Losing the 'No Car Tax' Promise
Bills to Rise for Many Under New Formula

By Brigid Schulte
Washington Post Staff Writer
Thursday, July 20, 2006

Come October when personal property tax bills arrive in the mail, about half the vehicle owners in Arlington County are likely to have a big question: Whatever happened to Virginia's "no car tax" promise?

Their car tax bills will be going up. In some cases, way up. Tax bills will more than double for those who own cars valued at $20,000, from $251 last year to $510.

The reason for the increase is complicated, involving state budget politics, Arlington's bid to keep wages competitive and the County Board's desire to promote progressive policies that ease the tax burden on lower-income residents.

Those residents will see some relief. Other Northern Virginia jurisdictions exempt owners of vehicles valued at $1,000 or less from the car tax. Last week, the Arlington County Board voted to change the county's formula to make its exemption apply to vehicles valued at up to $3,000.

The exemption means that 34 percent of Arlington's car owners will pay nothing in car taxes. Everybody else will pay about the same as last year or more. County officials said the breaking point between those who pay more and those who pay less is a car valued at about $5,000.

"We're trying to apply an equity principle to taxation. The basic principle is, how much you pay in taxes should be related to your ability to pay," said County Board Chairman Chris Zimmerman (D). "There's an unmistakable correlation between the value of automobiles and people's ability to pay. Granted, it's not perfect. But people of lower income generally aren't driving around in $30,000 sports cars."

People driving those high-end cars will pay $1,500 in car taxes this year, $180 more than last year.

The increases are a result of two factors: The County Board voted to raise the personal property tax rate from 4.4 percent per $100 of assessed value to 5 percent. Arlington is the only Northern Virginia jurisdiction to have raised its rate.

The other reason is the county's newly adopted car tax formula.

The board voted to increase the personal property tax rate not just because of increasing costs within the county government, but also because of decisions made by the General Assembly.

In 1998, state legislators passed a wildly popular bill to gradually roll back the tax on cars valued at $20,000 or less until the levy was eliminated. Prior to that, all car owners in Virginia paid 100 percent of their often steep tax bills, which are due every October. The money went to local governments to help fund their budgets.

By 2001, owners of cars valued at $20,000 or less were paying 30 percent of their tax bills. The state was reimbursing local governments the remaining 70 percent -- which was taking a big bite out of the state budget. So last year, state lawmakers voted to freeze the reimbursement at the 2004 level, or $950 million. They left it up to local legislators to decide how to distribute the money to vehicle owners.

The reimbursement freeze has cost fast-growing counties such as Loudoun and Prince William, but has had little impact on slower growing jurisdictions such as Arlington. County officials estimate that the fixed $31.3 million it receives annually from the state still covers about 68 percent of the tax. The new formula actually brings the state share back to about 70 percent, officials said.

But for many Arlington car owners who have been picking up 30 percent of the tax in recent years, the formula increases their share. For example, the owner of a vehicle valued at $10,000 will now pay 42 percent of the tax, or $210 a year, up from $132. Owners of more expensive cars will pay 50 percent of the tax.

"This was supposed to be a tax that nobody liked, and we were supposed to be getting rid of it. In Arlington, it's going the other direction," said Wayne Kubicki, a Republican who until last week was a member of the county's Fiscal Affairs Advisory Commission.

Kubicki criticized the new formula, as well as the increases, and blamed them on the board's unwillingness to cut spending, which increased by 9 percent in the new budget.

"In an $800 million budget, there had to be someplace where at least some of it could have been offset," he said.

Zimmerman countered that some of the increases were necessary, including an infusion of $8 million to keep the wages of public safety workers competitive with the rest of the region. Without that raise, he said, the county was in danger of being last in what it offered public servants. In addition, he said, cuts in federal funds for programs for low-income residents left the county in a tough spot.

"The County Board chose to mitigate instead of ignore," he said. "Look, the cost of gasoline has gone up. The cost of food has gone up. And the cost of government has gone up, too."