This morning the House Tax Policy Committee passed several bills that would exempt the “tax on the difference” of motor vehicle and watercraft sales.

Michigan has reciprocal agreements with a number of states whereby Michigan and the reciprocal state each collect and retain sales tax on vehicles purchased in their respective state, even in instances when the vehicle will be titled and registered in the other state. For sales in Michigan of vehicles that will be registered and titled in a reciprocal state, Michigan collects the lesser amount of sales tax due calculated under Michigan law and under the law of the reciprocal state. The calculation of the sales tax due under the laws of the reciprocal state will include a trade-in allowance if provided under the reciprocal state’s law. The sales tax collected by the state of purchase will generally be used as a credit against any applicable use tax owed to the state where the vehicle will be titled. Wisconsin, Illinois, Indiana, and Ohio each provide for a trade-in allowance.

House Bill 4234 would exempt from sales tax the agreed-upon value of a motor vehicle or recreational vehicle used as partial payment for the purchase of a new or used motor vehicle or recreational vehicle if the agreed-upon value is separately stated on the invoice, bill of sale, or similar document provided to the purchaser. This exemption would begin October 1, 2013.

This would reduce sales tax revenue by $125-150 million annually and thus have an impact on Constitutional Revenue Sharing and the Comprehensive Transportation Fund.

Similarly Senate Bills 89 and 90 would have the same impact as HB 4234. The League opposed all three bills because of its significant impact on sales tax revenue and as a result local units of government.

The bills were reported from committee and will be considered by the full House.

Samantha Harkins is the Director of State Affairs for the Michigan Municipal League.  She can be reached at 517-908-0306 or email at [email protected]