Would No Car Tax Increase Car Sales?


Ian Donnis’s TGIF column on RIPR last Friday noted my suggestion that it might be better to lower the sales tax rather than eliminate the car tax in Rhode Island and then quoted outgoing RI House Minority Leader Brian Newberry (R, North Smithfield, Burrillville) as follows:

… the car tax is one of those taxes that causes disrespect for the law. I paid a tax — I just got rid of one of my 17-year-old cars last year. I paid a tax on it; it wasn’t the amount of money I paid, it was the principle of paying the tax. It’s not a fair tax. It disproportionately hits the middle class and the poor. It also hurts car sales. There’s a whole lot of reasons why it’s a bad tax, and you know, I didn’t agree with Lincoln Chafee on many things, but his argument that property taxes were a serious problem in Rhode Island — be it the car tax and real estate tax — is a very valid one. We need to start addressing the property tax issues and that’s the place to start.

Look, by saying that the car tax may not be the way to go if we’re in a tax-cutting mood, I’m not saying it’s a good tax and shouldn’t be eliminated.  But we still need to measure the reform.  Take Newberry’s statement that the tax hurts car sales.  We should ask: Is that the case, and if so, how large is the effect?  A quick review of some easily accessible data makes me surprised to say that I’m not sure there is much of one.

According to WalletHub, Rhode Island’s property tax on cars is the highest in the nation.  But according to the National Automobile Dealer’s Association, cars still make up a relatively high percentage of total retail sales in RI, 17.9% of all retail sales in 2015.  (I’ve contacted the listed economist for details about the methodology but have not heard back.)  Skimming through the percentages in other states with and without car taxes doesn’t show any obvious patterns.

Of course, other factors come into play.  RI’s sales taxes are high, too, which hurts retail generally, so one might expect cars to be a bigger portion; all those Rhode Islanders hopping the border to make smaller purchases in Massachusetts would implicitly lower the percentage that cars make up of all sales in the Bay State.  (Remember that car dealers charge the sales tax based on the residence of the consumer, not the location of the store.)

That said, it still isn’t immediately clear that car taxes have much effect, particularly when measured against a sales tax on those cars.  Automobiles in Vermont and New Hampshire have exactly the same percentage of sales.  Vermont has no property tax on cars, but it does have a sales tax.  New Hampshire has the property tax, but not the sales tax.

I get that the tax is insulting.  I think of the neighbor of mine who newly moved to Tiverton and can’t get over the fact that he has to pay a separate tax on his house for water.  So many of these policies simply scream, “We’re out to get you!”  Not long ago, an acquaintance of mine from the Southwest moved to RI and regularly expressed his shock at a new insulting discovery of the many ways Rhode Island abuses its residents.  He’s since moved back.

Nonetheless, let’s not allow insult to lead us to bad decisions.  It makes us vulnerable to political manipulation, which inevitably makes things worse.

  • Anthony

    Justin the heck with the sales tax question. Why not just bring back another leftist utopian idea…AKA.. “Cash for Clunkers” and let everybody else pay.

    • Raymond Carter

      The state has Cash for Clunkers: if you have a clunker the Democrats will say its worth 5 grand and send you a $300 bill. They get the Cash you keep the Clunker!
      As long as the morons keep reelecting Democrats they deserve it. Triple the car tax in my book. We in this state deserve EVERYTHING we get.
      This is the state of mentally ill masochists, as proven by the prevalence of homosexual “bottoms” in the political ruling class.