Proposal 1 would make changes to three different types of vehicle registration fees. The tax structure for these fees is complex, with assessment based on, according to the House Fiscal Agency, “vehicle model year, the list price of the vehicle, the weight of the vehicle, the use of the vehicle, and, in some cases, some characteristic of the vehicle owner.”[50]
The proposed change that will affect the most taxpayers concerns registration fees for passenger vehicles.[*] Currently, fees are assessed based on the initial list price of a vehicle. Fees are then reduced for the first, second and third renewals, loosely mimicking a depreciation-based fee structure. Fees are then frozen at the third renewal level over the life of the vehicle.
Proposal 1 would phase out discounts on passenger vehicles starting Jan. 1, 2016. Passenger vehicles with model years of 2013 and older would be allowed to keep any discounts applied to their annual registration taxes. It is unclear what would happen to 2014 and 2015 model year vehicles based on the language in the proposal. They may be eligible for a discounted rate for the life of the vehicle, but may also later revert to their initial registration rates. All 2016 model passenger vehicles and newer would receive no discounts.[†]
Because this would only affect owners of newer vehicles, this provision is only expected to raise $10.9 million in fiscal year 2016. The state estimates that this will increase to $150 million by 2026.[51]
Patrick Anderson of the Anderson Economic Group observes that this loss of discounting could eliminate taxpayers’ ability to deduct these fees from their federal taxes. He estimates that this could cost Michigan residents an extra $102 million in federal taxes.[52]
The second change to vehicle registration fees would be an increase for heavy commercial trucks. For trucks that weigh more than 26,000 pounds, fees would be increased based on a sliding scale. Vehicles are tiered by weight and each weight class above 26,000 pounds would face registration fee hikes between 9 percent and 12.1 percent.[53]
The third change to registration fees offered by Proposal 1 would create higher registration fees for electric vehicles and electric-powered hybrids. Owners of these vehicles would pay an additional $75 on their annual registration fees for vehicles under 8,000 pounds and $200 more for vehicles over 8,000 pounds. This applies to vehicles that are “of a brand or has been modified to be powered solely or predominately by electricity under normal average class operating conditions.”[54]
[*] Although vehicles that are older than 1984 will be unchanged by this proposal.
[†] Vehicles with model years 2014 and 2015 do not get locked into their current rates as do older vehicles. There are special rules for discounted registration for these two model years in the proposed statute, but it is unknown whether these discounts would actually apply or remain in effect for the life of the vehicle. “Public Act 470 of 2014” (State of Michigan, Jan. 12, 2015), sec. 801(1)(p), http://perma.cc/QK7W-XD55 (accessed March 17, 2015).