"SALES TAX ON THE DIFFERENCE"

Senate Bill 127 (Substitute S-5)

Sponsor: Sen. Dave Robertson

Senate Committee: Finance

House Committee: Tax Policy

Complete to 11-19-12

A SUMMARY OF SENATE BILL 127 AS PASSED BY THE SENATE 5-16-12

The bill would amend the General Sales Tax (at MCL 205.51) so that sales tax would be charged on the difference between the price of a new or used motor vehicle or a new or used titled watercraft and the agreed-upon value of any trade-in. The bills would apply to retail sales that take place after June 30, 2012.

Specifically, the bills would exclude from sales taxes the agreed-upon value of a motor vehicle used as part payment of the purchase price of a new or used motor vehicle or the agreed-upon value of a titled watercraft used as part payment of the purchase price of a new or used titled watercraft, if the agreed-upon value is separately stated on the invoice, bill of sale, or similar document given to the purchaser. Under the bill, the agreed-upon value of a motor vehicle used as part payment would be limited as follows:

o                   In 2012 (after June 30), $2,500

o                   In 2013, $5,000

o                   In 2014, $7,500

o                   In 2015, $10,000

o                   In 2016, $12,500

o                   In 2017, $15,000

o                   In 2018 and subsequent year, no limitation

FISCAL IMPACT:

The fiscal impact primarily depends on the level of new and used vehicle sales by dealers and the number of vehicle trade-ins.  On a full fiscal year basis, this bill, if accompanied by a companion use tax bill, would reduce sales and use tax revenue by an estimated $90 million in FY 2012-13$59 million for the School Aid Fund, $17 million for the General Fund/General Purpose, $11 million for constitutional revenue sharing, and $3 million for Comprehensive Transportation Fund.  As the trade-in-value approaches no limit, the fiscal impact would increase to approximately $225 million on an annual basis.

Legislative Analyst: Chris Couch

Fiscal Analyst: Rebecca Ross

This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.