A new legislative panel began Monday the fraught task of identifying ways to eliminate the regressive and widely disparate motor vehicle property tax and replacing the revenue which Connecticut towns and cities rely on to run municipal governments.
The task force, which held its first meeting in the Legislative Office Building Monday, was created by a bill passed during this year’s legislative session, which charged the panel with drafting recommendations for eliminating the tax and reporting back to lawmakers before the legislature reconvenes in February.
“The motor vehicle tax is one of the most regressive and complicated taxes in the state,” Sen. MD Rahman, a Manchester Democrat who co-chairs the group, said. “We’ll work together to find solutions.”
Those solutions are unlikely to come easy, however. Connecticut’s motor vehicle tax system is both widely maligned — due in part to its disparate impact depending on where a taxpayer resides — and central to the operation of municipal governments.
Cities and towns across the state collect approximately $1.047 billion in motor vehicle taxes on more than 3 million cars and trucks, according to Jennifer Gauthier, a municipal assessment professional at the state Office of Policy and Management.
Department of Revenue Services Commissioner Mark Boughton, who previously served as mayor of Danbury for two decades, said cash-strapped municipalities do not want to lose any revenue, which would require them to shift the tax burden to home property taxes and leave residents with the perception that their towns had raised taxes.
However, Boughton described the current tax as arduous for municipal leaders.
“This is one of the most onerous, difficult, challenging, pain-in-the-neck taxes you ever possibly can collect so I’m really interested to hear what people will say,” Boughton said. “I will say it’s been a conundrum for the state for about 30 years.”
A forthcoming tax incidence study will show the property tax to be the number one most inequitable tax in the state, Boughton said.
That’s due in large part to its disparate impact. Motor vehicle taxes are determined by the mill rates of individual towns, which vary depending on each municipality’s taxable grand list. As a result, residents of cities, which often contain more non taxable properties like hospitals and universities, often pay significantly more in car taxes.
The tax serves as a boon for other towns like Windsor Locks, home to Bradley International Airport. During the meeting, First Selectman Paul Harrington told the panel that car rental agencies tied to the airport generated around $5 million a year for the town.
“I agree with all the comments that were made earlier, but I obviously have to protect the interests of Windsor Locks, knowing that 10% of my budget revenue is generated from the car tax,” Harrington, a member of the panel, said. “I’m looking forward to a lively discussion. I think we can get there, I don’t know.”
Rep. Brandon Chafee, a Middletown Democrat who co-chairs the panel, used a 2020 Honda Civic as an example of how widely the impact of car taxes can vary throughout Connecticut. The Civic’s owner may pay as little as $173 in taxes or as much as $571 on the same vehicle depending on which town they lived in, Chafee said.
“It’s an unfortunate reality of our public transit system that the majority of people who work for a living need to own a car in this state just to solely get to work every day,” Chafee said. “I find one of the most frustrating things of our car tax is there is such a wide discrepancy town-to-town.”
State policymakers took steps to mitigate that disparity in last year’s state budget, which included a provision which capped mill rates at 32.46, reducing the car taxes in 75 towns and reimbursing municipalities for the lost revenue.
Rahman discussed plans to seek input from municipal groups like the Connecticut Conference of Municipalities and the Connecticut Council of Small Towns as his task force strives to find a statewide alternative for the motor vehicle tax.
Earlier this year, CCM called on lawmakers to provide a sustainable way to reimburse towns for lost revenue as they consider ways to scrap the car tax.
“The elimination of the car tax is a goal that we all support but should be part of a comprehensive reform of the property tax system combined with needed municipal revenue diversification that will reduce the overreliance on the property tax,” Randy Collins, the group’s advocacy manager, said in written testimony on the bill that created the task force.