LITTLE ROCK — A new state law taking effect today raises the sales-tax exemption on used cars, but some car dealers say it doesn't go far enough to help low-income Arkansans.
LITTLE ROCK — A new state law taking effect today raises the sales-tax exemption on used cars, but some car dealers say it doesn’t go far enough to help low-income Arkansans.
Under the new law, a vehicle that sells for less than $4,000 is exempt from sales taxes. Previously, the exemption applied to vehicles costing less than $2,500.
“It’s too little, too late,” said Tommy Gibson, owner of The Car Connection in Little Rock. “Get on Craigslist and try to find you a decent car for $4,000. Used vehicles are at an all-time high, so (the higher exemption) is not relative to the market.”
Sales taxes used to apply only to new vehicles in Arkansas, but in 1991 then-Gov. Bill Clinton pushed through the Legislature a bill extending the tax to used cars. The bill was part of a tax package that also included income-tax breaks for low-income families, but the main goal of the package was to increase revenue to pay for a funding boost for education.
The law originally included an exemption for cars costing less than $2,000. In 1997 the Legislature raised the exemption to $2,500, and during the 2011 session the Legislature raised it to $4,000.
Gibson said a car that cost $2,000 in 1991 would be the equivalent of a car that costs $8,000 or $9,000 today.
“They’re way off on the $4,000. It should be at least double that, if it should be there at all,” he said.
Sen. Gilbert Baker, R-Conway, sponsored the latest increase in the exemption. His bill originally called for increasing the exemption to $5,000, effective at the July 1 start of the current fiscal year. But Gov. Mike Beebe opposed the measure, and ultimately the Legislature passed a compromise bill with a smaller increase and a later effective date.
Beebe had said that in a tight budget year the state could only afford one tax increase, his proposed half-cent reduction of the state sales tax on groceries. He eventually signed into law a $35 million package of tax cuts including his grocery-tax cut, which is expected to cost the state $15 million a year, and Baker’s used-car tax exemption, expected to cost the state $5 million a year.
Beebe campaigned for governor on promises to cut the grocery tax. At his request the Legislature reduced it from 6 percent to 3 percent in 2007, to 2 percent in 2009 and to 1 1/2 percent in 2011.
Baker said last week he wished he could have provided car buyers a larger exemption.
“We’re hemmed in by the revenues and we want to budget conservatively and not spend more than comes in,” said Baker, who co-chairs the Joint Budget Committee. “I had to yield, others had to yield on different points of where they may want to spend money. But the bottom line is, Arkansans get a tax break.”
Beebe said in June that this year’s tax cuts necessitated a 50 percent reduction in payments to some foster parents. He also has cited the tax cuts when monthly revenue reports have fallen below forecast, though the most recent report was above forecast.
Baker said last week he has no regrets about giving used-car buyers a tax break.
“Budgeting is about setting priorities,” he said. “The Legislature had a priority to give some tax relief to Arkansans in these tough economic times.”
Rocky Campbell, owner of Campbell Auto Sales in Melbourne, said the tax exemption will help some low-income people, but it could help many more if it applied to the first $4,000 of the price of any used car. As the law is written, only people buying the very cheapest of cars will benefit, he said.
“You take the first $4,000 off of any used vehicle, then you’re going to knock them out of $240 tax dollars off of every vehicle,” he said.
Campbell said taxing the sale of a used car is unfair because the state already collected taxes on the vehicle when it was sold new.
“It is a double tax, there’s no doubt about it,” he said.
Gibson said the tax is actually more than a double tax, because the state collects taxes every time a vehicle is resold.
“By the time the car has sold a few times, the state’s made more money than the car dealer — and the consumer is the one that’s out,” he said.
Gibson said the tax is aimed directly at low-income people, who are the people most likely to buy a used car. But he said it is unrealistic to think the Legislature would ever repeal the tax.
“Once they get a source of revenue they’re not going to give it up,” he said.
Down the road from Campbell’s dealership is Paul Miller Motors, owned by former state Sen. Paul Miller. Miller said he shares the opinion that the tax is a double tax, though in his 10 years in the Legislature he never filed a bill to modify the exemption — not even in his final term, when he chaired the Senate Revenue and Tax Committee.
Miller said that as a member of the Joint Budget Committee every year that he was in the Legislature, he knew the importance of paying for tax cuts.
“I wanted to carry a bill to completely exempt that when I was down there, but I never could find another tax revenue source to replace it with,” he said.
In the 2010 election, Republicans reduced Democratic dominance in the House and Senate to slim majorities. Miller said he was not surprised to see lawmakers clamoring for tax cuts in the session following that election.
“It made a sea change in the last election, it sure did,” he said.