On January 17th, 2018, the Michigan Senate and Michigan House of Representatives overrode Gov. Rick Snyder’s veto on a tax bill aimed to provide relief to Michigan taxpayers.
The issue at stake is the amount of sales tax that a Michigan resident would pay on the purchase of an automobile. The General Sales Tax Act and the Use Tax Act imposes a 6% sales tax on nonexempt personal property and services sold in Michigan. Regarding automobiles, residents were once required to pay sales tax on the full purchase price rather than on the difference between the value of the purchased item and the value of the vehicle being traded-in. Legislators heard the grumblings of their constituents that this was unfair and enacted legislation in 2013 that would impose a sales tax on the difference only.
Beginning December 15th, 2013, the tax exclusion of the sales tax on the difference was limited to either the actual agreed-upon value of the traded-in motor vehicle or a specific dollar amount, whichever is less. This specific dollar amount was initially $2,000, but this increased to $2,500 on January 1st, 2015 and to $3,000 on January 1st, 2016. Starting on January 1st, 2017 and every January 1st afterwards, this dollar amount will increase by $500.00 until it exceeds $14,000 in the year 2039.
Since this phase-in will not take full effect for almost twenty years, legislators introduced another bill to accelerate this process so the full sales tax on the difference can be realized much sooner. Under this new bill, the $500 annual increase on the specific dollar amount would apply through 2018, but then it would increase by $1,000 starting January 1st, 2019 and every January 1st afterwards. In the year that this amount exceeds $14,000 (in 2029 instead of 2039), there would no longer be a limit on the agreed-upon value of the motor vehicle used for the trade-in to calculate the sales tax on the difference.
Governor Snyder vetoed this measure in July 2017 on the basis that this accelerated tax break would cause too much strain on the state budget too soon. The passage of this bill will reduce revenue going into the State General Fund, State School Aid Fund, Michigan Transportation Fund and other revenue sharing programs with local and municipal governments. The legislature disagreed and overrode the governor’s veto to cause the full potential of the sales tax on the difference to benefit Michigan taxpayers sooner. This historic veto override is even more interesting when you consider that a Republican-controlled legislature turned on its own Republican governor.
If you have further questions on Michigan taxation, do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC today.