Bolling: Whatever Happened to ‘No Car Tax’

My recent post referencing receipt of my annual personal property tax (a.k.a. car tax) bill hit a chord. Several of you wrote back asking: Whatever happened to Governor Jim Gilmore’s effort to eliminate the car tax? Good question, so here’s the back story as I recall it.

In 1997, former Attorney General Jim Gilmore was running for Governor of Virginia against Lieutenant Governor Don Beyer. It was a competitive campaign until the fall of 1997, when Gilmore proposed eliminating the personal property tax on cars and trucks. No Car Tax signs and bumper stickers could be seen everywhere. Everyone hated the “car tax,” and this proposal carried Gilmore to an easy victory in November of 1997.

In 1998, Governor Gilmore carried through on his campaign promise and proposed eliminating the car tax. Localities objected to this proposal, arguing that the car tax was a significant source of revenue for local governments and they could not afford to lose this important revenue source.

This was a legitimate concern, so Governor Gilmore proposed phasing the car tax out over a five year period and using state revenues to reimburse local governments for the money they lost because of the elimination of the tax.

Unfortunately, the “cost” of fully eliminating the car tax ended up being more significant than initially anticipated, so in 2001 the General Assembly paused the car tax phase out at 70 percent, and capped annual payments to localities at $950 million per year.

The state continued to reimburse localities for the 70 percent share of the car tax that had been eliminated, but localities remained free to bill citizens for the remaining 30 percent of the annual tax.

Since then, the state has continued to transfer its portion of the car tax phase-out program to local governments, but the 70 percent share has declined as vehicle values, local tax rates, etc., have increased.

So, we continue to receive an annual “car tax” bill from local governments, but it is not the full tax that would have been imposed had it not been for Gilmore’s efforts. In other words, the state is subsidizing a portion of our annual car tax payment, but we still must pay the balance.

And now, as Paul Harvey used to say, you know the “rest of the story.”

If you want to learn more about this issue, here’s a good article from The Tax Foundation in 2015 that also talks about the history of the car tax in Virginia: Jim Gilmore’s Car Tax Repeal Plan, 18 Years Later (2015).

DISCLAIMER: This is my recollection of events from 20+ years ago. I think it is fairly accurate, but I invite corrections if anyone has a different recollection.