See what Tom Culpepper will pay. (Tom Allen/TWP)

By Michael D. Shear
Washington Post Staff Writer
Thursday, March 19, 1998; Page B01

Finally, the car tax in Virginia is gone.

Sort of.

Responding to decades of public grumbling about the state's annual property tax on automobiles and to the promise that swept Gov. James S. Gilmore III into office, the Virginia legislature has agreed to a future without the yearly money grab from car owners.

But the simplicity of Gilmore's "No Car Tax!" pledge during the campaign has been lost somewhere along the way.

Most car owners in Northern Virginia will still pull out their checkbooks each October until 2002 -- and maybe longer if the state economy sours. And they will still pay the full tax this October, with a rebate check to come by May 1999 in the amount of their tax reduction.

The tax relief plan cobbled together by legislators and tentatively agreed to by Gilmore (R) divides drivers into three broad categories: those who own clunkers, those who drive mid-priced cars and those who have expensive eye-catchers.

The deal is most generous to the estimated 20 percent of Virginia drivers who own the clunkers -- cars valued at $1,000 or less -- whose taxes will disappear in 1998. And it's least generous to drivers of expensive cars, who will keep paying their jurisdiction's full tax rate on the value of a car over $20,000, even after the tax cut is fully enacted.

Most Virginians, though, will see the car tax gradually melt away during the next five years. By 2002, if everything goes according to plan, cars that cost less than $20,000 will become tax-free.

After some grousing about the details, Gilmore said this week that he accepts the legislature's design for his tax cut. Legislative leaders say the bill incorporating the approach will be adopted at a special session next month. Gilmore called it "a giant step" and said, "It's a done deal, I think."

For Tom Culpepper, an engineer with the Virginia Department of Transportation, it's about time.

"It would be even nicer if it was gone altogether in year one," said Culpepper, who lives in Fairfax County. "It's perhaps shaded a little different than in the campaign. But the reality is that [Gilmore] is trying to make good. I think he has to."

Culpepper owns three cars -- a 1980 Ford F100 pickup truck, a 1990 Oldsmobile Cutlass and a four-door Ford Explorer he bought in 1994. In the last three years, he has paid more than $3,000 in taxes on the vehicles.

Now his taxes will nose-dive.

The senior traffic engineer will pay only about $125 in car taxes in 2001. In 2002, he will pay nothing, as long as he doesn't buy a new car worth more than $20,000.

Culpepper said he is certain to do one thing once the car tax expires: get a new pickup truck to replace his old one, now valued at $650. He's held on to that truck in part because of the taxes he'd have to pay on a new one.

"I am keeping the thing maintained for a whole lot less than the taxes on a new one," Culpepper said.

Chris Courtney, a Washington stockbroker who lives in Fairfax County, will also benefit, although he may be paying taxes for some time to come.

The tax on the $36,000 Saab 900 Turbo convertible that he leases was $900 in 1997, and that was for only part of the year. He'll get a big break on his taxes in the remaining three years of his lease but then plans to lease a similarly expensive model. That means he'll be paying taxes on that car's value over $20,000 -- even after the tax expires for owners of less expensive cars.

Courtney said that doesn't bother him.

"I really care what's best for Virginia, not what's most convenient for me," said Courtney, 43. "If that goes to schools or transportation or whatever, that's best. That's the reality of living in Virginia."

The reality of the tax relief plan is a document filled with ifs and buts.

For example, when Northern Virginians receive their 1998 tax bills this year, some may be surprised to find there is no mention of a tax reduction. They'll pay the full amount, just like before.

What they will find, local tax officials say, is an accompanying piece of paper telling them that the state will send a rebate check for 12.5 percent of their tax by May 1999.

It won't be until October 1999 that local tax offices will change the personal property tax bill to reflect the tax reduction, which that year will be 27.5 percent. From that point on, the tax reduction will be automatic -- a projected 47.5 percent reduction in 2000, 70 percent in 2001 and 100 percent in 2002.

But those decreases are not set in stone. In any year, the reductions could be postponed if the total cost is more than 8 percent of the state's general fund.

Other details in the car-tax plan affect people who lease cars.

Most of them will get the tax break that owners receive, because most car dealers simply forward the tax bill to the customer.

But in some leases, the personal property tax is paid by the car company, with the amount built into the monthly payments. Those customers will not see any change in their payments because of the tax reduction.

There's also a catch for small-business owners, many of whom put their cars in their businesses' names or deduct most of their car-related expenses on their federal income tax returns. Because business cars aren't eligible for the tax break, their owners will keep paying the full levy.

That came as an unpleasant surprise to Rob Heltzel, a mortgage banker in Manassas, whose firm owns the gold 1996 Infinity I-30 that he drives. Last year, Heltzel paid $450 in taxes on the car, and he'll get none of Gilmore's largess.

"My business pays a ton of taxes," Heltzel said. "The way this takes it away from businesses isn't right."

Still, local tax accountants said business owners are unlikely to start switching ownership of cars en masse. That's because there are financial advantages to having a company car that can outweigh the tax relief, they said.

For Heltzel, the picture isn't all bleak. He personally owns a 1997 Ford Expedition purchased for $35,000. He paid $580.66 in October, and that was only for about half the year. Heltzel said he's eager to see his tax bill decline.

"From a personal point of view, I just don't want to pay it," Heltzel said. "My concern is, where does the revenue get made up? But what I think is, 'Go, man, go!' "

Staff writers Spencer S. Hsu and Ellen Nakashima contributed to this report.