HB4630: SUMMARY AS PASSED BY THE SENATE (Date Completed: 7-17-14)

-- Empty weight of 0 to 4,000 pounds: $50.

-- Empty weight of over 4,000 pounds: $75.

Currently, a road tractor, truck, or truck tractor owned by a farmer and used exclusively in connection with a farming operation, or owned by a wood harvester and used exclusively in connection with the wood harvesting business, is taxed at 74 cents per 100 pounds of empty weight of the road tractor, truck, or truck trailer. Under the bill, this tax would continue to apply to a road tractor, truck, or truck tractor if it were designated by proper signs showing the entity or organization operating the vehicle.

A hearse or ambulance used exclusively by a licensed funeral director in the general conduct of the licensee's funeral business, is subject to a tax of $1.17 per 100 pounds of empty weight of the hearse or ambulance. The bill would eliminate this assessment.

The bill also would eliminate the fee schedule for commercial vehicles used for transportation of passengers for hire. These vehicles would pay either the tax rate on commercial vehicles and wreckers, or, if they met the definitions under Public Act 2 of 1960, $25.

(Public Act 2 of 1960 pertains to taxes on public transportation vehicles. Section 2 of the Act specifies that city, intercity, and suburban bus operators and public transportation operators are required to pay $25 per vehicle for each vehicle operated, instead of the specific weight taxes prescribed by the Michigan Vehicle Code. The Act defines "city, intercity, and suburban bus operator", as well as "public transportation vehicles".)

Nonprofit Registration Plates

The Code allows a $5 registration plate for a vehicle owned and operated by this State, a State institution, a municipality, a privately incorporated nonprofit volunteer fire department, or nonpublic, nonprofit college or university. The bill would remove State institutions and nonpublic, nonprofit colleges from the entities that qualify for the $5 plate, and require an eligible vehicle to be designated by proper signs showing the entity or organization operating it.

A $10 registration plate is allowed for certain categories of vehicles, such as a bus owned and operated by a nonprofit parents' transportation corporation used for school purposes; a vehicle owned and operated by a senior citizen center; a vehicle owned by the civil air patrol; and a vehicle owned and operated by a nonprofit veterans center, a nonprofit recycling center, or a nonprofit conservation organization.

The bill would include a vehicle operated by a nonpublic, nonprofit college or university or a State institution in the list of vehicles that qualify for the $10 registration plate.

Motorcycles & Mopeds

The Code requires every application for a motorcycle endorsement on an operator's or chauffeur's license for operation of motorcycles to be accompanied by a fee in addition to an original or renewal operator or chauffeur license fee. With the exception of certain fees refunded to counties or municipalities, the money received is deposited into the General Fund. In addition, $10 of each original motorcycle endorsement, and $3 for each renewal motorcycle endorsement, is deposited in the Motorcycle Safety Fund for use in the Motorcycle Safety Education Program. The bill would require money deposited in the Motorcycle Safety Fund at the close of the fiscal year to remain in that Fund, and not lapse to the General Fund.

The bill would increase the registration fees for motorcycles to $25. Of this registration fee, $5 would have to be deposited in the Motorcycle Safety Fund for use in the Motorcycle Safety and Education Program.

When a moped required to be registered under the Code is sold to a general purchaser, a certificate of registration must be obtained. The application for a certificate of registration must include a $15 fee. The bill would increase this fee to $25.

Vehicles with Model Year 1984 or Later

The Code includes a schedule of registration taxes based on the list price of motor vehicles of the 1984 model year or later, and for low-speed vehicles. For the first registration, and the first registration that follows a transfer registration, the tax is assessed based on the list price of the vehicle; for each subsequent registration, the tax is reduced to 90% of the tax assessed in the previous year until the fourth and subsequent registrations.

Under the bill, the schedule of registration taxes would apply for the first registration and for the first registration after a transfer registration. Beginning on January 1, 2016, the schedule also would apply for each subsequent registration of a vehicle that was not registered before that date. The 10% reduction per year would last until January 1, 2016. On that date, the registration tax for a vehicle with a valid registration would be the same as the most recently paid registration tax for that vehicle.

Wheelchair Vans

The Code provides that a van owned by an individual who uses a wheelchair or by an individual who transports a member of his or her household who uses a wheelchair and for which registration plates are issued under Section 803d must be assessed at 50% of the tax otherwise provided. The bill would require that the passenger motor vehicle have been modified with a permanently installed wheelchair lift mechanism. (Section 803d provides for the issuance of special registration plates to a disabled person or for a vehicle used to transport a disabled person.)

Wreckers & Other Commercial Vehicles

Under the bill, a wrecker or commercial vehicle not otherwise subject to tax under the Code would be subject to the following:

-- Empty weight of 0 to 26,000 pounds: $400.

-- Empty weight of over 26,000 pounds: $590.

Special Registration Plates

The SOS may issue a special registration to an individual or entity who in the ordinary course of business has occasion to: a) legally repossess a vehicle in which a security interest is held, or b) legally pick up or deliver a commercial motor vehicle being driven to a facility to undergo aftermarket modification, or to repair or service a vehicle. The SOS charges a service fee of $40 for the first two registration plates, and $20 for each additional plate. The bill would increase these fees to $50 and $25, respectively.

The SOS must charge a $10 fee for each special plate issued under Section 244, and must determine the number of special plates needed by a manufacturer, transporter, or dealer. The bill would require the SOS to charge $100 for the first five special plates issued to a dealer or transporter. For each subsequent plate, the SOS would have to charge a $10 fee. (Section 244 pertains to the operation of a vehicle by a manufacturer, subcomponent system producer, dealer, or transporter with a special plate.)

As currently provided under Section 803p (which the bill would repeal), the bill would allow the owner of a historic vehicle to use an authentic Michigan registration plate of the same year as the model year in which the vehicle was manufactured instead of a historic vehicle registration plate by presenting the authentic plate number and year to the SOS at the time of registration. The owner of a historic vehicle could purchase an authentic Michigan registration plate from another person and restore the plate to its authentic condition for use. An owner who applied for a historic vehicle registration plate or a registration tab or applying to use an authentic Michigan registration plate would have to pay a fee of $100, instead of the current fee of $30.

The bill would allow the SOS to issue personalized registration plates inscribed with the official amateur radio call letters of the applicant as assigned by the Federal Communications Commission, as currently allowed by Section 217a of the Code, which the bill would repeal. Section 217a requires an applicant to pay a $2 service fee. Under the bill, an applicant would have to pay the service fee for a personalized registration plate, which is $8 for the first month and $2 for each additional month of the registration period. The fee for renewing a personalized registration plate is $15.

As currently allowed by Section 217d, which the bill would repeal, a recipient of the Congressional Medal of Honor could apply to the SOS for a special registration plate inscribed with special identification numbers and the words "Congressional Medal of Honor". Section 217d requires the SOS to waive a $5 service fee that otherwise would have to be paid. Under the bill, an applicant would have to pay the $5 service fee that is charged for a special registration plate.

Operator's & Chauffeur's License Fees

An application for an operator's or chauffeur's license must be accompanied by a fee of $25 for an operator's license or $35 for a chauffeur's license. The renewal fee for an operator's license is $18. The bill would increase the renewal fee to $25.

The SOS would have to deposit $7 from each renewal fee for an operator's license into the Traffic Law Enforcement and Safety Fund. (Money deposited into that Fund may be spent to enhance enforcement of traffic laws, and to enhance the ability to provide safety on Michigan streets and highways.)

The SOS also would be required to collect a $2 fee for each duplicate chauffeur's license issued, a $2 fee for each corrected license issued, and a $1 fee for a duplicate operator's license. These fees would have to be deposited in the Traffic Law Enforcement and Safety Fund.

Late Transfer Fees & Vehicle Dealer License Fees

A dealer selling, leasing, or exchanging a vehicle required to be titled must apply to the SOS for a new title, if required, and transfer or secure registration plates and secure a certificate of registration within 15 days of delivering a vehicle to the purchaser or lessee. A dealer selling or exchanging an off-lease or buy-back vehicle is required to apply to the SOS for a new title within 15 days after if the dealer receives the certificate of title from the lessor or manufacturer, and transfer or secure registration plates and secure a certificate of registration for the vehicle in the name of the purchaser. In either case, if the dealer fails to apply for a title, and to transfer or secure registration plates within the 15 days, the dealer is subject to a late transfer fee of $15. For a used or secondhand dealer, the late transfer fee is $100.

Under the bill, late transfer fees would be deposited into the Transportation Administration Collection Fund. (That Fund is used to pay for the expense incurred by the Department of State in enforcing certain laws.)

The Code requires a new or used vehicle dealer to apply for a license and pay an application fee of $75 for a full-year license, $37.50 for a half-year license, or $75 per year for a multiple-year license. A used vehicle parts dealer, an automotive recycler, or a foreign salvage vehicle dealer license also must obtain a license and pay a fee of $160 for a full year, $80 for a half-year, or $160 per year for multiple years. These fees are deposited in the Michigan Transportation Fund. Under the bill, the fees would be deposited in the Transportation Administration Collection Fund.

Fee Sunsets & Increases

The Code allows the SOS to charge certain fees until October 1, 2015. These include a $10 application fee for a certificate of title or a duplicate certificate of title, a $5 expedited treatment fee, and a $1.50 tire disposal surcharge. The bill would eliminate the October 1, 2015, sunset for all of these fees.

Currently, the tax for a vehicle with an empty weight over 10,000 pounds is increased by a regulatory fee of $2.25, credited to the Traffic Law Enforcement and Safety Fund, and a $5.75 fee credited to the Transportation Administration Collection Fund. This increase is scheduled to sunset on October 1, 2015. The bill would remove the sunset, reduce the regulatory fee to $1, and increase the Transportation Administration Collection Fund fee to $9.

The Code allows the owner of a vehicle, whose engine, serial, or vehicle number has been altered, removed, or defaced, to apply to the SOS for a special identifying number. A $10 fee must be submitted with the application. The bill would increase this fee to $100 and require it to be deposited in the Transportation Administration Collection Fund

MCL 257.217 et al. Legislative Analyst: Jeff Mann

FISCAL IMPACT

The bill would affect the following funds: the General Fund (GF/GP), the Michigan Transportation Fund (MTF), the Transportation Administration Collection Fund (TACF), the Traffic Law Enforcement and Safety Fund (TLESF), the Scrap Tire Fund, and the Motorcycle Safety Fund (MSF). Tables 4-8 provide an overview of the bill's fiscal impact through fiscal year (FY) 2019-20 with respect to each of these funds and the related fee or tax changes.

This analysis reflects the elimination of a $20.0 million interdepartmental grant (IDG) from the MTF to the Department of State under Senate Bill 149 (S-2). (Senate Bill 149 (S-2) would eliminate a $20.0 million IDG from the MTF to the Department of State for administration and enforcement of the Michigan Vehicle Code, and is tie-barred to House Bill 4630. Prior versions of House Bill 4630 have been subject to tie bar, but 4630 (S-3) does not include any tie bar. Both bills have passed the Senate and are currently before the House. Since Senate Bill 149 (S-2) would eliminate the IDG on a calendar-year basis, this analysis assumes that the Department would receive a $5.0 million IDG from the MTF to cover October 1 through December 31 in 2015. The Senate Fiscal Agency's analysis of Senate Bill 149 (S-2) discussing interpretive issues and ambiguity within that bill's provisions.)

Sunset of Registration Rate Discount Provisions

House Bill 4630 (S-3) would establish a sunset date of January 1, 2016, on discount
registration rates currently found in Section 801(1)(p). The discount reduces the ad valorem registration tax found in Section 801(1)(p) by 10.0% based on the prior year's rate for a vehicle, and applies only to the second, third, and fourth registrations of a vehicle. The discount rate, when fully realized, currently amounts to a total of 72.9% of a vehicle's original registration rate.

The discount applies to a vehicle, not a vehicle's owner, and therefore transfers with a vehicle, so the rate for any vehicle as of January 1, 2016, would become permanent with regard to that specific vehicle, regardless of any subsequent title transfers.

The sunset would create varying rates for vehicle registrations that would depend on the year of the vehicle's first registration, as shown in Table 2.

Table 2

Proposed Elimination of Registration Rate Discount

Year of First Registration	Registration Rate as of 1/1/16 under H.B. 4630 (S-3) ("Locked in" Rate for Life of Vehicle)
2012 and Prior	72.9% (Three Years of Discount)
2013	81% (Two Years of Discount: 2014 and 2015)
2014	90% (One Year of Discount: 2015)
2015 and Later	100% (No Discount for Vehicles Initially Registered 2015 or later)

Assuming 500,000 new vehicle sales per year, at an average listing price of $30,000 per vehicle, and an average base registration rate of $153, Table 3 indicates estimated MTF revenue increases through FY 2019-20 as a result of the bill's sunset provision. Assuming a fleet turnover rate of 10 years, revenue increases as a result of this change likely would stabilize in 2026 at approximately $150.0 million.

Table 3

Effect of Eliminating Discount

Fiscal Year	Expected Additional Revenue
2015-16	$10.9 Million
2016-17	$41.5 Million
2017-18	$62.2 Million
2018-19	$82.9 Million
2019-20	$103.7 Million

Vehicle-to-Vehicle Registration Transfers

The bill would require those who transferred registrations between vehicles to pay the prorated difference, if any, between the registration rates for the two vehicles that were subject to a registration transfer. This change could generate an estimated $14.0 million for the MTF in FY 2015-16.

There are about 1.0 million vehicle registration transfers per year. Assuming 500,000 registration transfers for new vehicles per year and an average vehicle price of $30,000, and based on a six-month proration period, each new vehicle transfer would result in an average fee difference of approximately $20. This difference is largely due to the 10% discount provided for under current law for the second through the fourth years of registration: a four-year-old vehicle that was originally listed at $30,000 costs nearly 30% less to register than a new vehicle listed at $30,000. Of the other 500,000 transfers, which would be from one used vehicle to another used vehicle, and presumably between vehicles that have reached the discount rate ceiling, it is assumed that the difference would average $5 per transfer.

Since the bill would eliminate the discount rate for subsequent registrations (discussed above), any gains as a result of charging the difference in registration rates would significantly decrease over time. After the fleet turned over in approximately 10 years, any revenue generated due to the difference in registration rates generally would be limited to increases in the average vehicle price. As a result, by 2026, any revenue generated due to this provision would be nominal.

Increasing Registration Tax for Pre-1984 Vehicles

Currently, vehicles produced before 1984 are subject to a registration tax according to vehicle weight. The fees range from $29 for a vehicle weighing up to 3,000 pounds to $0.90 per 100 pounds for a vehicle weighing over 10,000 pounds. Including the rate for vehicles over 10,000 pounds, there are 16 weight classes. Under the bill, there would be only two weight classes and two rates: vehicles up to 4,000 pounds would be taxed at $50, and vehicles over 4,000 pounds would be taxed at $75.

While this increase would generate additional revenue, it should be noted that the number of these registrations likely will substantially reduce over time, so any gains due to the fee change would eventually phase out.

It is possible that the bill's provisions regarding prorating the registration difference on vehicle-to-vehicle transfers could substantially reduce the revenue that is predicted due to this change. In short, owners of older vehicles can avoid paying the full registration tax on new vehicles by transferring vehicle registrations back and forth between pre-1984 vehicles and newer vehicles. The bill's requirement to pay the difference in registration fees would remove any incentive for these transfers.

Currently, a vehicle owner may register a pre-1984 vehicle for as little as $29, and immediately then transfer that registration to another vehicle, presumably one that is newer and carries a much higher registration fee, for the transfer fee of $8. According to the Department of State, this is an issue, but it is unknown how many of the 60,000 registrations of pre-1984 vehicles account for this type of activity. Any impact of this practice with regard to revenue estimates would be limited to the extent to which this practice occurs.

On the other hand, revenue from post-1984 passenger car registrations would increase to the extent this "loophole" is practiced by vehicle owners, as those owners effectively would be forced to pay the full registration for their newer vehicles by the proposed provisions regarding transfers.

For example, the tax on the lowest class of pre-1984 vehicles is $29, while the tax on a new vehicle with a list price of $30,000 is $153. Under the bill, there would be an increase in registration taxes collected for passenger vehicles corresponding to the number of these transactions.

Issues of Interpretation

The bill would increase the cost of a dealer's first five plates, but there appears to be some ambiguity in its provisions. For purposes of this analysis, and based on communications with the Department of State regarding its interpretation of this provision, it is assumed that each of the first five plates would cost $100.

The bill states, "The secretary of state shall charge a $100.00 fee for the first 5 special plates issued to a dealer or a transporter under section 244. For a sixth and each additional special plate…the secretary of state shall charge a $10.00 fee." Arguably, the $100 fee could apply to all five plates, effectively resulting in fees of $20 per plate ($100 divided by five).

For purposes of this analysis, it is assumed that these potential issues of interpretation would not affect the fiscal impact of the bill. However, they should be considered, as they could significantly affect expected revenue increases.

It is unclear when many of the changes under the bill would take effect. While it would be effective as of January 1, 2015, the bill would require the Department of State to implement the changes no later than January 1, 2016. Therefore, it is unclear as to what date these changes would be implemented. This analysis assumes an implementation date of January 1, 2016, with regard to changes in fee amounts. To the extent that the Department implemented changes before January 1, 2016, FY 2015-16 revenue would be affected accordingly.

With regard to the elimination of the sunsets on the direction of various fees to the TACF, this analysis assumes that these fees would continue to be directed to the TACF without interruption.

It is possible that the provisions regarding charging the difference on vehicle-to-vehicle registration transfers could generate no additional revenue. Notably, Section 809(2) already appears to require those who transfer registration to pay the difference in transfer fees, but includes no proration with regard the difference. Read alone, under Section 809(2), a person transferring registration between vehicles must pay the entire difference in registration tax, regardless of when the transfer occurs. However, Section 801(1)(p) expressly exempts Section 809 from the Section 801(1)(p) registration tax rates. Rates under Section 801(1)(p) currently apply to "the first registration that is not a transfer under section 809" (emphasis added). The Department of State has interpreted these two sections to mean that there is no applicable registration tax for a transfer under Section 809, since such a transfer is exempt from Section 801(1)(i) rates. Therefore, according to that interpretation, there is no difference to charge for a registration transfer under Section 809. As a result, Section 809(2) has been rendered functionally ineffective, and the Secretary of State collects a transfer fee of $8 only as prescribed under Section 809, and does not enforce Section 809(2).

The bill would modify Section 801(1)(p), renumbered as Section 801(1)(i), to apply to the first registration after a transfer of registration under Section 809. This could potentially result in the same "loophole" that renders current Section 809(2) ineffective. Since 801(1)(i) would apply to the first registration after a transfer, the rates under Section 801(1)(i) would not apply to the initial transfer of registration, but only to subsequent registrations. In that case, there again would be no difference to calculate, and the result would be a total of $8 in fees for each transfer.

Another potential interpretive problem with Section 809(1)(i) lies within the following provision that purports to set the basis for calculating the prorated difference: "In addition to the fee of $8.00, if the 12-month registration fee for the vehicle to which the registration is transferred, for the remainder of the 12-month registration period for the vehicle…" (emphasis added). Registrations are not always for 12-month periods, as Section 226 allows for six- to 18-month registration periods, depending on the vehicle owner's birthday. It is