Senate Bill 90 (Substitute S-1 as reported)
Senate Bills 89 (S-1) and 90 (S-1) would amend the General Sales Tax Act and the Use Tax Act, respectively, to exclude from taxation the value of a trade-in on a new or used motor vehicle or titled watercraft, or a recreational vehicle (RV), subject to a phase-in on the value of the trade-in vehicle or RV between 2014 and 2022.
The General Sales Tax Act and the Use Tax Act impose a tax of 6% on the sales price or purchase price of nonexempt personal property and services. The Acts' definitions of "sales price" and "purchase price" include credit for any trade-in.
Under the bills, beginning June 1, 2013, "sales price" and "purchase price" would not include the agreed-upon value of a motor vehicle or RV used as part payment of the purchase price of a new motor vehicle or used motor vehicle or RV, or the agreed-upon value of a titled watercraft used as part payment of a new or used titled watercraft, if the agreed-upon value were separately stated on the invoice, bill of sale, or similar document given to the purchaser.
The agreed-upon value of a motor vehicle or RV used as part payment would be limited to 10% between June 1, 2013, and December 31, 2013. The value would increase to 20% in 2014 and increase in 10-percentage-point increments each year until it reached 90% in 2021. There would be no limit in 2022 and subsequent years.
205.92 (S.B. 90)
Based on the level of vehicle sales forecast for FY 2012-13, the bills would reduce State sales and use tax revenue by approximately $5.7 million in FY 2012-13, lowering revenue to the School Aid Fund, the General Fund, and the Comprehensive Transportation Fund, as well as constitutional revenue sharing to local units of government.
In FY 2013-14, the first full year the bills would be effective, they would reduce State sales and use tax revenue by approximately $45.3 million. The bills would lower revenue to the School Aid Fund by approximately $33.3 million, the General Fund by $3.1 million, the Comprehensive Transportation Fund by $2.1 million, and local units of government (through constitutional revenue sharing) by $6.8 million. The revenue loss under the bills would grow roughly $45.3 million per year, eventually reaching in $226.7 million in FY 2021-23 and lowering School Aid
Fund revenue by $166.6 million, General Fund revenue by $15.4 million, Comprehensive Transportation Fund revenue by $10.6 million, and constitutional revenue sharing to cities, villages, and townships by $34.1 million. The estimate further assumes that the reduced tax liability compared with current law would affect either the number and/or value of vehicles purchased. To the extent that vehicle prices and/or sales increase in later years from FY 2012-13 levels, the revenue loss would be larger.
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.