Sales tax exemption increase on used cars proposed

SPRINGDALE -- The first $20,000 on the purchase of a used car would be exempt from sales tax under a proposal supporters hope to put on the Nov. 3 ballot.

Under state law, the tax applies to any used passenger vehicle costing $4,000 or more. The state sales tax of 6.5% plus any local sales taxes is due on the whole amount of a car costing $4,000 or more. A car costing less than $4,000 is exempt.

"You are very, very lucky if you can buy a good, reliable car for $4,000," said Eric Harris of Springdale, the treasurer and a founder of Arkansans for Reduced Car Sales Taxes. This newly formed committee seeks to get the measure on the ballot by petition as an initiated act. Harris is a former state representative who was a member of the House Revenue and Taxation Committee.

The proposal would also raise that $20,000 figure each year by the increase in the federal Consumer Price Index.

The sales tax on used cars hits lower income car buyers the hardest, said Harris, who formerly owned a dry cleaning business.

"I'd have employees who'd have a transmission go out," he said. "They faced the choice of putting another $2,000 into a car they should replace or buy a reliable car, and that would cost more than $4,000."

There is support for raising the sales tax exemption in the Legislature, Harris and fellow initiated act supporter Rep. Laurie Rushing, R-Hot Springs, said Friday. The big obstacle is the cut such an exemption would mean in state tax collection.

"When you're elected to the Legislature, the budget becomes your first priority," Harris said.

He said any tax cut draws a counter-argument: How are you going to replace the lost revenue? What service will be cut?

"Also, legislators who want to cut taxes have different priorities of which tax they want to cut," he said. "This takes it out of their hands," he said of the proposed initiated act.

House Bill 1342 of 2019 to raise the exemption passed the House with 84 out of 100 votes in the last regular legislative session. That bill by Rep. John Payton, R-Wilburn, would have raised the sales tax exemption to $7,500 in the bill's final form. The bill died in Senate committee, largely because the measure would have cost an estimated $14 million annually in state tax collection.

The state Department of Finance and Administration has no estimate of the tax revenue loss of such a proposal, the department said Friday. The agency estimates the state would collect $22.6 million more in general revenue if the current $4,000 threshold wasn't in effect, according to the statement.

Both Harris and Rushing said Friday much of the expected lost revenue would be made up by sales taxes on other purchases.

"The money saved on this exemption on cars isn't just going to go in a barrel somewhere," Harris said. "People are going to spend it on other things that are taxed."

This is especially true in the case of people who are stretched to buy an affordable, reliable car, he said.

The Arkansas Automobile Dealers Association has no position on the just-hatched proposal, said President Greg Kirkpatrick. Members haveno't had time to consider it, he said. In the Legislature, the group is mindful of the impact on revenue for the state, he said.

Kirkpatrick confirmed some increase in the exemption is already showing strong support among legislators planning for the next session.

NW News on 02/22/2020

CORRECTION: A previous version of this story misstated the price threshold for sales tax applied to used passenger vehicles.