislature, he said.

Republican Rep. Sal Santoro, of Union, is the primary sponsor of HB 6, which advanced off the Senate floor with a 34-0 vote and now heads back to the House for concurrence. If the House agrees with the final version of the bill, it will advance to the governor.

The legislation states that taxpayers who have already paid their property tax bill for this year will automatically receive a refund, if owed, within 90 days from the effective date of the bill. It also seeks to improve appeals to property valuation administrators regarding errors in valuations.

“It is a good measure for the taxpayers of the commonwealth,” McDaniel said.


Original story below from January 11, 2022:

FRANKFORT, Ky. (WTVQ) – State Rep. Patrick Flannery, who represents Carter and Lawrence counties,  has filed legislation to combat skyrocketing motor vehicle tax rates. HB 6 would require the Department of Revenue to use the average trade-in rate as the standard for motor vehicle valuation for property tax purposes.

Likewise, on the Senate side, state Sen. Jimmy Higdon, a Republican from Lebanon and chair of the Senate Transportation Committee, introduced Senate Bill 75 to bring financial relief to Kentucky drivers facing an estimated 40 percent automobile tax increase amid the ongoing COVID-19 pandemic.

A memorandum on a motor vehicle valuation increase from the Kentucky Department of Revenue recently garnered significant attention.

“Like a lot of other people, I was disappointed to see the memorandum from the Department of Revenue,” Higdon said. “We have people who are dealing with a higher cost of living because of all the impacts of the coronavirus. They don’t deserve to have to pay more on this tax because of a situation out of their control.”

Automobile manufacturing has been down since COVID-19 disrupted the global economy, causing a strain on the supply chain. Because of that, the market value of existing vehicles is inflated, and automobile taxes in Kentucky are a percentage of a vehicle’s assessed value.

SB 75 would avoid an unacceptable increase in Kentucky drivers’ automobile taxes by using an assessed valuation of vehicles from the preceding year. The bill also creates a mechanism for an assessment if the vehicle was not assessed for taxation in Kentucky in the preceding year. That could be conducted by the vehicle owner at the property valuation administrator’s office.

“This is a bill I’m going to advocate for and I trust others the General Assembly will be behind this legislative effort too,” Higdon said. “This is avoidable so we’ll work to correct the problem.”

According to the Office of Property Valuation, the 2022 motor vehicle valuation has increased an unprecedented 40 percent compared to 2021. Much of that can be linked to skyrocketing used car values.

“A 40% increase on your motor vehicle taxes is uncalled for,” said Flannery, “and in my opinion, the Department of Revenue is not following existing law.”

Section 172 of the Kentucky Constitution requires that motor vehicles be taxed according to their “fair cash value.” The statutory standard used to determine this value is the average trade-in rate. However, in 2009, the Department of Revenue adopted a policy defining “average trade-in” rate to a higher valuation of “clean trade-in” rate.

“The dirty secret is that the Department of Revenue has defined average trade-in to mean ‘clean trade-in,’” said Flannery, “which means the majority of automobile owners are paying more in taxes than the true condition of the vehicle.”

This measure would prohibit the use of “rough trade-in” or “clean trade-in” values for standard motor vehicle valuation. The bill would apply retroactively to motor vehicles assessed on January 1, 2022, and permit refunds for overpayments made in 2022.

HB 6 is modeled after legislation Flannery sponsored in the 2021 session. “I saw this coming,” he said. “The first bill that I ever filed as legislator last year aimed to prevent this tax hike.”

Depending on where you live, you pay a percentage of the cars assessed value, a price set by the state.

The county clerk gets four percent for collection services on the local level.

The Commonwealth’s Constitution (Section 172) defines ‘fair cash value’ as the “price it would bring at a fair voluntary sale” which the Kentucky Department of Revenue interprets as a NADA ‘clean trade’.

Values based on the ‘clean trade’ condition of a vehicle as of Jan. 1.

Those values defined by the $124,000 annual subscription the Department has with the “National Auto Dealers Association (NADA).”

Here is the definition of a clean trade from a NADA book: ’Clean’ represents no mechanical defects and passes all necessary inspections with ease. Paint, body, and wheels may have some minor surface scratching with a high gloss finish.

In Kelley Blue Book (KBB), ‘good’ condition is closest to NADA’s definition of ‘clean trade’ condition.

But even in KBB’s ‘very good’ condition, the trade price is significantly disproportionate with NADA but more in line with values on Cars.com which uses Black Book.

The Kentucky Department of Revenue pays NADA (National Automobile Dealers Association) to provide it with an annual list of assessments for each vehicle registered in the commonwealth.

NADA is one of several services car dealers, and in this case state government, can use to determine vehicle values.

The Kentucky Department of Revenue is required by the Commonwealth Constitution Section 172 to assess property tax “at its fair cash value, estimated at the price it would bring at a fair voluntary sale”.

NADA’s “Clean Trade-In” value is the standard the state uses to tax.

That value is also used to generate taxes on the local level, including county, school and emergency services taxes.

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