BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 373 - Walters
As Amended May 6, 2009
Hearing: May 13, 2009 Tax Levy Fiscal: Yes
SUMMARY: Reduces the VLF for new cars to 0.65%
EXISTING LAW
Existing state law imposes a vehicle license fee
(VLF), which is in lieu of a personal property tax on
California motor vehicles, at a rate based on the taxable
value of the vehicle. The taxable value of a vehicle is
established by the purchase price of the vehicle,
depreciated annually according to a statutory schedule.
The VLF tax rate is currently 0.65 percent of the
value of a vehicle, but historically the rate has been 2
percent of value, and effective May 19, 2009, the rate will
be 1.15 percent, because of AB 3XXX (Evans), Chapter 18,
Statutes of 2009-10 Third Extraordinary Session.
B 3XXX temporarily increases the VLF rate to 1.15
percent and dedicates revenue from the portion of the
increase from 0.65 percent to 1 percent to the state
General Fund and revenue from the additional increase of
0.15 percent to specific local public safety programs. AB
3XXX's VLF rate increase becomes effective for vehicle
registrations on May 19, 2009 and expires on June 30, 2011.
However, if the voters approve Proposition 1A, the budget
stabilization constitutional amendment, on the May 19th
ballot, both components of the rate increase will be
extended for an additional two years and will expire on
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June 30, 2013.
For the taxpayer, the VLF is deductible on both state
and federal income taxes.
THIS BILL
Provides that for all new vehicles, including
motorcycles, the annual license fee is 0.65 percent of the
market value of the vehicle.
Provides legislative intent that the funding levels
for local law enforcement be kept whole and not be reduced
due to the provisions of this bill.
FISCAL EFFECT:
The DMV did not have revenue estimates available at
the time this analysis was complete. Based on the revenue
numbers from AB 3XXX (Evans), and assuming that new cars
account for at least half of that revenue, committee staff
estimates that the bill will have the following revenue
effect, in millions, at a minimum:
-----------------------------------------------------------
|2008-09 |2009-10 |2010-11 |2011-12 |2012-13 |
| | | | | |
|-----------+-----------+-----------+-----------+-----------|
|319.5 |1,467.5 |1,497 |1,527.5 |1,435 |
| | | | | |
-----------------------------------------------------------
COMMENTS:
A. Purpose of the Bill
The author states that by exempting new automobile and
motorcycle purchases from the soon-to-be-increased Vehicle
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License Fee (VLF), SB 373 will provide economic incentives
to encourage consumers to purchase new vehicles, which in
turn will serve to increase VLF revenue through the
increased economic activity.
B. Behind Door #1, A Brand New Car!
There is no evidence to suggest that new vehicles
stimulate economic activity better than used vehicles,
especially since both are subject the VLF. With the used
car industry growing faster than the new car industry,
there may be more activity to stimulate in the former. The
author argues that this exemption will stimulate the
economy with new purchases. Opponents state that only
those who can already afford to purchase a new vehicle will
benefit from this measure, while leaving the more
vulnerable population to pay the higher vehicle license fee
on used vehicle purchases.
C. Will this bill change anyone's decision?
Many factors go into purchasing a car: the price, the
monthly payment, the financing rate, the year, make and
model of the car, the sales tax rate and then the VLF.
Logically the most important impetus for a consumer to
decide whether or not to make the final purchase are price
and the monthly payments. The sales tax is much higher
than the VLF and may factor into the immediate decision of
the car purchase versus the longer term payment of the VLF.
It is not clear that this bill would actually influence
the buying behavior of the consumer.
D. Local Law Enforcement Could be Impacted
Many local communities oppose this bill unless
amended. These organizations request that the bill be
amended to require a state backfill to the counties' share
of VLF revenue that they otherwise would have received
absent the new vehicle exemption contemplated in this bill.
These organizations express concern that this measure, if
it passes in its current form, would adversely affect law
enforcement programs.
Support and Opposition
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Support: California New Car Dealers Association
Oppose: California School Employees Association
California State Sheriffs' Association
(unless amended)
Regional Council of Rural Counties
(unless amended)
California State Association of
Counties (unless amended)
California District Attorneys
Association (unless amended)
California Tax Reform Association
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Consultant: Gayle Miller
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