By John P. Martin
Washingtonpost.com Staff Writer
March 18, 1998

Virginia legislators have tentatively approved Gov. James S. Gilmore III's proposal to exempt most cars and trucks from the personal property tax by 2002. Here's a primer on the long-reviled tax and the plan to end it:

Q. What is the car tax?

A. An annual tax, formally known as the Tangible Personal Property Tax, imposed primarily on personal motor vehicles registered in Virginia.

Q. How does it work?

A. Each local taxing authority sets its own assessment and rate, so the actual tax bill varies depending on where you live. Statewide, the average tax is 3.5 percent for every $100 of assessed value. So the owner of a car assessed at $5,000, the state average, pays $175 a year.

Q. When and why was it created?

A. Virginia is one of about 30 states with such a tax. The right to impose the tax is included in Article X of the commonwealth's constitution and dates back at least 50 years. It was created in part because municipalities do not have the authority to collect income or sales taxes from their residents.

Q. Why is it so controversial?

A. Because it is imposed and collected in one lump sum, often hundreds of dollars, the car tax is easier to understand and harder to accept than other taxes. Gilmore made the repeal of the tax a central issue in his 1997 bid for governor.

Q. How will the phaseout work?

A. The plan calls for municipalities to exempt up to $20,000 of a vehicle's value from the tax by 2002, with a decrease of 12.5 percent this year and 27.5 percent in 1999. Owners of vehicles worth $1,000 will be refunded for this year's tax and exempt as of 1999.

Q. How many people would be affected by the cut?

A. The owners of 4.9 million vehicles in Virginia are now subject to the tax. But after the phaseout, owners of vehicles worth more than $20,000 will still be subject to a tax.

Q. Who will the tax cut help?

A. Proponents say it should help the middle class, the group most likely to purchase cars under $20,000.

Q. Would the tax cut hurt anyone?

A.. Critics warn that it could force cuts in other state-funded programs and leave some municipalities scraping for new tax revenue. They also say the tax cut disproportionately benefits Northern Virginians over their counterparts in Southern Virginia, because incomes and property values are generally higher in the north.

Q. Will it cost the government to eliminate the tax?

A. Yes. The estimated cost to the state for the five-year phaseout is $2.76 billion . The state has promised to reimburse local governments for the lost revenue over the next five years, an amount that could be as much as $1 billion a year at the end of the phaseout.

Q. How will the state offset the lost revenue?

A. Gilmore is counting on economic growth to balance the costs of the tax cut.

Q. Will the tax cuts, or rebates, received this year be treated as taxable income?

A. Yes, for those who itemize deductions on their tax forms. For instance, a vehicle owner who received a $100 rebate from the state this year would have to pay $28 in added federal income tax and $5.75 in Virginia income tax. But for those who do not itemize deductions and therefore do not claim a credit for paying the car tax - about 70 percent of Virginia's filers - taxable incomes would not be affected.

Source: The Washington Post, Gilmore's office, Virginia Municipal League