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As the economy rebounds, auto dealers are hoping the General Assembly will rethink a tax that went into effect in July, which increases the sales tax on cars priced at $50,000 or more.

At the Connecticut International Auto Show Friday, Jim Fleming, president of the Connecticut Automotive Retailers Association, said the state’s auto industry is healthier today than it has been since the beginning of the recession. But he said the 7 percent sales tax customers pay on luxury cars does not help the industry.

“We’re hopeful that as the economy is improving the legislature will make a decision that they don’t need that anymore because it certainly doesn’t help Connecticut car dealers be more competitive with out-of-state car dealers,” he said.

Fleming said that people generally purchase cars in the state where they live—unless they can find a better deal somewhere else. Which state people chose to buy their cars in has broad economic implications, he said.

“The importance of buying a car from a Connecticut dealer, certainly to the economy, is that consumers will generally service a car where they buy and the state of Connecticut gets the tax for that service work and it employs an awful lot technicians,” he said.

Gov. Dannel P. Malloy, who proposed the tax, said he did not think it had a negative impact on auto dealers. Fairfield County dealers are competing with dealers in New York, where taxes are substantially higher, he said.

Hugh McQuaid Photo
Gov. Dannel P. Malloy opens the Connecticut International Auto Show (Hugh McQuaid Photo)

“All we did was close the margin. I’ve heard no negative repercussions,” he said, after opening the car show.

Malloy said he was encouraged by the fact that the auto industry is recovering. Auto sales generate considerable revenue for the state and as they increase jobs are being created, he said. With over 12,000 employees, the industry represents one of the largest employee groups in the state, he said. 

Auto sales fell during the 2008 economic crash from an average of $9 billion a year to $6.3 billion. Sales are now back up to $8 billion. There are now 250 new car dealers in the state still less than the pre-recession levels, but Malloy said the industry is positioned to have a great year. He didn’t think the luxury tax would impede that.

“People are going to buy luxury cars if they want to buy a luxury car,” he said.

Jeff Aiosa, president Carriage House of New London, a Mercedes-Benz dealership, said his company has expanded as the industry has picked up. They recently relocated to a facility more than twice the size of its predecessor and added about 10 jobs, he said.

Aiosa said the blow of the luxury tax was lessened by Malloy’s decision to relax certain aspects of his initial proposal. For one thing, the 7 percent tax is not as steep as the 9.25 percent luxury tax the governor initially proposed.

“I think that a lot of the initial concern that we heard from customers who were following this was reduced by the law relaxing the initial 9.25 percent to 7 percent,” he said.

As it was originally written, the law eliminated the sales-tax exemption for trade-ins. So someone trading in an old car towards a new car over $50,000 would have to pay sales tax on the full amount rather what they actually paid. Aiosa said it helped that Malloy took that provision out of the law.

Even though the law was watered down somewhat, Fleming said he would prefer to see it off the books altogether.

“The danger of a stand-alone tax on automobiles is that in the future somebody could decide that perhaps they want to raise that rate and they want to lower the threshold. We worry about that because it would put Connecticut dealers and the jobs that they provide at a disadvantage,” he said.

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