Towns express concern over excise tax legislation

AREA — Some towns are expressing concerns about a piece of state legislation that may threaten their revenue stream.

Sen. Douglas Thomas (R-Ripley), is sponsoring a bill to base excise tax on the purchase price, rather than the Manufacturer's Suggested Retail Price (MSRP) of a car. Currently, excise tax is charged at 2.4 percent of MSRP at the time of registration and decreases every year that the car is registered.

Maine Revenue Services classifies it as a property tax, not a sales tax, which is why sale price is not currently the basis for calculating taxable value. 

"Excise tax is based on the same principle as property tax in that everything is full value, so it's supposed to be equal across the board, no matter what you pay," said John White, West Paris Town Manager. "As a citizen, if you can make a better deal, then you're gonna benefit, but that's not the way that a property tax is. It's supposed to be the same across the board."

Inflated MSRP

Thomas thinks that charging tax on new cars based on the manufacturer's recommendation is unreasonable. Suggested retail prices, as written on the label attached to each car, are rarely what vehicles actually sell for. He argues that they represent an artificially-inflated price.

"Those sticker prices have become more and more inflated as that becomes a tool to sell cars," he argued. "No one pays sticker price, but if people get a big enough discount, they think they're getting a buy, but that car's not worth what they ask for."

The discrepancy between suggested price and sales price, he said, is significant.

"If it's a $30,000 car, you pay $720 in excise tax, but you probably could buy that car for $22,000," said Thomas.

"That's exactly wrong," said Rick Smith, general manager of Goodwin Chevrolet and Buick in Oxford. "What's happened over the last few years is, the MSRPs, if he does his homework, haven't risen that much and the cost of goods, the actual cost the dealer pays, has gone up. The MSRPs have been kept low so that people have not been put off by large price points."

Statistics show that there is some difference between the recommended price and the actual sales price.

In 2010. The manufacturer that saw its 2011 models sell for the least amount relative to MSRP in the US was Mercedes-Benz, whose new cars sold for an average of a 12.3 percent markdown from sticker price.

Seven years ago, in 2003, average MSRP rose above $30,000 for the first time and the amount cars were sold for relative to MSRP reached a then record-high difference of 16.4 percent across the entire industry. Overall trends seem to suggest that the difference is shrinking substantially of late, as the average discount from MSRP for all new makes and models in 2010 measured only about 5.6 percent.

The data seems to back Smith's claims, as MSRPs, in the time since 2003, have not increased at the same rate as national dollar inflation. The $30,480 that constituted the national average in December of 2003 is equal to $36,121.28 in 2010 dollars. Average MSRP for 2010, however, was only $31,315.

The average amount a new car sold for in 2010 was $29,494. As such, the savings for an average new car buyer in 2010, had Thomas' bill been in effect, would have been 2.4 percent of the $1,821 difference, or $43.70:  0.1 percent of the purchase price.

Increased sales?

Thomas believes those savings would convince more people to purchase new cars. Town officials who think his bill would cause a decrease in revenue, he argues, fail to take into account how many people would buy new cars because of the excise tax savings. While he acknowledges that revenue would drop, it is likely that the drops would be mitigated by more purchases.

"It won't reduce [revenue] as much as [town officials] would have you believe because you would have more people buying new cars," said Thomas. "I know enough people that would buy a new car but they refuse to pay that excise tax.  If they bought new cars it would make up for a big portion of the tax that the town's gonna lose."

Town officials, as well as local car dealers, expressed skepticism about his argument.

Dana Lee, town manager of Poland, described such an idea as "nonsense."

"I don't think anyone has ever called in here before buying a new car to find out what the excise tax would be," said Oxford Town Manager Michael Chammings.

"Someone who is looking for a $40,000 car isn't going to worry about excise tax," said Smith. "You have $500 excise tax for an $18,000 car, $360 for a $12,000 car; the difference in money is rather small. For $140, I don't know if it really has that much of an impact."

Towns threatened

When contacted, town officials appreciated the spirit of the bill, but were concerned about the consequences.

"It passes the straight-face test," said Chammings before asserting how important and useful excise tax revenue was to the town.

"Our excise tax goes straight into maintaining the roads," he explained. "The county always wants to know why our roads are so much better than theirs. It's because we are able to spend our money more efficiently."

"I understand how people feel; cars have gotten more expensive," said David Holt, town manager of Norway. "However, the town is experiencing loss of revenue and revenue sharing. We're in a tight time and any loss of other revenue makes it very difficult."

"We have to run these towns, we have jobs to do, and we have to have money enough to do it."

Thomas argues that simply because the towns need the money is not a good enough reason to levy the tax.

"We've been doing something wrong for years with what we're charging the taxpayers, so we've got to keep doing that because the government needs the money?"

Nonetheless, the bill may not have the full support of his own party unless members can also come up with a creative way to make up for the lost revenue.

"It would probably have the effect of reducing the revenue of the town. The town's choices to replace that are very limited, and if they aren't able to do that, then we would have to figure out how to replace it," said Rep. Tom Winsor (R-Norway). "I'm not really enthusiastic about putting more pressure on the local property tax, so if it had that effect I probably wouldn't support it."