A subcommittee of House Finance tabled HB 566 (McNamara), the last remaining proposal to enact changes to the car tax, on Tuesday afternoon. As presented to the subcommittee, the bill would have required localities to functionally exempt the first $5,000 of value of qualifying vehicles from taxation by reducing the tax rate to a fraction of a cent, beginning in tax year 2027. Under the bill, the state would reimburse localities for the lost revenue associated with this reduction. Beginning in tax year 2028, in any year in which a locality’s revenues grow by 5 percent or more, the functional exemption would increase by an additional $5,000 in value until the tax-exempt value equaled $20,000. The patron explained that his intention was for the state to revisit the issue and develop a solution to replace lost revenue as the tax exemption phased in to the full $20,000. VACo spoke during the subcommittee hearing and cautioned members to ensure that localities were held harmless as the value of the tax exemption increased in the out-years, should the bill move forward.
SB 799 (Durant), which would have removed the cap on the state’s car tax reimbursement to localities and required localities to functionally eliminate the car tax by reducing the local tax rate on qualifying vehicles to a fraction of a cent, was heard in a subcommittee of Senate Finance and Appropriations earlier in the session and recommended to be passed by indefinitely over concerns about the state’s capacity to reimburse localities.
HJ 34 (Franklin), which directs the Department of Taxation to study options for abolishing the car tax, has passed the House and will be heard in the Senate Finance and Appropriations Committee. This resolution requires the Department to determine the financial repercussions for localities of eliminating the tax and to examine potential alternative revenue streams to keep localities whole. VACo and VML would be consulted as part of the study. VACo is supporting the study as a means of gathering comprehensive data to inform further discussions about this issue, to include options for how localities can be held harmless. A companion resolution, SR 6 (Marsden), was continued to 2027 in the same committee last week.
VACo Contact: Katie Boyle